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. These metrics are presented assuming full conversion of limited partnership units to common shares and therefore before the income statement impact of non-controlling interests. 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.
FFO, AFFO and Adjusted EBITDA are non-GAAP financial measures that are considered supplemental measures 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, bond premiums and original issuance discounts, other depreciation, amortization of land rights, straight-line rent adjustments, direct financing lease adjustments,gains or (losses) on sales of operations, net of tax, losses on debt extinguishment, retirement costs and goodwill and loan impairment charges,provision for credit losses, net reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, taxes onnet, income tax expense, depreciation, (gains) or losses from sales of property, gains on sales of operations, net of tax, stock based compensation expense, straight-line rent adjustments, direct financing lease adjustments, amortization of land rights, losses on debt extinguishment, retirement costs and goodwill and loan impairment charges.provision for credit losses, net.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP financial measures: (i) do not represent cash flows 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 flows as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund 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, 20192021 and 20182020 is as follows:
Table of the lessor, are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02 on January 1, 2019, we are no longer required to gross-up our financial statements for real estate taxes paid directly to third-parties by our tenants.Contents
Land rights and ground lease expense
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 increased by $14.1$8.3 million, or 49.7%28.7%, for the year ended December 31, 2019,2021, as compared to the year ended December 31, 2018,2020, primarily from higher ground lease rents paid by our tenants in 2021 of $4.7 million that are primarily based on the facilities' revenues which increased due to our acquisitionthe impact of rights to six long-term ground leasesCOVID-19 in connection with the Tropicana Acquisition, as well as accelerated land rights amortization expense related to the closure of the Resorts Casino Tunica property by our tenant2020 that resulted in the second quarter of 2019. In connection with the Tropicana 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 term of the leases, including renewal options. We also record rent expense related to these ground leases with offsetting revenue recorded within the consolidated statements of income as we have concluded that as the lessee we are the primary obligor under the ground leases.temporary casino closures. 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. The Company also had higher land right amortization expense of $3.6 million due to the June 3, 2021 acquisition of Tropicana Evansville.
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. General and administrative expenses decreased by $5.7$7.3 million, or 7.9%10.7%, for the year ended December 31, 2019,2021, as compared to the year ended December 31, 2018,2020. This is primarily attributable to the negative impact from severance and stock acceleration charges of $6.3 million, related to the departure of our former chief financial officer as well as lower costs at our TRS Properties of $2.3 million primarily due to the absencesale of retirement costs (related to the retirementoperations of our former Chief Financial Officer in 2018),Hollywood Casino Perryville effective July 1, 2021, partially offset by higher stock-based compensation chargesbonus accruals in the current year.
Gains and losses from dispositions of property
For the year ended December 31, 2021, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge which resulted in a combined pre-tax gain of $22.4 million. See Note 1 to the Consolidated Financial Statements for further information. 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 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.
Depreciation expense
Depreciation expense increased by $103.3$5.5 million, or 75.4%2.4%, to $240.4$236.4 million for the year ended December 31, 20192021 as compared to the year ended December 31, 2018,2020, primarily resulting from the addition of the Tropicana and Plainridge Park real estate assets to our portfolio, 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 and the acceleration of depreciation related to the closure of the Resorts Casino Tunica property by our tenant in the second quarter of 2019.
Loan 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, the 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 thatCompany's acquisitions over the operations were to be sold in the near termpast year.
Provision for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.credit losses,net
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. Thus, because the Company did not expect Casino Queen to be able to repay the $13.0 million of principal due to it under the Casino Queen Loan, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the consolidated statement of income forFor the year ended December 31, 2019 to reflect2021, the write-offCompany recorded a $12.2 million provision for credit losses on the Maryland Live! Lease which represented the Company's best estimate of losses over the
Casino Queen Loan. Additionally, at December 31, 2019, all lease payments due from Casino Queen remain current, however Casino Queen was in violation life of the rent coverage ratio requiredlease under its lease withASC 326 "Credit Losses". See Note 2 to the Consolidated Financial Statements, Allowance for Credit Losses, for further discussion. Additionally, the Company and the Company provided notice andrecorded a reservation of rights to Casino Queen and its secured lenders of such default.
Goodwill impairment charges
During$4 million recovery during the year ended December 31, 2018, the Company recorded2021 for a goodwill impairment chargepayment received from Casino Queen in full satisfaction 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 valueloan 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.previously fully impaired.
Other income (expenses)
Other income (expenses) for the years ended December 31, 20192021 and 20182020 were as follows (in thousands):
| | | | Year Ended December 31, | | | | Percentage | | | Year Ended December 31, | | | | Percentage |
| | 2019 | | 2018 | | Variance | | Variance | | 2021 | | 2020 | | Variance | | Variance |
Interest expense | | $ | (301,520 | ) | | $ | (247,684 | ) | | $ | (53,836 | ) | | 21.7 | % | Interest expense | | $ | (283,037) | | | $ | (282,142) | | | $ | (895) | | | 0.3 | % |
Interest income | | 756 |
| | 1,827 |
| | (1,071 | ) | | (58.6 | )% | Interest income | | 197 | | | 569 | | | (372) | | | (65.4) | % |
Insurance gain | | Insurance gain | | 3,500 | | | — | | | 3,500 | | | N/M |
Losses on debt extinguishment | | (21,014 | ) | | (3,473 | ) | | (17,541 | ) | | 505.1 | % | Losses on debt extinguishment | | — | | | (18,113) | | | 18,113 | | | (100.0) | % |
Total other expenses | | $ | (321,778 | ) | | $ | (249,330 | ) | | $ | (72,448 | ) | | 29.1 | % | Total other expenses | | $ | (279,340) | | | $ | (299,686) | | | $ | 20,346 | | | (6.8) | % |
Interest expense
Insurance gain
For the year ended December 31, 2019, interest expense related to our fixed and variable rate borrowings was $301.52021, the Company recognized insurance gains of $3.5 million as compared to $247.7 million in the year ended December 31, 2018. Interest expense increased primarily due to the issuance of an aggregate $2.1 billion of new senior unsecured notes during May and September 2018 and to a lesser extent the issuance of $400 million of 3.35% senior unsecured notes due 2024 and $700 million of 4.00% senior unsecured notes due 2030 during the third quarter of 2019. These increases were partially offset by decreases in interest expenseinsurance claim related to the terminationtemporary closures of the Term Loan A facility, partial repayment of our Term Loan A-1 facility, repayments of borrowing under our revolving credit facilityHollywood Casino Perryville and the 2018 and 2019 Tender Offers (as defined below). The proceeds from the issuance of the senior unsecured notes issuedHollywood Casino Baton Rouge in September 2018 were used2020 related to finance the Tropicana Transactions, to purchase Plainridge Park and to fund the Belterra Park Loan, while the proceeds from the unsecured notes issued in 2019 were used to finance the 2019 Tender Offer, repay borrowings under our revolving credit facility and repay a portion of outstanding borrowings under our Term Loan A-1 facility. The 2019 issuances and tender offer were part of our efforts to reduce our borrowing costs and lengthen our average debt maturity.COVID-19.
Losses on debt extinguishment
On September 12, 2019,In the first quarter of 2020, the Company completed a cash tender offer (the "2019 Tender Offer") to purchase its $1,000redeemed all $215.2 million aggregate principal amount of the Company's outstanding 4.875% Senior Unsecured Notessenior unsecured notes due in November 2020 (the "2020 Notes").and all $400 million aggregate principal amount of the Company's outstanding 4.375% senior unsecured notes due in April 2021, resulting in the retirement of such senior notes. The Company received early tenders from the holders of approximately $782.6 million in aggregate principal of the 2020 Notes, or approximately 78% of its outstanding 2020 Notes, in connection with the 2019 Tender Offer at a price of 102.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. Subsequent to the early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes were tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded
a loss losses on the early extinguishment of debt related to the 2019 Tender Offer,current year retirements of approximately $21.0 million, for the difference between the reaquisition price of the tendered 2020 Notes and their net carrying value.
On May 21, 2018, the Company entered into the second amendment to its senior unsecured credit facility (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. 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 "2018 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 2018 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 the 2018 Tender Offer of approximately $2.5 million for the difference between the reaquisition price of the tendered 2018 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
Our income tax expense decreased $0.2$18.1 million for the year ended December 31, 20192020 primarily for call premium charges and debt issuance write-offs.
Taxes
Our income tax expense increased $24.5 million for the year ended December 31, 2021 as compared to the year ended December 31, 2018.2020. During the year ended December 31, 2019,2021, we had income tax expense of approximately $4.8$28.3 million, compared to income tax expense of $5.0$3.9 million during the year ended December 31, 2018.2020. Our income tax expense is primarily driven from the operations of the TRS Properties,Segment, which are taxed at the corporate rate. Our effective tax rate (income taxes as a percentage of income before income taxes) was 1.2%5.0% and 1.4%0.8% for the years ended December 31, 20192021 and 2018,2020, respectively. The current year sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as deferred tax write off related to the sale of Hollywood Casino Baton Rouge resulted in a $18.9 million increase to income tax expense in 2021.
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 $750.3$803.8 million and $654.4$428.1 million during the years ended December 31, 20192021 and 2018,2020, respectively. The increase in net cash provided by operating activities of $95.9$375.7 million for the year ended December 31, 20192021 as compared to the prior year ended December 31, 2018 was primarily comprised ofdue to an increase in cash receipts from customers/tenants and customers of $151.0$388.2 million, and a decrease in cash paid to employees of $3.3$9.6 million and a decrease in cash paid for operating expenses of $2.5 million, partially offset by increasesan increase in cash paid for interest and operating expensestaxes of $44.8$14.1 million and $6.4 million, respectively.an increase in interest payments of $12.4 million. The increase in cash receipts collected from our customerstenants and tenants for the year ended December 31, 2019 as compared to the year ended December 31, 2018customers was primarily due to $337.5 million in non-cash rent recognized in connection with the Tropicana TransactionsLas Vegas and Morgantown transactions in 2020, higher rental income from the Bally's Master Lease, the Perryville Lease, the Morgantown Lease, and the Penn-Pinnacle Merger bothCasino Queen Master Lease, and higher percentage rent on the Penn Master Lease due to strong results at Hollywood Casino Columbus and Hollywood Casino Toledo (which were closed for part of which occurred in2020 due to COVID-19), along with the fourth quarterstrong reopenings of 2018, partially offset by a decrease in our TRS Properties' revenues.Properties, which were forced to close in mid-March 2020 due to the impact of COVID-19. These properties reopened in May 2020 and June 2020 as previously discussed. The reduction in cash paid to employees was primarily due to lower bonus payouts in 2021 related to 2020 performance that was negatively impacted by COVID-19 as well as the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and the sale of Hollywood Casino Baton Rouge on December 17, 2021. The increase in cashtaxes paid for interest was relateddue to the Company's September 2018 borrowings which were usedsale of Hollywood Casino Perryville and Hollywood Casino Baton Rouge and strong results at the TRS Properties prior to fund the Tropicana Transactions,sales. The increase in interest payments is due primarily from the acquisition$700 million 4.000% senior unsecured note offering that was completed in June and August of Plainridge Park and the Belterra Park Loan.2020.
Investing activities used net cash of $2.8$1,030.8 million and $1,509.8$9.5 million during the years ended December 31, 20192021 and 2018,2020, respectively. Net cash used in investing activities during the year ended December 31, 2019 primarily2021 consisted of $487.5 million for the acquisition of real estate assets in the Bally's acquisitions and $592.2 million for the acquisition of the real estate assets of Maryland Live! which was accounted for as an investment in lease, financing receivable. The Company also incurred capital expenditures of $3.0$16.2 million, partially offset by the net proceeds received for the sale of the operations of Hollywood Casino Perryville to Penn of $30.8 million, proceeds from salesthe sale of the operations of Hollywood Casino Baton Rouge to Casino Queen of $28.2 million, a loan loss recovery of $4.0 million, and proceeds from the sale of property and equipment of $0.2$2.1 million. Net cash used in investing activities during the year ended December 31, 20182020 primarily consisted of cash paymentscapital expenditures of $1,243.5$3.1 million and $5.9 million for the acquisition of real estate assets primarily related to the acquisitionEvansville swap transaction.
Table of five Tropicana properties and Plainridge Park and $304 million of cash paid for the origination of real estate 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.Contents
Financing activities used net cash of $746.4 million during the year ended December 31, 2019 and provided net cash of $852.1$443.1 million and $63.2 million during the yearyears ended December 31, 2018. Net cash used in financing activities for the year ended December 31, 2019 was driven by repayments of long-term debt of $1,477.9 million, dividend payments of $589.1 million, $18.9 million of premium2021 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, net of stock 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. During the year ended December 31, 2019, the Company issued $1,100.0 million par value in new senior unsecured notes, completed a cash tender for a portion of our 2020, Notes, partially repaid borrowings under our Term Loan A-1 and revolving credit facilities and launched a $600 million ATM Program.
respectively. Net cash provided by financing activities for the year ended December 31, 20182021 was driven by $795.0 million of proceeds from the issuance of long-term debt and $662.3 million of $2,593.4net proceeds from the issuance of common stock, partially offset by the repayment of long term debt of $363.4 million relating to the Maryland Live! transaction, dividend payments of $633.9 million and proceeds from stock option exercises, net of taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $7.5 million, partially offset by dividend payments of $550.4 million, repayments of long-term debt of $1,164.1 million, financing costs of $32.4 million and $1.9 million of premium and related costs paid on the tender of senior unsecured notes.$9.9 million. During the year ended December 31, 2018,2020, the Company issued $2,100.0raised $2,076.4 million par value of new senior unsecured notes, completed a tenderproceeds from the issuance of long term debt and redemption$320.9 million of net proceeds from the 2018 Notes, repaid a portionissuance of the Term Loan A-1 facilitycommon stock. This was partially offset by repayments of long-term debt of $2,076.6 million, dividend payments of $230.5 million and extinguished the Term Loan A facility.taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $15.3 million.
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, 20192021 and 20182020 we spent approximately $3.0$2.3 million and $4.3$3.1 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. However, during 2021, $5.2 million was incurred on capital project expenditures related to a landside development project at Hollywood Casino Baton Rouge and $8.7 million was incurred on capital project expenditures related to an expansion at Casino Queen.
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 $449 million Term Loan A-1 facility. facility with a maturity date of April 28, 2021.
The revolving creditCompany 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 matures onborrowings to 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 an issue price equal to 98.827% of the principal amount. 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 at an issue price equal to 103.824% of the principal amount. 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.
At December 31, 2019,2021, the Amended Credit Facility had a gross outstanding balance of $495$424.0 million, consisting of the $449$424.0 million Term Loan A-1 facility and $46 million of borrowingsA-2 facility. No amounts were outstanding under the revolving credit facility.Revolver. Additionally, at December 31, 2019,2021, 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 $1,128.6$1,174.6 million of available borrowing capacity under the revolving credit facility as of December 31, 2019.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, 2019,2021, 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, 2019,2021, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Amended Credit Facility prior to maturity 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. 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, 2019,2021, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
At December 31, 2019,2021, the Company had an outstanding balance of $5,290.2$6,175.0 million of senior unsecured notes (the "Senior Notes").
On December 13, 2021, the Company issued $800 million of 3.25% senior unsecured notes due January 2032 at an issue price equal to 99.376% of the principal amount. The proceeds are being used to partially finance the Company's acquisition of certain real estate assets in the Cordish transaction as described in Note 7.
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 werewas 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 reaquisitionreacquisition 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"), two wholly-owned subsidiaries of GLPI both of which are consolidated by GLPI, and are guaranteed on a senior unsecured basis by GLPI. TheGLPI which such 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 Amended Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements. See Note 21 for additional financial informationGLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries through dividends or loans or to transfer assets from such subsidiaries, except as provided by applicable law and the parent guarantor and subsidiary issuerscovenants listed below. None of GLPI's other subsidiaries guarantee the Senior 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.
GLPI owns all of the assets of GLP Capital and conducts all of its operations through the operating partnership. Based on the amendments to Rule 3-10 of Regulation S-X that the SEC released on January 4, 2021, we note that since GLPI fully and unconditionally guarantees the debt securities of the Issuers and consolidates both Issuers, we are not required to provide separate financial statements for the Issuers and GLPI since they are consolidated into GLPI and the GLPI guarantee is “full and unconditional.”
Furthermore, as permitted under Rule 13-01(a)(4)(vi), we excluded the summarized financial information for the Issuers because the assets, liabilities and results of operations of the Issuers and GLPI are not materially different than the corresponding amounts in GLPI’s consolidated financial statements and we believe such summarized financial information would be repetitive and would not provide incremental value to investors.
At December 31, 2019,2021, 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.
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.
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 facilityRevolver and our Term Loan A-1.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. As the Term Loan A-1 matures in mid-2021, only theThe borrowings under our revolverAmended 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. However, the transition away from LIBOR rates will likely require us to renegotiate our revolving credit facility, which does not provide for reference rate replacement. We expect to successfully renegotiate this agreement and do not expect the reference rate transition to have a significant impact to our overall operations.
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, pending acquisition costs for our Pennsylvania transactions with Cordish that will total approximately $698 million, inclusive of estimated real estate transfer taxes and fees (of which $575 million will require cash with the remainder funded in additional operating units) and the $150 million purchase price for the real estate of Bally's Black Hawk and Rock Island properties, capital expenditures, working capital needs and dividend requirements. Additionally, we anticipate the sale of the non-land real estate assets at Tropicana Las Vegas to Bally's will result in $150.0 million of proceeds.
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), issuance of additional operating partnership units, and/or debt offerings. In addition, although we have no significant debt maturities in 2022, the Company intends to refinance its Amended Credit Facility and certain senior unsecured note obligations in advance of their maturity dates in 2023. 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, 2019:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due By Period |
| Total | | 2020 | | 2021 - 2022 | | 2023 - 2024 | | 2025 and After |
| (in thousands) |
Senior unsecured credit facility | |
| | |
| | |
| | |
| | |
|
Principal | $ | 495,000 |
| | $ | — |
| | $ | 449,000 |
| | $ | 46,000 |
| | $ | — |
|
Interest (1) | 26,445 |
| | 17,590 |
| | 8,250 |
| | 605 |
| | — |
|
4.875% senior unsecured notes due 2020 | |
| | |
| | |
| | |
| | |
|
Principal | 215,174 |
| | 215,174 |
| | — |
| | — |
| | — |
|
Interest | 10,490 |
| | 10,490 |
| | — |
| | — |
| | — |
|
4.375% senior unsecured notes due 2021 | | | | | | | | | |
Principal | 400,000 |
| | — |
| | 400,000 |
| | — |
| | — |
|
Interest | 26,250 |
| | 17,500 |
| | 8,750 |
| | — |
| | — |
|
5.375% senior unsecured notes due 2023 | |
| | |
| | |
| | |
| | |
|
Principal | 500,000 |
| | — |
| | — |
| | 500,000 |
| | — |
|
Interest | 107,500 |
| | 26,875 |
| | 53,750 |
| | 26,875 |
| | — |
|
3.35% senior unsecured notes due 2024 | | | | | | | | | |
Principal | 400,000 |
| | — |
| | — |
| | 400,000 |
| | — |
|
Interest | 67,074 |
| | 13,474 |
| | 26,800 |
| | 26,800 |
| | — |
|
5.25% senior unsecured notes due 2025 | | | | | | | | | |
Principal | 850,000 |
| | — |
| | — |
| | — |
| | 850,000 |
|
Interest | 245,438 |
| | 44,625 |
| | 89,250 |
| | 89,250 |
| | 22,313 |
|
5.375% senior unsecured notes due 2026 | | | | | | | | | |
Principal | 975,000 |
| | — |
| | — |
| | — |
| | 975,000 |
|
Interest | 340,641 |
| | 52,406 |
| | 104,813 |
| | 104,813 |
| | 78,609 |
|
5.75% senior unsecured notes due 2028 | | | | | | | | | |
Principal | 500,000 |
| | — |
| | — |
| | — |
| | 500,000 |
|
Interest | 244,375 |
| | 28,750 |
| | 57,500 |
| | 57,500 |
| | 100,625 |
|
5.30% senior unsecured notes due 2029 | | | | | | | | | |
Principal | 750,000 |
| | — |
| | — |
| | — |
| | 750,000 |
|
Interest | 377,625 |
| | 39,750 |
| | 79,500 |
| | 79,500 |
| | 178,875 |
|
4.00% senior unsecured notes due 2030 | | | | | | | | | |
Principal | 700,000 |
| | — |
| | — |
| | — |
| | 700,000 |
|
Interest | 290,578 |
| | 24,578 |
| | 56,000 |
| | 56,000 |
| | 154,000 |
|
Finance lease liability | 989 |
| | 129 |
| | 277 |
| | 305 |
| | 278 |
|
Operating lease liabilities (2) | 712,810 |
| | 14,071 |
| | 27,425 |
| | 27,255 |
| | 644,059 |
|
Other liabilities reflected in the Company's consolidated balance sheets (3) | 505 |
| | 505 |
| | — |
| | — |
| | — |
|
Total | $ | 8,235,894 |
| | $ | 505,917 |
| | $ | 1,361,315 |
| | $ | 1,414,903 |
| | $ | 4,953,759 |
|
| |
(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. For |
considerations surrounding the phase out of LIBOR refer to the Liquidity and Capital Resources discussion in this Annual Report on Form 10-K.
| |
(2)
| The Company's operating leases liabilities include 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. Variable lease costs, including lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, are excluded from our operating lease liabilities. |
(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, 2019 for the following future periods:
|
| | | | | | | | | | | | | | | | |
| Total Amounts Committed | | 2020 | | 2021 - 2022 | | 2023 - 2024 | | 2025 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, 2019 and 2018.
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 $5,786.2$6,599.7 million at December 31, 2019.2021. Furthermore, $5,290.2$6,175.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from less than one yearapproximately two 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, 20192021 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, 2019.2021.
| | | 1/01/20- 12/31/20 | | 1/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | Thereafter | | Total | | Fair Value at 12/31/2019 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25- 12/31/25 | | 1/01/26 12/31/26 | | Thereafter | | Total | | Fair Value at 12/31/2021 |
| (in thousands) | | (in thousands) |
Long-term debt: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | 215,174 |
| | $ | 400,000 |
| | $ | — |
| | $ | 500,000 |
| | $ | 400,000 |
| | $ | 3,775,000 |
| | $ | 5,290,174 |
| | $ | 5,707,996 |
| Fixed rate | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 975,000 | | | $ | 3,450,000 | | | $ | 6,175,000 | | | $ | 6,645,574 | |
Average interest rate | 4.88 | % | | 4.38 | % | |
|
| | 5.38 | % | | 3.35 | % | | 5.13 | % | | |
| | |
| Average interest rate | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 5.38 | % | | 4.36 | % | | | | |
| | | | | | | | | | | | | | | | |
Variable rate | $ | — |
| | $ | 449,000 |
| | $ | — |
| | $ | 46,000 |
| | $ | — |
| | $ | — |
| | $ | 495,000 |
| | $ | 493,533 |
| Variable rate | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) |
|
| | 3.46 | % | |
|
| | 3.38 | % | |
|
| | |
| | |
| | |
| Average interest rate (1) | | 2.90 | % | | | | | | |
(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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 20, 2020, 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.
Real Estate Investments - See Note 2 to the financial statements
Critical Audit Matter Description
Real estate investments primarily represent land and buildings leased to the Company's tenants. Single-property lease assets accountReal 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 includes costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for $428.8Moccupancy. We consider the period of future benefit of the total real estate investment, net, account balance. The Companyasset 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. If we used a shorter or longer estimated useful life, it could have a material impact on our results of operations.
We continually monitorsmonitor events and circumstances that could indicate that the carrying amount of itsour 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 itstheir 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 determine whether the Company estimatesestimated undiscounted cash flows from the fairunderlying lease exceeds the real estate investments' carrying value. If we determine the estimated undiscounted cash flows is less than the asset's carrying value then we would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the investmentasset to its estimated fair value, calculated in accordance with accounting principles generally accepted in the United States ("GAAP"). We group our real estate investments together by calculatinglease, the undiscountedlowest 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 fromand other factors. The factors considered by the
use Company in performing this assessment include current operating results, market and eventual disposition of the investment. For the year ended December 31, 2019, no impairment loss has been recognized on these real estate assets.
Auditing the Company’s evaluation of potential impairment indicators of single-property lease assets was highly subjective as it required assessing the financial stability of the tenants, the parent companies’ willingness to fund rent shortfalls should they arise,other applicable trends and the overall market for the tenants’ market offerings in the geographies in which the properties are located. We evaluated whether management appropriately identified events or changes in circumstances that indicated that the carrying amounts of these real estate assets may not be recoverable, which required significant judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indicators of impairment included the following, among others:
We tested the effectiveness of the controls over management’s identification of possible circumstances that may indicate that the carrying amounts of the single-property lease assets are no longer recoverable or realizable
We obtained and examined internal communications to management and the Board of Directors to identify potential inconsistencies or contradictory information regarding the financial stability of the tenants that may not have been considered in the Company’s assessment
We evaluated management’s impairment analysis by testing the single-property lease assets for possible indicators of impairment, including the identification of events or changes affecting the tenants’ financial stability by searching for adverse asset-specific or market conditions through obtaining gaming industry and regulatory reports
/s/ Deloitte & Touche
New York, New York
February 20, 2020
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, 2019 | | December 31, 2018 |
| | | |
Assets | | | |
Real estate investments, net | $ | 7,100,555 |
| | $ | 7,331,460 |
|
Property and equipment, used in operations, net | 94,080 |
| | 100,884 |
|
Real estate loans | 303,684 |
| | 303,684 |
|
Right-of-use assets and land rights, net | 838,734 |
| | 673,207 |
|
Cash and cash equivalents | 26,823 |
| | 25,783 |
|
Prepaid expenses | 4,228 |
| | 30,967 |
|
Goodwill | 16,067 |
| | 16,067 |
|
Other intangible assets | 9,577 |
| | 9,577 |
|
Loan receivable | — |
| | 13,000 |
|
Deferred tax assets | 6,056 |
| | 5,178 |
|
Other assets | 34,494 |
| | 67,486 |
|
Total assets | $ | 8,434,298 |
| | $ | 8,577,293 |
|
| | | |
Liabilities | | | |
Accounts payable | $ | 1,006 |
| | $ | 2,511 |
|
Accrued expenses | 6,239 |
| | 30,297 |
|
Accrued interest | 60,695 |
| | 45,261 |
|
Accrued salaries and wages | 13,821 |
| | 17,010 |
|
Gaming, property, and other taxes | 944 |
| | 42,879 |
|
Lease liabilities | 183,971 |
| | — |
|
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,737,962 |
| | 5,853,497 |
|
Deferred rental revenue | 328,485 |
| | 293,911 |
|
Deferred tax liabilities | 279 |
| | 261 |
|
Other liabilities | 26,651 |
| | 26,059 |
|
Total liabilities | 6,360,053 |
| | 6,311,686 |
|
| | | |
Commitments and Contingencies (Note 11) |
|
| |
|
|
| | | |
Shareholders’ equity | | | |
| | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2019 and December 31, 2018) | — |
| | — |
|
Common stock ($.01 par value, 500,000,000 shares authorized, 214,694,165 and 214,211,932 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively) | 2,147 |
| | 2,142 |
|
Additional paid-in capital | 3,959,383 |
| | 3,952,503 |
|
Accumulated deficit | (1,887,285 | ) | | (1,689,038 | ) |
Total shareholders’ equity | 2,074,245 |
| | 2,265,607 |
|
Total liabilities and shareholders’ equity | $ | 8,434,298 |
| | $ | 8,577,293 |
|
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, | | 2019 | | 2018 | | 2017 |
| | | | | | |
Revenues | | |
| | |
| | |
Rental income | | $ | 996,166 |
| | $ | 747,654 |
| | $ | 671,190 |
|
Income from direct financing lease | | — |
| | 81,119 |
| | 74,333 |
|
Interest income from real estate loans | | 28,916 |
| | 6,943 |
| | — |
|
Real estate taxes paid by tenants | | — |
| | 87,466 |
| | 83,698 |
|
Total income from real estate | | 1,025,082 |
| | 923,182 |
| | 829,221 |
|
Gaming, food, beverage and other | | 128,391 |
| | 132,545 |
| | 142,086 |
|
Total revenues | | 1,153,473 |
| | 1,055,727 |
| | 971,307 |
|
| | | | | | |
Operating expenses | | |
| | |
| | |
|
Gaming, food, beverage and other | | 74,700 |
| | 77,127 |
| | 80,487 |
|
Real estate taxes | | — |
| | 88,757 |
| | 84,666 |
|
Land rights and ground lease expense | | 42,438 |
| | 28,358 |
| | 24,005 |
|
General and administrative | | 65,477 |
| | 71,128 |
| | 63,151 |
|
Depreciation | | 240,435 |
| | 137,093 |
| | 113,480 |
|
Loan impairment charges | | 13,000 |
| | — |
| | — |
|
Goodwill impairment charges | | — |
| | 59,454 |
| | — |
|
Total operating expenses | | 436,050 |
| | 461,917 |
| | 365,789 |
|
Income from operations | | 717,423 |
| | 593,810 |
| | 605,518 |
|
| | | | | | |
Other income (expenses) | | |
| | |
| | |
|
Interest expense | | (301,520 | ) | | (247,684 | ) | | (217,068 | ) |
Interest income | | 756 |
| | 1,827 |
| | 1,935 |
|
Losses on debt extinguishment | | (21,014 | ) | | (3,473 | ) | | — |
|
Total other expenses | | (321,778 | ) | | (249,330 | ) | | (215,133 | ) |
| | | | | | |
Income before income taxes | | 395,645 |
| | 344,480 |
| | 390,385 |
|
Income tax expense | | 4,764 |
| | 4,964 |
| | 9,787 |
|
Net income | | $ | 390,881 |
| | $ | 339,516 |
| | $ | 380,598 |
|
| | | | | | |
Earnings per common share: | | |
| | |
| | |
Basic earnings per common share | | $ | 1.82 |
| | $ | 1.59 |
| | $ | 1.80 |
|
Diluted earnings per common share | | $ | 1.81 |
| | $ | 1.58 |
| | $ | 1.79 |
|
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, 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 |
|
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) | — |
| | — |
| | — |
| | (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 |
| | — |
| | (255 | ) | | — |
| | (255 | ) |
Stock option activity | 26,799 |
| | — |
| | 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 |
|
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, | | 2019 | | 2018 | | 2017 |
Operating activities | | |
| | |
| | |
Net income | | $ | 390,881 |
| | $ | 339,516 |
| | $ | 380,598 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
Depreciation and amortization | | 258,971 |
| | 148,365 |
| | 123,835 |
|
Amortization of debt issuance costs, bond premiums and original issuance discounts | | 11,455 |
| | 12,167 |
| | 13,026 |
|
Losses on dispositions of property | | 92 |
| | 309 |
| | 530 |
|
Deferred income taxes | | (755 | ) | | (522 | ) | | (561 | ) |
Stock-based compensation | | 16,198 |
| | 11,152 |
| | 15,636 |
|
Straight-line rent adjustments | | 34,574 |
| | 61,888 |
| | 65,971 |
|
Losses on debt extinguishment | | 21,014 |
| | 3,473 |
| | — |
|
Loan impairment charges | | 13,000 |
| | — |
| | — |
|
Goodwill impairment charges | | — |
| | 59,454 |
| | — |
|
| | | | | | |
(Increase) decrease, | | |
| | |
| | |
Prepaid expenses and other assets | | (6,070 | ) | | (673 | ) | | (5,332 | ) |
(Decrease), increase | | |
| | |
| | |
Accounts payable | | (1,505 | ) | | 1,796 |
| | (421 | ) |
Accrued expenses | | (270 | ) | | (126 | ) | | 411 |
|
Accrued interest | | 15,434 |
| | 12,020 |
| | (502 | ) |
Accrued salaries and wages | | (3,189 | ) | | 6,201 |
| | 190 |
|
Gaming, property and other taxes | | (120 | ) | | (149 | ) | | (517 | ) |
Other liabilities | | 592 |
| | (438 | ) | | 5,847 |
|
Net cash provided by operating activities | | 750,302 |
| | 654,433 |
| | 598,711 |
|
Investing activities | | |
| | |
| | |
Capital project expenditures | | — |
| | (20 | ) | | (78 | ) |
Capital maintenance expenditures | | (3,017 | ) | | (4,284 | ) | | (3,178 | ) |
Proceeds from sale of property and equipment | | 200 |
| | 3,211 |
| | 934 |
|
Principal payments on loan receivable | | — |
| | — |
| | 13,200 |
|
Acquisition of real estate assets | | — |
| | (1,243,466 | ) | | (83,252 | ) |
Originations of real estate loans | | — |
| | (303,684 | ) | | — |
|
Collections of principal payments on investment in direct financing lease | | — |
| | 38,459 |
| | 73,072 |
|
Net cash (used in) provided by investing activities | | (2,817 | ) | | (1,509,784 | ) | | 698 |
|
Financing activities | | |
| | |
| | |
Dividends paid | | (589,128 | ) | | (550,435 | ) | | (529,370 | ) |
Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options | | (9,058 | ) | | 7,537 |
| | 18,157 |
|
ATM Program offering costs and proceeds from issuance of common stock, net | | (255 | ) | | — |
| | 139,414 |
|
Proceeds from issuance of long-term debt | | 1,358,853 |
| | 2,593,405 |
| | 100,000 |
|
Financing costs | | (10,029 | ) | | (32,426 | ) | | — |
|
Repayments of long-term debt | | (1,477,949 | ) | | (1,164,117 | ) | | (335,112 | ) |
Premium and related costs paid on tender of senior unsecured notes | | (18,879 | ) | | (1,884 | ) | | — |
|
Net cash (used in) provided by financing activities | | (746,445 | ) | | 852,080 |
| | (606,911 | ) |
Net increase (decrease) in cash and cash equivalents | | 1,040 |
| | (3,271 | ) | | (7,502 | ) |
Cash and cash equivalents at beginning of period | | 25,783 |
| | 29,054 |
| | 36,556 |
|
Cash and cash equivalents at end of period | | $ | 26,823 |
| | $ | 25,783 |
| | $ | 29,054 |
|
See Note 20 to the consolidated financial statements for supplemental cash flow information and noncash investing and financing activities.
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,residual values, as well as the assetseffect of obsolescence, demand, competition and liabilitiesother factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss.
Results 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").Operations
The Company elected on its United States ("U.S.") federal income tax return for its taxable yearfollowing are the most important factors and trends that began on January 1, 2014contribute or may contribute to be treated as a REITour operating performance:
•We have announced or closed numerous transactions in the past two years and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. In connection with the Spin-Off, Penn allocated its accumulated earnings and profits (as determined for U.S. federal income tax purposes) for periods prior to the consummation of the Spin-Off between Penn and GLPI. In connection with its election to be taxed as a REIT for U.S. federal income tax purposes, GLPI declared a special dividend to its shareholders to distribute any accumulated earnings and profits relating to the real property assets and attributable to any pre-REIT years, including any earnings and profits allocated to GLPI in connection with the Spin-Off, to comply with certain REIT qualification requirements.
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 initial term of 15 years (expiring October 31, 2028), with no purchase option, followed by 4 5-year renewal options (exercisable by Penn) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc. In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease with an initial term of 10 years (expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by Boyd) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes, and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million. See Note 18 for further details surrounding the original Pinnacle acquisition and the subsequent acquisition of Pinnacle by Penn.
In addition to the acquisition of Plainridge Park described above, on October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement (the "Real Estate Purchase Agreement") dated April 15, 2018 between Tropicana and GLP Capital L.P., the operating partnership of GLPI ("GLP Capital"), which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with
the Tropicana Acquisition, Eldorado Resorts, Inc. ("Eldorado") acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Eldorado and a wholly-owned subsidiary of Eldorado (the "Tropicana Merger Agreement") and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 4 successive 5-year renewal periods (exercisable by Eldorado) on the same terms and conditions (the "Eldorado Master Lease"). Additionally, on October 1, 2018, the Company entered into a loan agreement with Eldorado in connection with Eldorado’s acquisition of Lumière Place, whereby the Company loaned Eldorado $246.0 million (together with the Tropicana Acquisition the, "Tropicana Transactions").
GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of December 31, 2019, GLPI’s portfolio consisted of interests in 44 gaming and related facilities, including the TRS Properties, the real property associated with 32 gaming and related facilities operated by Penn, the real property associated with 5 gaming and related facilities operated by Eldorado, the real property associated with 4 gaming and related facilities operated by Boyd (including one financed facility) and the real property associated with the Casino Queen in East St. Louis, Illinois. These facilities, including our corporate headquarters building, are geographically diversified across 16 states and contain approximately 22.1 million square feet. As of December 31, 2019, the Company's properties were 100% occupied. GLPI expectsexpect to continue growing itsto grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
•The fact that several wholly-owned subsidiaries of Penn lease a substantial number of our properties and account for the majority of our revenue.
•The risks related to economic conditions, including uncertainty related to COVID-19 and the effect of such conditions on consumer spending for leisure and gaming activities, which may negatively impact our gaming tenants and operators and the variable rent and annual rent escalators we receive from our tenants as outlined in the long-term triple-net leases with these tenants.
•The ability to refinance our significant levels of debt at attractive terms and obtain favorable funding in connection with future business opportunities.
•The fact that the rules and regulations of U.S. federal income taxation are constantly under review by legislators, the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect GLPI's investors or GLPI.
The consolidated results of operations for the years ended December 31, 2021 and 2020 are summarized below:
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | |
| (in thousands) | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total revenues | $ | 1,216,351 | | | $ | 1,153,165 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total operating expenses | 374,583 | | | 343,891 | | | |
Income from operations | 841,768 | | | 809,274 | | | |
Total other expenses | (279,340) | | | (299,686) | | | |
Income before income taxes | 562,428 | | | 509,588 | | | |
Income tax expense | 28,342 | | | 3,877 | | | |
Net income | 534,086 | | | 505,711 | | | |
Net income attributable to noncontrolling interest in the Operating Partnership | (39) | | | — | | | |
Net income attributable to common shareholders | $ | 534,047 | | | $ | 505,711 | | | |
The Company has omitted the discussion comparing its operating results for the year ended December 31, 2020 to its operating results for the year ended December 31, 2019 from its Annual Report on Form 10-K for the year ended December 31, 2021. Readers are directed to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for these disclosures.
Certain information regarding our results of operations by segment for the years ended December 31, 2021 and 2020 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Income from Operations |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | | | 2021 | | 2020 | | |
| (in thousands) | | |
GLP Capital | $ | 1,102,653 | | | $ | 1,050,166 | | | | | $ | 781,226 | | | $ | 792,467 | | | |
TRS Segment | 113,698 | | | 102,999 | | | | | 60,542 | | | 16,807 | | | |
Total | $ | 1,216,351 | | | $ | 1,153,165 | | | | | $ | 841,768 | | | $ | 809,274 | | | |
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. These metrics are presented assuming full conversion of limited partnership units to common shares and therefore before the income statement impact of non-controlling interests. 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.
FFO, AFFO and Adjusted EBITDA are non-GAAP financial measures that are considered supplemental measures 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, bond premiums and original issuance discounts, other depreciation, amortization of land rights, straight-line rent adjustments, gains or (losses) on sales of operations, net of tax, losses on debt extinguishment, and provision for credit losses, net reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, net, income tax expense, depreciation, (gains) or losses from sales of property, gains on sales of operations, net of tax, stock based compensation expense, straight-line rent adjustments, amortization of land rights, losses on debt extinguishment, and provision for credit losses, net.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP financial measures: (i) do not represent cash flows 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 flows as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund 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, 2021 and 2020 is as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
Net income | $ | 534,086 | | | $ | 505,711 | | | |
Losses (gains) from dispositions of property | 711 | | | (41,393) | | | |
Real estate depreciation | 230,941 | | | 220,069 | | | |
Funds from operations | $ | 765,738 | | | $ | 684,387 | | | |
Straight-line rent adjustments | (3,993) | | | 4,576 | | | |
| | | | | |
Other depreciation | 5,493 | | | 10,904 | | | |
Amortization of land rights | 15,616 | | | 12,022 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | 9,929 | | | 10,503 | | | |
Stock based compensation | 16,831 | | | 20,004 | | | |
Gains on sale of operations, net of tax | (3,560) | | | — | | | |
Losses on debt extinguishment | — | | | 18,113 | | | |
| | | | | |
Provision for credit losses, net | 8,226 | | | — | | | |
| | | | | |
Capital maintenance expenditures | (2,270) | | | (3,130) | | | |
Adjusted funds from operations | $ | 812,010 | | | $ | 757,379 | | | |
Interest, net | 282,840 | | | 281,573 | | | |
Income tax expense | 9,440 | | | 3,877 | | | |
Capital maintenance expenditures | 2,270 | | | 3,130 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | (9,929) | | | (10,503) | | | |
Adjusted EBITDA | $ | 1,096,631 | | | $ | 1,035,456 | | | |
(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, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GLP Capital | | | | TRS Segment |
| | Year Ended December 31, | | Year Ended December 31, | | |
| | 2021 | | 2020 | | | | 2021 | | 2020 | | |
| | (in thousands) | | |
Net income (loss) | | $ | 514,883 | | | $ | 508,060 | | | | | $ | 19,203 | | | $ | (2,349) | | | |
Losses (gains) from dispositions of property | | 604 | | | (41,402) | | | | | 107 | | | 9 | | | |
Real estate depreciation | | 230,333 | | | 220,069 | | | | | 608 | | | — | | | |
Funds from operations | | $ | 745,820 | | | $ | 686,727 | | | | | $ | 19,918 | | | $ | (2,340) | | | |
Straight-line rent adjustments | | (3,873) | | | 4,576 | | | | | (120) | | | — | | | |
| | | | | | | | | | | | |
Other depreciation | | 1,881 | | | 1,972 | | | | | 3,612 | | | 8,932 | | | |
Gain on sale of operations, net of tax | | — | | | — | | | | | (3,560) | | | — | | | |
Amortization of land rights | | 15,616 | | | 12,022 | | | | | — | | | — | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | 9,929 | | | 10,503 | | | | | — | | | — | | | |
Stock based compensation | | 16,831 | | | 20,004 | | | | | — | | | — | | | |
Losses on debt extinguishment | | — | | | 18,113 | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Provision for credit losses, net | | 8,226 | | | — | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Capital maintenance expenditures | | (65) | | | (186) | | | | | (2,205) | | | (2,944) | | | |
Adjusted funds from operations | | $ | 794,365 | | | $ | 753,731 | | | | | $ | 17,645 | | | $ | 3,648 | | | |
Interest, net (2) | | 265,439 | | | 265,597 | | | | | 17,401 | | | 15,976 | | | |
Income tax expense | | 904 | | | 697 | | | | | 8,536 | | | 3,180 | | | |
Capital maintenance expenditures | | 65 | | | 186 | | | | | 2,205 | | | 2,944 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | (9,929) | | | (10,503) | | | | | — | | | — | | | |
Adjusted EBITDA | | $ | 1,050,844 | | | $ | 1,009,708 | | | | | $ | 45,787 | | | $ | 25,748 | | | |
(1) Such amortization is a non-cash component included in interest, net.
(2) Interest, net for the GLP Capital segment is net of an intercompany interest elimination of $17.4 million and $16.0 million for the years ended December 31, 2021 and 2020.
Net income, FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $514.9 million, $745.8 million, $794.4 million and $1,050.8 million, respectively, for the year ended December 31, 2021. This compared to net income, FFO, AFFO, and Adjusted EBITDA, for our GLP Capital segment of $508.1 million, $686.7 million, $753.7 million and $1,009.7 million, respectively, for the year ended December 31, 2020. The increase in net income in our GLP Capital segment was primarily driven by a $52.5 million increase in income from real estate as explained below. In addition, we had several operating expense variances that are also discussed below.
The increase in operating expenses in our GLP Capital segment for the year ended December 31, 2021 as compared to the prior year period of $63.7 million was primarily from a gain on the disposition of property related to the Evansville swap transaction of $41.4 million in 2020, higher depreciation expense and land right amortization expense in our REIT segment of $18.5 million due to the Company's recent acquisitions, and a $8.2 million provision for credit losses, net in the current year. Partially offsetting these increases was lower general and administrative expenses of $5.0 million due primarily from severance and stock based compensation acceleration charges for the departure of our former chief financial officer in 2020.
The decrease in other expenses, net, for the year ended December 31, 2021 was due to $18.1 million of debt extinguishment charges in the prior year.
The increase in FFO for our GLP Capital segment for the year ended December 31, 2021 is due to the items described above, excluding gains (losses) from the disposition of property and real estate depreciation. The increase in AFFO is due to the items described above, less the adjustments mentioned in the table above, primarily straight line rent adjustments,
amortization expenses, stock based compensation costs, provision for credit losses, net and losses on debt extinguishment. Adjusted EBITDA for our GLP Capital segment for the year ended December 31, 2021, as compared to the prior year, also increased driven by the explanations above, as well as adjustments mentioned in the table above, primarily related to interest expense.
The net income of $19.2 million for our TRS Segment for the year ended December 31, 2021 as compared to a net loss of $2.3 million for the prior year is primarily related to strong reopening results in the current year at Hollywood Casino Baton Rouge and Hollywood Casino Perryville which in the prior year were closed temporarily from mid-March 2020 to May 2020 and June 2020, respectively, due to COVID-19. Additionally, the Company recorded a net after tax gain of $3.6 million on the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2021.
Revenues
Revenues for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Rental income | | $ | 1,106,658 | | | $ | 1,031,036 | | | $ | 75,622 | | | 7.3 | % |
| | | | | | | | |
Interest income from real estate loans | | — | | | 19,130 | | | (19,130) | | | (100.0) | % |
| | | | | | | | |
Total income from real estate | | 1,106,658 | | | 1,050,166 | | | 56,492 | | | 5.4 | % |
Gaming, food, beverage and other | | 109,693 | | | 102,999 | | | 6,694 | | | 6.5 | % |
Total revenues | | $ | 1,216,351 | | | $ | 1,153,165 | | | $ | 63,186 | | | 5.5 | % |
Total income from real estate
Total income from real estate increased $56.5 million, or 5.4%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. Results for the current year benefited from the additions on the Bally's Master Lease, the Perryville Lease, the Morgantown Lease and the Casino Queen Master Lease which in the aggregate increased cash rental income by $29.5 million. Additionally, the Company benefited from full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Lease effective May 1, 2021 and the Penn Master Lease that became effective November 1, 2021. The aggregate impact of these escalations increased building base rent by $5.0 million for the year ended December 31, 2021. The Company had higher percentage rent on the Penn Master Lease in the current year of $15.2 million, due to the impact of the COVID-19 closures in 2020 and strong performance in the current year by Penn's Hollywood Casino Columbus and Hollywood Casino Toledo properties. Finally, the Company also had favorable straight line rent adjustments of $8.6 million and higher ground rent revenue gross ups of $3.7 million due to the impact of the temporary COVID-19 closures that occurred in 2020.
Partially offsetting these favorable variances were lower percentage rents of $3.7 million from the 2020 resets on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Meadows Lease which was driven primarily from the COVID-19 closures. Additionally, we had lower cash rental income of $1.8 million on the Amended and Restated Caesars Master Lease that became effective in July 2020 which lowered rent initially but removed variable rents going forward and provided for fixed escalation increases as previously described.
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, 2021 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2021 | Building base rent | | Land base rent | | Percentage rent | | Total cash rental income | Straight-line rent adjustments | | Ground rent in revenue (1) | Other rental revenue | | Total rental income | |
Penn Master Lease | $ | 280,338 | | | $ | 93,969 | | | $ | 97,814 | | | $ | 472,121 | | $ | 8,926 | | | $ | 3,013 | | $ | 12 | | | $ | 484,072 | | |
Amended Pinnacle Master Lease | 230,230 | | | 71,256 | | | 26,779 | | | 328,265 | | (19,346) | | | 7,430 | | — | | | 316,349 | | |
Penn - Meadows Lease | 15,811 | | | — | | | 9,046 | | | 24,857 | | 2,288 | | | — | | 195 | | | 27,340 | | |
Penn Morgantown | — | | | 3,000 | | | — | | | 3,000 | | — | | | — | | — | | | 3,000 | | |
Penn Perryville | 2,914 | | | 971 | | | — | | | 3,885 | | 120 | | | — | | — | | | 4,005 | | |
Caesars Master Lease | 62,514 | | | 23,729 | | | — | | | 86,243 | | 10,358 | | | 1,586 | | — | | | 98,187 | | |
Lumiere Place Lease | 22,875 | | | — | | | — | | | 22,875 | | 544 | | | — | | — | | | 23,419 | | |
BYD Master Lease | 76,652 | | | 11,785 | | | 9,845 | | | 98,282 | | 2,296 | | | 1,726 | | — | | | 102,304 | | |
BYD Belterra Lease | 2,709 | | | 1,894 | | | 1,817 | | | 6,420 | | (1,211) | | | — | | — | | | 5,209 | | |
Bally's Master Lease | 23,111 | | | — | | | — | | | 23,111 | | — | | | 4,832 | | — | | | 27,943 | | |
Casino Queen Master Lease | 9,388 | | | — | | | 5,424 | | | 14,812 | | 18 | | | — | | — | | | 14,830 | | |
Total | $ | 726,542 | | | $ | 206,604 | | | $ | 150,725 | | | $ | 1,083,871 | | $ | 3,993 | | | $ | 18,587 | | $ | 207 | | | $ | 1,106,658 | | |
(1)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.
Gaming, food, beverage and other revenue
Gaming, food, beverage and other revenue for our TRS Properties increased by $6.7 million, or 6.5%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The reason for the increase was due to the properties being closed in mid-March 2020 due to COVID-19. Hollywood Casino Baton Rouge reopened to the public on May 18, 2020 and Hollywood Casino Perryville reopened on June 19, 2020 with various restrictions to limit capacity in accordance with regulatory requirements. Results since reopening have exceeded the corresponding periods in the prior years as spend per visit has increased due to various factors such as pent up demand and government stimulus efforts, partially offset by the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and Hollywood Casino Baton Rouge on December 17, 2021.
Operating Expenses
Operating expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Gaming, food, beverage and other | | $ | 53,039 | | | $ | 56,698 | | | $ | (3,659) | | | (6.5) | % |
| | | | | | | | |
Land rights and ground lease expense | | 37,390 | | | 29,041 | | | 8,349 | | | 28.7 | % |
General and administrative | | 61,245 | | | 68,572 | | | (7,327) | | | (10.7) | % |
(Gains) losses from disposition of properties | | (21,751) | | | (41,393) | | | 19,642 | | | (47.5) | % |
Depreciation | | 236,434 | | | 230,973 | | | 5,461 | | | 2.4 | % |
Provision for credit losses, net | | 8,226 | | | — | | | 8,226 | | | — |
| | | | | | | | |
| | | | | | | | |
Total operating expenses | | $ | 374,583 | | | $ | 343,891 | | | $ | 30,692 | | | 8.9 | % |
Gaming, food, beverage and other expense
Gaming, food, beverage and other expense for our TRS Properties decreased by approximately $3.7 million, or 6.5%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. As previously discussed, the Company sold the operations of Hollywood Casino Perryville on July 1, 2021 and the operations of Hollywood Casino Baton Rouge on December 17, 2021. Additionally, the TRS Properties were closed for part of 2020 due to COVID-19.
Land rights and ground lease expense
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 increased by $8.3 million, or 28.7%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily from higher ground lease rents paid by our tenants in 2021 of $4.7 million that are primarily based on the facilities' revenues which increased due to the impact of COVID-19 in 2020 that resulted in temporary casino closures. 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. The Company also had higher land right amortization expense of $3.6 million due to the June 3, 2021 acquisition of Tropicana Evansville.
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. General and administrative expenses decreased by $7.3 million, or 10.7%, for the accountsyear ended December 31, 2021, as compared to the year ended December 31, 2020. This is primarily attributable to the negative impact from severance and stock acceleration charges of $6.3 million, related to the departure of our former chief financial officer as well as lower costs at our TRS Properties of $2.3 million primarily due to the sale of the operations of Hollywood Casino Perryville effective July 1, 2021, partially offset by higher bonus accruals in the current year.
Gains and losses from dispositions of property
For the year ended December 31, 2021, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge which resulted in a combined pre-tax gain of $22.4 million. See Note 1 to the Consolidated Financial Statements for further information. 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 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.
Depreciation expense
Depreciation expense increased by $5.5 million, or 2.4%, to $236.4 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to the Company's acquisitions over the past year.
Provision for credit losses,net
For the year ended December 31, 2021, the Company recorded a $12.2 million provision for credit losses on the Maryland Live! Lease which represented the Company's best estimate of losses over the life of the lease under ASC 326 "Credit Losses". See Note 2 to the Consolidated Financial Statements, Allowance for Credit Losses, for further discussion. Additionally, the Company recorded a $4 million recovery during the year ended December 31, 2021 for a payment received from Casino Queen in full satisfaction of a loan that was previously fully impaired.
Other income (expenses)
Other income (expenses) for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Interest expense | | $ | (283,037) | | | $ | (282,142) | | | $ | (895) | | | 0.3 | % |
Interest income | | 197 | | | 569 | | | (372) | | | (65.4) | % |
Insurance gain | | 3,500 | | | — | | | 3,500 | | | N/M |
Losses on debt extinguishment | | — | | | (18,113) | | | 18,113 | | | (100.0) | % |
Total other expenses | | $ | (279,340) | | | $ | (299,686) | | | $ | 20,346 | | | (6.8) | % |
Insurance gain
For the year ended December 31, 2021, the Company recognized insurance gains of $3.5 million due to an insurance claim related to the temporary closures of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2020 related to COVID-19.
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 in April 2021, resulting in the retirement of such senior notes. The Company recorded losses on the early extinguishment of debt related to the current year retirements of $18.1 million for the year ended December 31, 2020 primarily for call premium charges and debt issuance write-offs.
Taxes
Our income tax expense increased $24.5 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020. During the year ended December 31, 2021, we had income tax expense of approximately $28.3 million, compared to income tax expense of $3.9 million during the year ended December 31, 2020. Our income tax expense is primarily driven from the operations of the TRS Segment, which are taxed at the corporate rate. Our effective tax rate (income taxes as a percentage of income before income taxes) was 5.0% and 0.8% for the years ended December 31, 2021 and 2020, respectively. The current year sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as deferred tax write off related to the sale of Hollywood Casino Baton Rouge resulted in a $18.9 million increase to income tax expense in 2021.
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 $803.8 million and $428.1 million during the years ended December 31, 2021 and 2020, respectively. The increase in net cash provided by operating activities of $375.7 million for the year ended December 31, 2021 as compared to the prior year was primarily due to an increase in cash receipts from tenants and customers of $388.2 million, a decrease in cash paid to employees of $9.6 million and a decrease in cash paid for operating expenses of $2.5 million, partially offset by an increase in cash paid for taxes of $14.1 million and an increase in interest payments of $12.4 million. The increase in cash receipts collected from our tenants and customers was primarily due to $337.5 million in non-cash rent recognized in connection with the Tropicana Las Vegas and Morgantown transactions in 2020, higher rental income from the Bally's Master Lease, the Perryville Lease, the Morgantown Lease, and the Casino Queen Master Lease, and higher percentage rent on the Penn Master Lease due to strong results at Hollywood Casino Columbus and Hollywood Casino Toledo (which were closed for part of 2020 due to COVID-19), along with the strong reopenings of our TRS Properties, which were forced to close in mid-March 2020 due to the impact of COVID-19. These properties reopened in May 2020 and June 2020 as previously discussed. The reduction in cash paid to employees was primarily due to lower bonus payouts in 2021 related to 2020 performance that was negatively impacted by COVID-19 as well as the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and the sale of Hollywood Casino Baton Rouge on December 17, 2021. The increase in taxes paid was due to the sale of Hollywood Casino Perryville and Hollywood Casino Baton Rouge and strong results at the TRS Properties prior to the sales. The increase in interest payments is due primarily from the $700 million 4.000% senior unsecured note offering that was completed in June and August of 2020.
Investing activities used net cash of $1,030.8 million and $9.5 million during the years ended December 31, 2021 and 2020, respectively. Net cash used in investing activities during the year ended December 31, 2021 consisted of $487.5 million for the acquisition of real estate assets in the Bally's acquisitions and $592.2 million for the acquisition of the real estate assets of Maryland Live! which was accounted for as an investment in lease, financing receivable. The Company also incurred capital expenditures of $16.2 million, partially offset by the net proceeds received for the sale of the operations of Hollywood Casino Perryville to Penn of $30.8 million, proceeds from the sale of the operations of Hollywood Casino Baton Rouge to Casino Queen of $28.2 million, a loan loss recovery of $4.0 million, and proceeds from the sale of property of $2.1 million. Net cash used in investing activities during the year ended December 31, 2020 primarily consisted of capital expenditures of $3.1 million and $5.9 million for the acquisition of real estate assets primarily related to the Evansville swap transaction.
Financing activities provided net cash of $443.1 million and $63.2 million during the years ended December 31, 2021 and 2020, respectively. Net cash provided by financing activities for the year ended December 31, 2021 was driven by $795.0 million of proceeds from the issuance of long-term debt and $662.3 million of net proceeds from the issuance of common stock, partially offset by the repayment of long term debt of $363.4 million relating to the Maryland Live! transaction, dividend payments of $633.9 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $9.9 million. During the year ended December 31, 2020, the Company raised $2,076.4 million of proceeds from the issuance of long term debt and $320.9 million of net proceeds from the issuance of common stock. This was partially offset by repayments of long-term debt of $2,076.6 million, dividend payments of $230.5 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $15.3 million.
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, 2021 and 2020 we spent approximately $2.3 million and $3.1 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. However, during 2021, $5.2 million was incurred on capital project expenditures related to a landside development project at Hollywood Casino Baton Rouge and $8.7 million was incurred on capital project expenditures related to an expansion at Casino Queen.
Debt
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 an issue price equal to 98.827% of the principal amount. 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 at an issue price equal to 103.824% of the principal amount. The Company utilized the net proceeds from this additional borrowing to repay indebtedness under the Term Loan A-1 facility.
At December 31, 2021, the Amended 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, 2021, 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 $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 Amended Credit Facility. At December 31, 2021, 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 Amended Credit Facility. At December 31, 2021, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Amended Credit Facility prior to maturity 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. All intercompany accountssubsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and transactionsother 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. 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, 2021, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
At December 31, 2021, the Company had an outstanding balance of $6,175.0 million of senior unsecured notes (the "Senior Notes").
On December 13, 2021, the Company issued $800 million of 3.25% senior unsecured notes due January 2032 at an issue price equal to 99.376% of the principal amount. The proceeds are being used to partially finance the Company's acquisition of certain real estate assets in the Cordish transaction as described in Note 7.
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 been eliminatedextended 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 consolidation.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 preparationCompany 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 and GLP Financing II, Inc. (the "Issuers"), two wholly-owned subsidiaries of GLPI both of which are consolidated by GLPI, and are guaranteed on a senior unsecured basis by GLPI which such guarantees 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 Amended Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries through dividends or loans or to transfer assets from such subsidiaries, except as provided by applicable law and the covenants listed below. None of GLPI's other subsidiaries guarantee the Senior 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.
GLPI owns all of the assets of GLP Capital and conducts all of its operations through the operating partnership. Based on the amendments to Rule 3-10 of Regulation S-X that the SEC released on January 4, 2021, we note that since GLPI fully and unconditionally guarantees the debt securities of the Issuers and consolidates both Issuers, we are not required to provide separate financial statements in conformity with GAAP requires management to make estimatesfor the Issuers and assumptions that affectGLPI since they are consolidated into GLPI and the reported amounts ofGLPI guarantee is “full and unconditional.”
Furthermore, as permitted under Rule 13-01(a)(4)(vi), we excluded the summarized financial information for the Issuers because the assets, and liabilities and disclosureresults of contingent assetsoperations of the Issuers and liabilities atGLPI are not materially different than the date of thecorresponding amounts in GLPI’s consolidated financial statements and we believe such summarized financial information would be repetitive and would not provide incremental value to investors.
At December 31, 2021, the reportedCompany was in compliance with all required financial covenants under its Senior Notes.
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.
LIBOR Transition
The majority of our debt is at fixed rates and our exposure to variable interest rates is currently limited to our Revolver and our Term Loan A-2. Both of these debt instruments are indexed to LIBOR which is expected to be phased out 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, pending acquisition costs for our Pennsylvania transactions with Cordish that will total approximately $698 million, inclusive of revenueestimated real estate transfer taxes and expensesfees (of which $575 million will require cash with the remainder funded in additional operating units) and the $150 million purchase price for the reporting periods. Actualreal estate of Bally's Black Hawk and Rock Island properties, capital expenditures, working capital needs and dividend requirements. Additionally, we anticipate the sale of the non-land real estate assets at Tropicana Las Vegas to Bally's will result in $150.0 million of proceeds.
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), issuance of additional operating partnership units, and/or debt offerings. In addition, although we have no significant debt maturities in 2022, the Company intends to refinance its Amended Credit Facility and certain senior unsecured note obligations in advance of their maturity dates in 2023. 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 $6,599.7 million at December 31, 2021. Furthermore, $6,175.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from approximately two 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 differ from those estimates. 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, 2021 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, 2021. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25- 12/31/25 | | 1/01/26 12/31/26 | | Thereafter | | Total | | Fair Value at 12/31/2021 |
| (in thousands) |
Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 975,000 | | | $ | 3,450,000 | | | $ | 6,175,000 | | | $ | 6,645,574 | |
Average interest rate | | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 5.38 | % | | 4.36 | % | | | | |
| | | | | | | | | | | | | | | |
Variable rate | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | | | 2.90 | % | | | | | | | | | | | | |
2.
(1) SummaryEstimated rate, reflective of Significant Accounting Policiesforward 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
Real Estate Investments
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 includes 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. If we used a shorter or longer estimated useful life, it could have a material impact on our results of 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 determine whether the estimated undiscounted cash flows from the underlying lease exceeds the real estate investments' carrying value. If we determine the estimated undiscounted cash flows is less than the asset's carrying value then 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 accounting principles generally accepted in the United States ("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, 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.
Results of Operations
The following are the most important factors and trends that contribute or may contribute to our operating performance:
•We have announced or closed numerous transactions in the past two years and expect to continue to grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
•The fact that several wholly-owned subsidiaries of Penn lease a substantial number of our properties and account for the majority of our revenue.
•The risks related to economic conditions, including uncertainty related to COVID-19 and the effect of such conditions on consumer spending for leisure and gaming activities, which may negatively impact our gaming tenants and operators and the variable rent and annual rent escalators we receive from our tenants as outlined in the long-term triple-net leases with these tenants.
•The ability to refinance our significant levels of debt at attractive terms and obtain favorable funding in connection with future business opportunities.
•The fact that the rules and regulations of U.S. federal income taxation are constantly under review by legislators, the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect GLPI's investors or GLPI.
The consolidated results of operations for the years ended December 31, 2021 and 2020 are summarized below:
| | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | |
| (in thousands) | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total revenues | $ | 1,216,351 | | | $ | 1,153,165 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total operating expenses | 374,583 | | | 343,891 | | | |
Income from operations | 841,768 | | | 809,274 | | | |
Total other expenses | (279,340) | | | (299,686) | | | |
Income before income taxes | 562,428 | | | 509,588 | | | |
Income tax expense | 28,342 | | | 3,877 | | | |
Net income | 534,086 | | | 505,711 | | | |
Net income attributable to noncontrolling interest in the Operating Partnership | (39) | | | — | | | |
Net income attributable to common shareholders | $ | 534,047 | | | $ | 505,711 | | | |
The Company has omitted the discussion comparing its operating results for the year ended December 31, 2020 to its operating results for the year ended December 31, 2019 from its Annual Report on Form 10-K for the year ended December 31, 2021. Readers are directed to Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for these disclosures.
Certain information regarding our results of operations by segment for the years ended December 31, 2021 and 2020 is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | Income from Operations |
| Year Ended December 31, | | Year Ended December 31, |
| 2021 | | 2020 | | | | 2021 | | 2020 | | |
| (in thousands) | | |
GLP Capital | $ | 1,102,653 | | | $ | 1,050,166 | | | | | $ | 781,226 | | | $ | 792,467 | | | |
TRS Segment | 113,698 | | | 102,999 | | | | | 60,542 | | | 16,807 | | | |
Total | $ | 1,216,351 | | | $ | 1,153,165 | | | | | $ | 841,768 | | | $ | 809,274 | | | |
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. These metrics are presented assuming full conversion of limited partnership units to common shares and therefore before the income statement impact of non-controlling interests. 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.
FFO, AFFO and Adjusted EBITDA are non-GAAP financial measures that are considered supplemental measures 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, bond premiums and original issuance discounts, other depreciation, amortization of land rights, straight-line rent adjustments, gains or (losses) on sales of operations, net of tax, losses on debt extinguishment, and provision for credit losses, net reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, net, income tax expense, depreciation, (gains) or losses from sales of property, gains on sales of operations, net of tax, stock based compensation expense, straight-line rent adjustments, amortization of land rights, losses on debt extinguishment, and provision for credit losses, net.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP financial measures: (i) do not represent cash flows 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 flows as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund 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, 2021 and 2020 is as follows:
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| (in thousands) |
Net income | $ | 534,086 | | | $ | 505,711 | | | |
Losses (gains) from dispositions of property | 711 | | | (41,393) | | | |
Real estate depreciation | 230,941 | | | 220,069 | | | |
Funds from operations | $ | 765,738 | | | $ | 684,387 | | | |
Straight-line rent adjustments | (3,993) | | | 4,576 | | | |
| | | | | |
Other depreciation | 5,493 | | | 10,904 | | | |
Amortization of land rights | 15,616 | | | 12,022 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | 9,929 | | | 10,503 | | | |
Stock based compensation | 16,831 | | | 20,004 | | | |
Gains on sale of operations, net of tax | (3,560) | | | — | | | |
Losses on debt extinguishment | — | | | 18,113 | | | |
| | | | | |
Provision for credit losses, net | 8,226 | | | — | | | |
| | | | | |
Capital maintenance expenditures | (2,270) | | | (3,130) | | | |
Adjusted funds from operations | $ | 812,010 | | | $ | 757,379 | | | |
Interest, net | 282,840 | | | 281,573 | | | |
Income tax expense | 9,440 | | | 3,877 | | | |
Capital maintenance expenditures | 2,270 | | | 3,130 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | (9,929) | | | (10,503) | | | |
Adjusted EBITDA | $ | 1,096,631 | | | $ | 1,035,456 | | | |
(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, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GLP Capital | | | | TRS Segment |
| | Year Ended December 31, | | Year Ended December 31, | | |
| | 2021 | | 2020 | | | | 2021 | | 2020 | | |
| | (in thousands) | | |
Net income (loss) | | $ | 514,883 | | | $ | 508,060 | | | | | $ | 19,203 | | | $ | (2,349) | | | |
Losses (gains) from dispositions of property | | 604 | | | (41,402) | | | | | 107 | | | 9 | | | |
Real estate depreciation | | 230,333 | | | 220,069 | | | | | 608 | | | — | | | |
Funds from operations | | $ | 745,820 | | | $ | 686,727 | | | | | $ | 19,918 | | | $ | (2,340) | | | |
Straight-line rent adjustments | | (3,873) | | | 4,576 | | | | | (120) | | | — | | | |
| | | | | | | | | | | | |
Other depreciation | | 1,881 | | | 1,972 | | | | | 3,612 | | | 8,932 | | | |
Gain on sale of operations, net of tax | | — | | | — | | | | | (3,560) | | | — | | | |
Amortization of land rights | | 15,616 | | | 12,022 | | | | | — | | | — | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | 9,929 | | | 10,503 | | | | | — | | | — | | | |
Stock based compensation | | 16,831 | | | 20,004 | | | | | — | | | — | | | |
Losses on debt extinguishment | | — | | | 18,113 | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Provision for credit losses, net | | 8,226 | | | — | | | | | — | | | — | | | |
| | | | | | | | | | | | |
Capital maintenance expenditures | | (65) | | | (186) | | | | | (2,205) | | | (2,944) | | | |
Adjusted funds from operations | | $ | 794,365 | | | $ | 753,731 | | | | | $ | 17,645 | | | $ | 3,648 | | | |
Interest, net (2) | | 265,439 | | | 265,597 | | | | | 17,401 | | | 15,976 | | | |
Income tax expense | | 904 | | | 697 | | | | | 8,536 | | | 3,180 | | | |
Capital maintenance expenditures | | 65 | | | 186 | | | | | 2,205 | | | 2,944 | | | |
Amortization of debt issuance costs, bond premiums and original issuance discounts (1) | | (9,929) | | | (10,503) | | | | | — | | | — | | | |
Adjusted EBITDA | | $ | 1,050,844 | | | $ | 1,009,708 | | | | | $ | 45,787 | | | $ | 25,748 | | | |
(1) Such amortization is a non-cash component included in interest, net.
(2) Interest, net for the GLP Capital segment is net of an intercompany interest elimination of $17.4 million and $16.0 million for the years ended December 31, 2021 and 2020.
Net income, FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $514.9 million, $745.8 million, $794.4 million and $1,050.8 million, respectively, for the year ended December 31, 2021. This compared to net income, FFO, AFFO, and Adjusted EBITDA, for our GLP Capital segment of $508.1 million, $686.7 million, $753.7 million and $1,009.7 million, respectively, for the year ended December 31, 2020. The increase in net income in our GLP Capital segment was primarily driven by a $52.5 million increase in income from real estate as explained below. In addition, we had several operating expense variances that are also discussed below.
The increase in operating expenses in our GLP Capital segment for the year ended December 31, 2021 as compared to the prior year period of $63.7 million was primarily from a gain on the disposition of property related to the Evansville swap transaction of $41.4 million in 2020, higher depreciation expense and land right amortization expense in our REIT segment of $18.5 million due to the Company's recent acquisitions, and a $8.2 million provision for credit losses, net in the current year. Partially offsetting these increases was lower general and administrative expenses of $5.0 million due primarily from severance and stock based compensation acceleration charges for the departure of our former chief financial officer in 2020.
The decrease in other expenses, net, for the year ended December 31, 2021 was due to $18.1 million of debt extinguishment charges in the prior year.
The increase in FFO for our GLP Capital segment for the year ended December 31, 2021 is due to the items described above, excluding gains (losses) from the disposition of property and real estate depreciation. The increase in AFFO is due to the items described above, less the adjustments mentioned in the table above, primarily straight line rent adjustments,
amortization expenses, stock based compensation costs, provision for credit losses, net and losses on debt extinguishment. Adjusted EBITDA for our GLP Capital segment for the year ended December 31, 2021, as compared to the prior year, also increased driven by the explanations above, as well as adjustments mentioned in the table above, primarily related to interest expense.
The net income of $19.2 million for our TRS Segment for the year ended December 31, 2021 as compared to a net loss of $2.3 million for the prior year is primarily related to strong reopening results in the current year at Hollywood Casino Baton Rouge and Hollywood Casino Perryville which in the prior year were closed temporarily from mid-March 2020 to May 2020 and June 2020, respectively, due to COVID-19. Additionally, the Company recorded a net after tax gain of $3.6 million on the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2021.
Revenues
Revenues for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Rental income | | $ | 1,106,658 | | | $ | 1,031,036 | | | $ | 75,622 | | | 7.3 | % |
| | | | | | | | |
Interest income from real estate loans | | — | | | 19,130 | | | (19,130) | | | (100.0) | % |
| | | | | | | | |
Total income from real estate | | 1,106,658 | | | 1,050,166 | | | 56,492 | | | 5.4 | % |
Gaming, food, beverage and other | | 109,693 | | | 102,999 | | | 6,694 | | | 6.5 | % |
Total revenues | | $ | 1,216,351 | | | $ | 1,153,165 | | | $ | 63,186 | | | 5.5 | % |
Total income from real estate
Total income from real estate increased $56.5 million, or 5.4%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. Results for the current year benefited from the additions on the Bally's Master Lease, the Perryville Lease, the Morgantown Lease and the Casino Queen Master Lease which in the aggregate increased cash rental income by $29.5 million. Additionally, the Company benefited from full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Lease effective May 1, 2021 and the Penn Master Lease that became effective November 1, 2021. The aggregate impact of these escalations increased building base rent by $5.0 million for the year ended December 31, 2021. The Company had higher percentage rent on the Penn Master Lease in the current year of $15.2 million, due to the impact of the COVID-19 closures in 2020 and strong performance in the current year by Penn's Hollywood Casino Columbus and Hollywood Casino Toledo properties. Finally, the Company also had favorable straight line rent adjustments of $8.6 million and higher ground rent revenue gross ups of $3.7 million due to the impact of the temporary COVID-19 closures that occurred in 2020.
Partially offsetting these favorable variances were lower percentage rents of $3.7 million from the 2020 resets on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Meadows Lease which was driven primarily from the COVID-19 closures. Additionally, we had lower cash rental income of $1.8 million on the Amended and Restated Caesars Master Lease that became effective in July 2020 which lowered rent initially but removed variable rents going forward and provided for fixed escalation increases as previously described.
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, 2021 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2021 | Building base rent | | Land base rent | | Percentage rent | | Total cash rental income | Straight-line rent adjustments | | Ground rent in revenue (1) | Other rental revenue | | Total rental income | |
Penn Master Lease | $ | 280,338 | | | $ | 93,969 | | | $ | 97,814 | | | $ | 472,121 | | $ | 8,926 | | | $ | 3,013 | | $ | 12 | | | $ | 484,072 | | |
Amended Pinnacle Master Lease | 230,230 | | | 71,256 | | | 26,779 | | | 328,265 | | (19,346) | | | 7,430 | | — | | | 316,349 | | |
Penn - Meadows Lease | 15,811 | | | — | | | 9,046 | | | 24,857 | | 2,288 | | | — | | 195 | | | 27,340 | | |
Penn Morgantown | — | | | 3,000 | | | — | | | 3,000 | | — | | | — | | — | | | 3,000 | | |
Penn Perryville | 2,914 | | | 971 | | | — | | | 3,885 | | 120 | | | — | | — | | | 4,005 | | |
Caesars Master Lease | 62,514 | | | 23,729 | | | — | | | 86,243 | | 10,358 | | | 1,586 | | — | | | 98,187 | | |
Lumiere Place Lease | 22,875 | | | — | | | — | | | 22,875 | | 544 | | | — | | — | | | 23,419 | | |
BYD Master Lease | 76,652 | | | 11,785 | | | 9,845 | | | 98,282 | | 2,296 | | | 1,726 | | — | | | 102,304 | | |
BYD Belterra Lease | 2,709 | | | 1,894 | | | 1,817 | | | 6,420 | | (1,211) | | | — | | — | | | 5,209 | | |
Bally's Master Lease | 23,111 | | | — | | | — | | | 23,111 | | — | | | 4,832 | | — | | | 27,943 | | |
Casino Queen Master Lease | 9,388 | | | — | | | 5,424 | | | 14,812 | | 18 | | | — | | — | | | 14,830 | | |
Total | $ | 726,542 | | | $ | 206,604 | | | $ | 150,725 | | | $ | 1,083,871 | | $ | 3,993 | | | $ | 18,587 | | $ | 207 | | | $ | 1,106,658 | | |
(1)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.
Gaming, food, beverage and other revenue
Gaming, food, beverage and other revenue for our TRS Properties increased by $6.7 million, or 6.5%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. The reason for the increase was due to the properties being closed in mid-March 2020 due to COVID-19. Hollywood Casino Baton Rouge reopened to the public on May 18, 2020 and Hollywood Casino Perryville reopened on June 19, 2020 with various restrictions to limit capacity in accordance with regulatory requirements. Results since reopening have exceeded the corresponding periods in the prior years as spend per visit has increased due to various factors such as pent up demand and government stimulus efforts, partially offset by the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and Hollywood Casino Baton Rouge on December 17, 2021.
Operating Expenses
Operating expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Gaming, food, beverage and other | | $ | 53,039 | | | $ | 56,698 | | | $ | (3,659) | | | (6.5) | % |
| | | | | | | | |
Land rights and ground lease expense | | 37,390 | | | 29,041 | | | 8,349 | | | 28.7 | % |
General and administrative | | 61,245 | | | 68,572 | | | (7,327) | | | (10.7) | % |
(Gains) losses from disposition of properties | | (21,751) | | | (41,393) | | | 19,642 | | | (47.5) | % |
Depreciation | | 236,434 | | | 230,973 | | | 5,461 | | | 2.4 | % |
Provision for credit losses, net | | 8,226 | | | — | | | 8,226 | | | — |
| | | | | | | | |
| | | | | | | | |
Total operating expenses | | $ | 374,583 | | | $ | 343,891 | | | $ | 30,692 | | | 8.9 | % |
Gaming, food, beverage and other expense
Gaming, food, beverage and other expense for our TRS Properties decreased by approximately $3.7 million, or 6.5%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. As previously discussed, the Company sold the operations of Hollywood Casino Perryville on July 1, 2021 and the operations of Hollywood Casino Baton Rouge on December 17, 2021. Additionally, the TRS Properties were closed for part of 2020 due to COVID-19.
Land rights and ground lease expense
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 increased by $8.3 million, or 28.7%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily from higher ground lease rents paid by our tenants in 2021 of $4.7 million that are primarily based on the facilities' revenues which increased due to the impact of COVID-19 in 2020 that resulted in temporary casino closures. 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. The Company also had higher land right amortization expense of $3.6 million due to the June 3, 2021 acquisition of Tropicana Evansville.
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. General and administrative expenses decreased by $7.3 million, or 10.7%, for the year ended December 31, 2021, as compared to the year ended December 31, 2020. This is primarily attributable to the negative impact from severance and stock acceleration charges of $6.3 million, related to the departure of our former chief financial officer as well as lower costs at our TRS Properties of $2.3 million primarily due to the sale of the operations of Hollywood Casino Perryville effective July 1, 2021, partially offset by higher bonus accruals in the current year.
Gains and losses from dispositions of property
For the year ended December 31, 2021, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge which resulted in a combined pre-tax gain of $22.4 million. See Note 1 to the Consolidated Financial Statements for further information. 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 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.
Depreciation expense
Depreciation expense increased by $5.5 million, or 2.4%, to $236.4 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to the Company's acquisitions over the past year.
Provision for credit losses,net
For the year ended December 31, 2021, the Company recorded a $12.2 million provision for credit losses on the Maryland Live! Lease which represented the Company's best estimate of losses over the life of the lease under ASC 326 "Credit Losses". See Note 2 to the Consolidated Financial Statements, Allowance for Credit Losses, for further discussion. Additionally, the Company recorded a $4 million recovery during the year ended December 31, 2021 for a payment received from Casino Queen in full satisfaction of a loan that was previously fully impaired.
Other income (expenses)
Other income (expenses) for the years ended December 31, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
Interest expense | | $ | (283,037) | | | $ | (282,142) | | | $ | (895) | | | 0.3 | % |
Interest income | | 197 | | | 569 | | | (372) | | | (65.4) | % |
Insurance gain | | 3,500 | | | — | | | 3,500 | | | N/M |
Losses on debt extinguishment | | — | | | (18,113) | | | 18,113 | | | (100.0) | % |
Total other expenses | | $ | (279,340) | | | $ | (299,686) | | | $ | 20,346 | | | (6.8) | % |
Insurance gain
For the year ended December 31, 2021, the Company recognized insurance gains of $3.5 million due to an insurance claim related to the temporary closures of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2020 related to COVID-19.
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 in April 2021, resulting in the retirement of such senior notes. The Company recorded losses on the early extinguishment of debt related to the current year retirements of $18.1 million for the year ended December 31, 2020 primarily for call premium charges and debt issuance write-offs.
Taxes
Our income tax expense increased $24.5 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020. During the year ended December 31, 2021, we had income tax expense of approximately $28.3 million, compared to income tax expense of $3.9 million during the year ended December 31, 2020. Our income tax expense is primarily driven from the operations of the TRS Segment, which are taxed at the corporate rate. Our effective tax rate (income taxes as a percentage of income before income taxes) was 5.0% and 0.8% for the years ended December 31, 2021 and 2020, respectively. The current year sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as deferred tax write off related to the sale of Hollywood Casino Baton Rouge resulted in a $18.9 million increase to income tax expense in 2021.
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 $803.8 million and $428.1 million during the years ended December 31, 2021 and 2020, respectively. The increase in net cash provided by operating activities of $375.7 million for the year ended December 31, 2021 as compared to the prior year was primarily due to an increase in cash receipts from tenants and customers of $388.2 million, a decrease in cash paid to employees of $9.6 million and a decrease in cash paid for operating expenses of $2.5 million, partially offset by an increase in cash paid for taxes of $14.1 million and an increase in interest payments of $12.4 million. The increase in cash receipts collected from our tenants and customers was primarily due to $337.5 million in non-cash rent recognized in connection with the Tropicana Las Vegas and Morgantown transactions in 2020, higher rental income from the Bally's Master Lease, the Perryville Lease, the Morgantown Lease, and the Casino Queen Master Lease, and higher percentage rent on the Penn Master Lease due to strong results at Hollywood Casino Columbus and Hollywood Casino Toledo (which were closed for part of 2020 due to COVID-19), along with the strong reopenings of our TRS Properties, which were forced to close in mid-March 2020 due to the impact of COVID-19. These properties reopened in May 2020 and June 2020 as previously discussed. The reduction in cash paid to employees was primarily due to lower bonus payouts in 2021 related to 2020 performance that was negatively impacted by COVID-19 as well as the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and the sale of Hollywood Casino Baton Rouge on December 17, 2021. The increase in taxes paid was due to the sale of Hollywood Casino Perryville and Hollywood Casino Baton Rouge and strong results at the TRS Properties prior to the sales. The increase in interest payments is due primarily from the $700 million 4.000% senior unsecured note offering that was completed in June and August of 2020.
Investing activities used net cash of $1,030.8 million and $9.5 million during the years ended December 31, 2021 and 2020, respectively. Net cash used in investing activities during the year ended December 31, 2021 consisted of $487.5 million for the acquisition of real estate assets in the Bally's acquisitions and $592.2 million for the acquisition of the real estate assets of Maryland Live! which was accounted for as an investment in lease, financing receivable. The Company also incurred capital expenditures of $16.2 million, partially offset by the net proceeds received for the sale of the operations of Hollywood Casino Perryville to Penn of $30.8 million, proceeds from the sale of the operations of Hollywood Casino Baton Rouge to Casino Queen of $28.2 million, a loan loss recovery of $4.0 million, and proceeds from the sale of property of $2.1 million. Net cash used in investing activities during the year ended December 31, 2020 primarily consisted of capital expenditures of $3.1 million and $5.9 million for the acquisition of real estate assets primarily related to the Evansville swap transaction.
Financing activities provided net cash of $443.1 million and $63.2 million during the years ended December 31, 2021 and 2020, respectively. Net cash provided by financing activities for the year ended December 31, 2021 was driven by $795.0 million of proceeds from the issuance of long-term debt and $662.3 million of net proceeds from the issuance of common stock, partially offset by the repayment of long term debt of $363.4 million relating to the Maryland Live! transaction, dividend payments of $633.9 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $9.9 million. During the year ended December 31, 2020, the Company raised $2,076.4 million of proceeds from the issuance of long term debt and $320.9 million of net proceeds from the issuance of common stock. This was partially offset by repayments of long-term debt of $2,076.6 million, dividend payments of $230.5 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $15.3 million.
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, 2021 and 2020 we spent approximately $2.3 million and $3.1 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. However, during 2021, $5.2 million was incurred on capital project expenditures related to a landside development project at Hollywood Casino Baton Rouge and $8.7 million was incurred on capital project expenditures related to an expansion at Casino Queen.
Debt
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 an issue price equal to 98.827% of the principal amount. 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 at an issue price equal to 103.824% of the principal amount. The Company utilized the net proceeds from this additional borrowing to repay indebtedness under the Term Loan A-1 facility.
At December 31, 2021, the Amended 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, 2021, 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 $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 Amended Credit Facility. At December 31, 2021, 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 Amended Credit Facility. At December 31, 2021, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Amended Credit Facility prior to maturity 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. 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, 2021, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
At December 31, 2021, the Company had an outstanding balance of $6,175.0 million of senior unsecured notes (the "Senior Notes").
On December 13, 2021, the Company issued $800 million of 3.25% senior unsecured notes due January 2032 at an issue price equal to 99.376% of the principal amount. The proceeds are being used to partially finance the Company's acquisition of certain real estate assets in the Cordish transaction as described in Note 7.
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 and GLP Financing II, Inc. (the "Issuers"), two wholly-owned subsidiaries of GLPI both of which are consolidated by GLPI, and are guaranteed on a senior unsecured basis by GLPI which such guarantees 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 Amended Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries through dividends or loans or to transfer assets from such subsidiaries, except as provided by applicable law and the covenants listed below. None of GLPI's other subsidiaries guarantee the Senior 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.
GLPI owns all of the assets of GLP Capital and conducts all of its operations through the operating partnership. Based on the amendments to Rule 3-10 of Regulation S-X that the SEC released on January 4, 2021, we note that since GLPI fully and unconditionally guarantees the debt securities of the Issuers and consolidates both Issuers, we are not required to provide separate financial statements for the Issuers and GLPI since they are consolidated into GLPI and the GLPI guarantee is “full and unconditional.”
Furthermore, as permitted under Rule 13-01(a)(4)(vi), we excluded the summarized financial information for the Issuers because the assets, liabilities and results of operations of the Issuers and GLPI are not materially different than the corresponding amounts in GLPI’s consolidated financial statements and we believe such summarized financial information would be repetitive and would not provide incremental value to investors.
At December 31, 2021, the Company was in compliance with all required financial covenants under its Senior Notes.
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.
LIBOR Transition
The majority of our debt is at fixed rates and our exposure to variable interest rates is currently limited to our Revolver and our Term Loan A-2. Both of these debt instruments are indexed to LIBOR which is expected to be phased out 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, pending acquisition costs for our Pennsylvania transactions with Cordish that will total approximately $698 million, inclusive of estimated real estate transfer taxes and fees (of which $575 million will require cash with the remainder funded in additional operating units) and the $150 million purchase price for the real estate of Bally's Black Hawk and Rock Island properties, capital expenditures, working capital needs and dividend requirements. Additionally, we anticipate the sale of the non-land real estate assets at Tropicana Las Vegas to Bally's will result in $150.0 million of proceeds.
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), issuance of additional operating partnership units, and/or debt offerings. In addition, although we have no significant debt maturities in 2022, the Company intends to refinance its Amended Credit Facility and certain senior unsecured note obligations in advance of their maturity dates in 2023. 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 $6,599.7 million at December 31, 2021. Furthermore, $6,175.0 million of our obligations are the senior unsecured notes that have fixed interest rates with maturity dates ranging from approximately two 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, 2021 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, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24- 12/31/24 | | 1/01/25- 12/31/25 | | 1/01/26 12/31/26 | | Thereafter | | Total | | Fair Value at 12/31/2021 |
| (in thousands) |
Long-term debt: | | | | | | | | | | | | | | | |
Fixed rate | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 975,000 | | | $ | 3,450,000 | | | $ | 6,175,000 | | | $ | 6,645,574 | |
Average interest rate | | | 5.38 | % | | 3.35 | % | | 5.25 | % | | 5.38 | % | | 4.36 | % | | | | |
| | | | | | | | | | | | | | | |
Variable rate | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | | | 2.90 | % | | | | | | | | | | | | |
(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, 2021 and 2020, the related consolidated statements of income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 24, 2022, 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 Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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 modified 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 made by management 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 if available.
◦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.
Current Expected Credit Loss (“Expected Loss”) – Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measures and record current expected credit losses (“CECL”), the scope of which includes Investments in leases - financing receivables. The Company elected to use an econometric default and loss rate model to estimate the CECL allowance. This model requires the Company to calculate and input lease and property specific credit and performance metrics which in conjunction with forward looking economic forecasts, project estimated credit losses over the life of the lease. A CECL allowance is recorded based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within the Company’s cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of the Company’s Investment in lease, financing receivable. The PD and LGD are estimated during the initial term of the lease. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model uses the average historical default rates and historical loss rates, respectively, dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivable. The Company will monitor the credit risk related to its financing receivable by obtaining the rent coverage ratios on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant.
The determination of the Company’s CECL allowance, including the forward looking economic forecasts, represents a critical audit matter due to the level of subjectivity and judgement involved. Auditing management’s allowance for credit losses requires a high degree of auditor judgment and increased extent of effort including the need to involve our credit specialist.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the allowance for credit losses for the Company’s investments in financing leases included the following, among others:
•We tested the effectiveness of controls implemented by the Company related to the estimation of the allowance for credit losses, including the judgements involved in the determination of the macroeconomic factors applied to expected loss rate.
•We tested the inputs used in the calculation to determine the PD and LGD of the tenant by agreeing lease and property specific credit and performance metrics to independent data.
•With the assistance of our credit specialist, we evaluated the reasonableness of the methodology, appropriateness of the model and significant assumptions used by management to estimate the PD and LGD.
•We evaluated management’s expected loss rate by performing a peer benchmarking analysis.
/s/ Deloitte & Touche
New York, New York
February 24, 2022
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, 2021 | | December 31, 2020 |
| | | |
Assets | | | |
Real estate investments, net | $ | 7,777,551 | | | $ | 7,287,158 | |
Investment in leases, financing receivables, net | 1,201,670 | | | — | |
Property and equipment, used in operations, net | 12,977 | | | 80,618 | |
Assets held for sale | 77,728 | | | 61,448 | |
Real estate of Tropicana Las Vegas, net | — | | | 304,831 | |
| | | |
Right-of-use assets and land rights, net | 851,819 | | | 769,197 | |
Cash and cash equivalents | 724,595 | | | 486,451 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Other assets | 44,109 | | | 44,665 | |
Total assets | $ | 10,690,449 | | | $ | 9,034,368 | |
| | | |
Liabilities | | | |
Accounts payable | $ | 779 | | | $ | 375 | |
Dividend payable and accrued expenses | 62,764 | | | 398 | |
Accrued interest | 71,810 | | | 72,285 | |
Accrued salaries and wages | 6,798 | | | 5,849 | |
Gaming, property, and other taxes | 502 | | | 146 | |
Income taxes payable | 5,166 | | | — | |
Operating lease liabilities | 183,945 | | | 152,203 | |
Financing lease liabilities | 53,309 | | | — | |
Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 6,552,372 | | | 5,754,689 | |
Deferred rental revenue | 329,068 | | | 333,061 | |
Deferred tax liabilities | — | | | 359 | |
Other liabilities | 33,796 | | | 39,985 | |
Total liabilities | 7,300,309 | | | 6,359,350 | |
| | | |
Commitments and Contingencies (Note 13) | 0 | | 0 |
| | | |
Equity | | | |
| | | |
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2021 and December 31, 2020) | — | | | — | |
Common stock ($.01 par value, 500,000,000 shares authorized,247,206,937 and 232,452,220 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively) | 2,472 | | | 2,325 | |
Additional paid-in capital | 4,953,943 | | | 4,284,789 | |
Accumulated deficit | (1,771,402) | | | (1,612,096) | |
Total equity attributable to Gaming and Leisure Properties | 3,185,013 | | | 2,675,018 | |
Noncontrolling interests in GLPI's Operating Partnership (4,348,774 units and no units outstanding at December 31, 2021 and December 31, 2020, respectively | 205,127 | | | — | |
Total equity | 3,390,140 | | | 2,675,018 | |
Total liabilities and equity | $ | 10,690,449 | | | $ | 9,034,368 | |
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, | | 2021 | | 2020 | | 2019 | | | |
| | | | | | | | | |
Revenues | | | | | | | | | |
Rental income | | $ | 1,106,658 | | | $ | 1,031,036 | | | $ | 996,166 | | | | |
| | | | | | | | | |
Interest income from real estate loans | | — | | | 19,130 | | | 28,916 | | | | |
| | | | | | | | | |
Total income from real estate | | 1,106,658 | | | 1,050,166 | | | 1,025,082 | | | | |
Gaming, food, beverage and other | | 109,693 | | | 102,999 | | | 128,391 | | | | |
Total revenues | | 1,216,351 | | | 1,153,165 | | | 1,153,473 | | | | |
| | | | | | | | | |
Operating expenses | | | | | | | | | |
Gaming, food, beverage and other | | 53,039 | | | 56,698 | | | 74,700 | | | | |
| | | | | | | | | |
Land rights and ground lease expense | | 37,390 | | | 29,041 | | | 42,438 | | | | |
General and administrative | | 61,245 | | | 68,572 | | | 65,385 | | | | |
(Gains) losses from dispositions | | (21,751) | | | (41,393) | | | 92 | | | | |
Depreciation | | 236,434 | | | 230,973 | | | 240,435 | | | | |
Provision for credit losses, net | | 8,226 | | | — | | | 13,000 | | | | |
| | | | | | | | | |
Total operating expenses | | 374,583 | | | 343,891 | | | 436,050 | | | | |
Income from operations | | 841,768 | | | 809,274 | | | 717,423 | | | | |
| | | | | | | | | |
Other income (expenses) | | | | | | | | | |
Interest expense | | (283,037) | | | (282,142) | | | (301,520) | | | | |
Interest income | | 197 | | | 569 | | | 756 | | | | |
Insurance proceeds | | 3,500 | | | — | | | — | | | | |
Losses on debt extinguishment | | — | | | (18,113) | | | (21,014) | | | | |
Total other expenses | | (279,340) | | | (299,686) | | | (321,778) | | | | |
| | | | | | | | | |
Income before income taxes | | 562,428 | | | 509,588 | | | 395,645 | | | | |
Income tax expense | | 28,342 | | | 3,877 | | | 4,764 | | | | |
Net income | | $ | 534,086 | | | $ | 505,711 | | | $ | 390,881 | | | | |
Net income attributable to noncontrolling interest in the Operating Partnership | | (39) | | | — | | | — | | | | |
Net income attributable to common shareholders | | $ | 534,047 | | | $ | 505,711 | | | $ | 390,881 | | | | |
| | | | | | | | | |
Earnings per common share: | | | | | | | | | |
Basic earnings attributable to common shareholders | | $ | 2.27 | | | $ | 2.31 | | | $ | 1.82 | | | | |
Diluted earnings attributable to common shareholders | | $ | 2.26 | | | $ | 2.30 | | | $ | 1.81 | | | | |
See accompanying Notes to the Consolidated Financial Statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Noncontrolling Interest Operating Partnership | | Total Equity |
| Shares | | Amount | | | | |
Balance, December 31, 2018 | 214,211,932 | | | $ | 2,142 | | | $ | 3,952,503 | | | $ | (1,689,038) | | | — | | | $ | 2,265,607 | |
Issuance of common stock, net of costs | 1,500 | | | — | | | (255) | | | — | | | — | | | $ | (255) | |
Stock option activity | 26,799 | | | — | | | 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 | |
Issuance of common stock, net of costs | 14,394,709 | | | 144 | | | 662,194 | | | — | | | — | | | 662,338 | |
| | | | | | | | | | | |
Restricted stock activity | 360,008 | | | 3 | | | 6,960 | | | — | | | — | | | 6,963 | |
Dividends paid and accrued ($2.90 per common share) | — | | | — | | | — | | | (693,353) | | | — | | | (693,353) | |
Issuance of operating partnership units | — | | | — | | | — | | | — | | | 205,088 | | | 205,088 | |
Net income | — | | | — | | | — | | | 534,047 | | | 39 | | | 534,086 | |
Balance, December 31, 2021 | 247,206,937 | | | $ | 2,472 | | | $ | 4,953,943 | | | $ | (1,771,402) | | | $ | 205,127 | | | $ | 3,390,140 | |
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, | | 2021 | | 2020 | | 2019 |
Operating activities | | | | | | |
Net income | | $ | 534,086 | | | $ | 505,711 | | | $ | 390,881 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 252,049 | | | 242,995 | | | 258,971 | |
Amortization of debt issuance costs, bond premiums and discounts | | 9,929 | | | 10,503 | | | 11,455 | |
(Gains) losses on dispositions | | (21,751) | | | (41,393) | | | 92 | |
Deferred income taxes | | 5,326 | | | 451 | | | (755) | |
Stock-based compensation | | 16,831 | | | 20,004 | | | 16,198 | |
Straight-line rent adjustments | | (3,993) | | | 4,576 | | | 34,574 | |
Deferred rent recognized | | — | | | (337,500) | | | — | |
Losses on debt extinguishment | | — | | | 18,113 | | | 21,014 | |
Provision for credit losses, net | | 8,226 | | | — | | | 13,000 | |
(Increase) decrease, | | | | | | |
Other assets | | 1,903 | | | (6,628) | | | (6,070) | |
(Decrease), increase | | | | | | |
Dividend payable, accounts payable and accrued expenses | | (2,297) | | | (1,252) | | | (1,775) | |
Accrued interest | | (475) | | | 11,590 | | | 15,434 | |
Accrued salaries and wages | | (1,115) | | | (5,908) | | | (3,189) | |
Gaming, property and other taxes, other liabilities and income taxes | | 5,059 | | | 6,815 | | | 472 | |
| | | | | | |
| | | | | | |
Net cash provided by operating activities | | 803,778 | | | 428,077 | | | 750,302 | |
Investing activities | | | | | | |
Capital project expenditures | | (13,926) | | | (474) | | | — | |
Capital maintenance expenditures | | (2,270) | | | (3,130) | | | (3,017) | |
Proceeds from sale of property and equipment | | 2,087 | | | 15 | | | 200 | |
Proceeds from sale of operations, net of transaction costs | | 58,993 | | | — | | | — | |
| | | | | | |
Loan loss recovery | | 4,000 | | | — | | | — | |
Acquisition of real estate assets | | (487,475) | | | (5,898) | | | — | |
| | | | | | |
Investment in leases - financing receivable | | (592,243) | | | — | | | — | |
| | | | | | |
Net cash used in investing activities | | (1,030,834) | | | (9,487) | | | (2,817) | |
Financing activities | | | | | | |
Dividends paid | | (633,901) | | | (230,522) | | | (589,128) | |
Taxes paid for shares withheld on restricted stock award vestings | | (9,867) | | | (15,293) | | | (9,058) | |
Proceeds from issuance of common stock, net | | 662,338 | | | 320,873 | | | (255) | |
Proceeds from issuance of long-term debt | | 795,008 | | | 2,076,383 | | | 1,358,853 | |
Financing costs | | (7,118) | | | (11,641) | | | (10,029) | |
Repayments of long-term debt and related costs | | (363,391) | | | (2,076,631) | | | (1,496,828) | |
| | | | | | |
Net cash provided by (used in) financing activities | | 443,069 | | | 63,169 | | | (746,445) | |
Net increase in cash and cash equivalents, including cash classified within assets held for sale | | 216,013 | | | 481,759 | | | 1,040 | |
Decrease (increase) in cash classified within assets held for sale | | 22,131 | | | (22,131) | | | — | |
Net increase in cash and cash equivalents | | 238,144 | | | 459,628 | | | 1,040 | |
Cash and cash equivalents at beginning of period | | 486,451 | | | 26,823 | | | 25,783 | |
Cash and cash equivalents at end of period | | $ | 724,595 | | | $ | 486,451 | | | $ | 26,823 | |
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. (NASDAQ: PENN) ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville (which are referred to as the "TRS Properties") and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 505-60 - Spinoffs and Reverse Spinoffs ("ASC 505").
The Company elected on its United States ("U.S.") federal income tax return for its taxable year that began on January 1, 2014 to be treated as a REIT and GLPI, together with its indirect wholly-owned subsidiary, GLP Holdings, Inc., jointly elected to treat each of GLP Holdings, Inc., Louisiana Casino Cruises, Inc. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) as a "taxable REIT subsidiary" ("TRS") effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of Tropicana Las Vegas Casino Hotel Resort ("Tropicana Las Vegas"), elected to treat Tropicana LV, LLC as a TRS, which together with the TRS Properties and GLP Holdings, Inc. is the Company's TRS segment (the "TRS Segment"). Finally in advance of our UPREIT transaction (as defined below), the Company elected GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021. 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. On July 1, 2021, the Company sold the operations of Hollywood Casino Perryville to Penn and is leasing the real estate to Penn pursuant to a standalone lease. On December 17, 2021, the Company sold the operations of Hollywood Casino Baton Rouge to Casino Queen and is leasing the real estate to Casino Queen pursuant to the Casino Queen Master Lease as described below. On December 17, 2021, GLPI declared a special dividend to the Company's shareholders to distribute the accumulated earnings and profits attributable to these sales. See Note 6 for additional information.
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, 2021, GLPI’s portfolio consisted of interests in 51 gaming and related facilities, including approximately 35 acres of real estate at Tropicana Las Vegas, the real property associated with 34 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars Entertainment Corporation (NASDAQ: CZR) ("Caesars"), the real property associated with 4 gaming and related facilities operated by Boyd Gaming Corporation (NYSE: BYD) ("Boyd"), the real property associated with 2 gaming and related facilities operated by Bally's Corporation (NYSE: BALY) ("Bally's) the real property associated with gaming and related facilities at Live! Casino & Hotel Maryland operated by The Cordish Companies ("Cordish") and the real property associated with 2 gaming and related facilities operated by Casino Queen Holding Company ("Casino Queen"). These facilities, including our corporate headquarters building, are geographically diversified across 17 states and contain approximately 27.6 million square feet. As of December 31, 2021, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn's former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries pursuant to a unitary master lease (the "Penn Master Lease"). The Penn Master Lease is a triple-net operating lease, the 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.
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 April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 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.
Meadows Lease
The real estate assets of the Meadows Racetrack and Casino are leased to Penn pursuant to a single property triple-net lease (the "Meadows Lease"). The Meadows Lease commenced on September 9, 2016 and has an initial term of 10 years, with no purchase option, and the option to renew for three successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to an amount determined by multiplying (i)4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to5%of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to a maximum of 2% annually thereafter.
Amended and Restated Caesars Master Lease
On October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement dated April 15, 2018 between Tropicana and GLP Capital L.P. ("GLP Capital"), the operating partnership of GLPI, which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars) acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Caesars and a wholly-owned subsidiary of Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by 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 and approval of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which conditions were satisfied on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement (the "Exchange Agreement") with subsidiaries of Caesars in which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. This resulted in a non-cash gain of $41.4 million in the 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 made.In connection with the Exchange Agreement, the annual building base rent was increased to $62.5 million and the annual land component was increased to $23.7 million.
Lumière Place Lease
On October 1, 2018 the Company entered into a loan agreement with Caesars in connection with Caesars’s acquisition of Lumière Place Casino ("Lumière Place"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Lumière Place property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan.On September 29, 2020, the transaction closed and we entered into a new triple net lease with Caesars (the "Lumière Place Lease") the initial term of which expires on October 31, 2033 with 4 separate renewal options of five years each, exercisable at the tenant's option.The Lumière Place Lease rent terms were adjusted on December 1, 2021 such that the annual escalator is now fixed at 1.25% for the second through fifth lease years, increasing to 1.75% for the sixth and seventh lease years and thereafter increasing by 2.0% for the remainder of the lease.
Bally's Master Lease
On June 3, 2021, the Company completed its previously announced transaction pursuant to which a subsidiary of Bally's acquired 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company reacquired the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company purchased the real estate assets of Dover Downs Hotel & Casino from Bally's for a cash purchase price of approximately $144.0 million. The real estate assets of these two facilities were added to a new triple net master lease (the "Bally's Master Lease") which has an initial term of 15 years, with no purchase option, followed by 4 five-year renewal options (exercisable by the tenant) on the same terms and conditions.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries closed on its previously announced transaction to acquire the real property associated with the Tropicana Las Vegas from Penn in exchange for rent credits of $307.5 million, which were applied against future rent obligations due under the parties' existing leases during 2020. An affiliate of Penn continues to operate the casino and hotel business of 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. See Note 6 for the anticipated sale of the building and sale-lease back of the land for this asset.
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 that were fully utilized by Penn in the fourth quarter of 2020.The Company is leasing the land back to an affiliate of Penn for an initial term of 20 years, followed by 6 5-year renewal options exercisable by the tenant (the "Morgantown Lease").
Casino Queen Master Lease
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million (the "HCBR transaction"). The HCBR transaction closed on December 17, 2021 which resulted in a pre-tax gain of $6.8 million ( loss of $7.7 million after tax) for the year ended December 31, 2021. The Company retained ownership of all real estate assets at Hollywood Casino Baton Rouge and simultaneously entered into a triple net master lease with Casino Queen, which includes the Casino Queen property in East St. Louis that is currently leased by the Company to Casino Queen and the Hollywood Casino Baton Rouge facility ("Casino Queen Master Lease"). The initial annual cash rent is approximately $21.4 million and the lease has an initial term of 15 years with 4 5 year renewal options exercisable by the tenant. This rental amount will be increased annually by 0.5% for the first six years. Beginning with the seventh lease year through the remainder of the lease term, if the Consumer Price Index ("CPI") increases by at least 0.25% for any lease year then annual rent shall be increased by 1.25%, and if the CPI increase is less than 0.25% then rent will remain unchanged for such lease year. Additionally, the Company will complete the current landside development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The Company will also have a right of first refusal with Casino Queen for other sale leaseback transactions up to $50 million over the next 2 years. Finally, in 2021, GLPI forgave the unsecured $13.0 million, 5.5 year term loan made to CQ Holding Company, Inc., an affiliate of Casino Queen, which has been previously impaired in return for a one-time cash payment of $4 million which was recorded in provision for credit losses, net during the year ended December 31, 2021.
Perryville Lease
On December 15, 2020, the Company announced that Penn exercised its option to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million. The transaction closed on July 1, 2021 and the real estate assets of the Hollywood Casino Perryville are being leased to Penn on a triple net basis
(the "Perryville Lease").
Maryland Live! Lease and Pennsylvania Live! Lease
On December 6, 2021, the Company announced that it had agreed to acquire the real property assets of Live! Casino & Hotel Maryland, Live! Casino & Hotel Philadelphia, and Live! Casino Pittsburgh, including applicable long-term ground leases, from affiliates of Cordish for aggregate consideration of approximately $1.81 billion at deal announcement. The transaction also includes a binding partnership on future Cordish casino developments, as well as potential financing partnerships between the Company and Cordish in other areas of Cordish's portfolio of real estate and operating businesses. GLPI will enter into a new triple net lease master lease with Cordish for Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh (the "Pennsylvania Live! Master Lease"), and GLPI entered into a single asset lease for Live! Casino & Hotel Maryland (the "Maryland Live! Lease"). On December 29, 2021, the Company completed its acquisition of the real property assets of Live! Casino & Hotel Maryland and entered into the Maryland Live! Lease which has an initial lease terms of 39 years, with a maximum term of 60 years inclusive of tenant renewal options. The annual rent for the Maryland Live! Lease is $75 million and for the Pennsylvania Live! Master Lease will be $50 million both of which have or will have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary. The Pennsylvania transactions are expected to close in early 2022, subject to the receipt of regulatory approvals and other customary closing conditions.
COVID-19
In the first quarter of 2020, there was a global outbreak of a new strain of novel coronavirus COVID-19. The global, domestic and local response to the COVID-19 outbreak continues to evolve. Responses to the COVID-19 outbreak 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 2020. Our properties began reopening at limited capacity in May 2020 and by early July 2020 nearly all had resumed operations at limited capacity. However, in the fourth quarter of 2020, increased spread of COVID-19 led some jurisdictions to impose temporary closures once again. As of the date of this filing, none of our properties are closed and all of our tenants are current on their obligations.
2.Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("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 deferred taxes and prepaid expenses have been classified in other assets on the Consolidated Balance Sheets.
Principles of Consolidation and Non-controlling interest
The consolidated financial statements include the accounts of GLPI and its subsidiaries as well as the Company's operating partnership, which is a variable interest entity ("VIE") in which the Company is the primary beneficiary. The Company presents non-controlling interests and classifies such interests as a separate component of equity, separate from GLPI's stockholders' equity and as net income attributable to noncontrolling interest in the Consolidated Statement of Income. See Note 18 for further discussion. All intercompany accounts and transactions have been eliminated in consolidation.
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 theirits 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 estimatesdetermines whether the fair value of the investment by calculating the undiscounted future cash flows from the use and eventual disposition ofunderlying lease exceeds the investment. This amount is compared toreal estate investments' carrying value. If we determine the estimated undiscounted cash flow are less than the asset's carrying value. Ifvalue, then 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.
Investment in Leases - Financing receivables
In accordance with ASC 842 - Leases ("ASC 842"), for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller under a sales-type lease (i.e. a sale leaseback transaction), the Company must determine whether control of the asset has transferred to the Company. In cases whereby control has not transferred to the Company, we do not recognize the underlying asset but instead recognize a financial asset in accordance with ASC 310 "Receivables". The accounting for the financing receivable under ASC 310 is materially consistent with the accounting for our investments in leases - sales type under ASC 842. The Company recognizes interest income on Investment in leases - financing receivables under the effective yield method. Generally, we would recognize interest income to the extent the tenant is not more than 90 days delinquent on their rental obligations. We have concluded that the Maryland Live! Lease is required to be accounted for as an Investment in leases - financing receivable on our Consolidated Balance Sheets in accordance with ASC 310, since control of the underlying assets was not considered to have transferred to the Company under GAAP given the significant initial term of the Maryland Live! Lease which was 39 years.
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 operationsProperties 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 31 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,Consolidated Balance Sheets, while loans for an operator's general operations are classified as loans receivable on the Company's consolidated balance sheets. All loansConsolidated Balance Sheets. Loans receivable are recorded on the Company's consolidated balance sheetsConsolidated Balance Sheets at carrying value which approximates fair value.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.
The Company evaluateshad no such loans for impairment when it is probable that it will not be able to collect all amounts due according to the contractual termsoutstanding at December 31, 2021 or December 31, 2020.
Table 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.Contents
The Company's 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") 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.
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 sheetConsolidated 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.Consolidated Balance Sheets.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
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 consistOther assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for further details on the deferred compensation plan). Other assets also include deferred taxes and prepaid 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 11 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 Properties 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.
ASC 350 prescribes a two-step goodwill impairment test, the first step which involves the determination of the fair value of each reporting unit and its comparison to 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.
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 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's adoption of ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04") on January 1, 2020 (as described in Note 3) is expected to simplify the analysis required under the Company's future goodwill impairment tests.
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.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.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 accounts for our investments in leases under ASC 842. Upon lease inception or lease modification, we assess lease classification to determine whether the lease should be classified as a sales-type, direct financing or operating lease. As required by ASC 842, we separately assess the land and building components of the property to determine the classification of each component. If the lease component is determined to be a sales-type lease or direct financing lease, we record a net investment in the lease, which is equal to the sum of the lease receivable and the unguaranteed residual asset, discounted at the rate implicit in the lease. Any difference between the fair value of the asset and the net investment in the lease is considered selling profit or loss and is either recognized upon execution of the lease or deferred and recognized over the life of the lease, depending on the classification of the lease. Since we purchase properties and simultaneously enter into new leases directly with the tenants, the net investment in the lease is generally equal to the purchase price of the asset, and, due to the long term nature of our leases, the land and building components of an investment generally have the same lease classification.
The Company recognizes the related income from our financing receivables using an effective interest rate at a constant rate over the term of the applicable leases. As a result, the cash payments received under financing receivables will not equal the income recognized for accounting purposes. Rather, a portion of the cash rent the Company will receive is recorded as interest income with the remainder as a change to financing receivables. Initial direct costs incurred in connection with entering into financing receivables are included in the balance of the financing receivables. Such amounts will be recognized as a reduction to interest income from financing receivables over the term of the lease using the effective interest rate method. Costs that would have been incurred regardless of whether the lease was signed, such as legal fees and certain other third party fees, are expensed as incurred.
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.842. 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.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. As of December 31, 2021, the Company no longer operates gaming assets and therefore gaming revenue will no longer be recorded.
Allowance for Credit Losses
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investments in leases - financing receivables and real estate loans. The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 did not result in the Company recording any allowances against its real estate loans for expected losses.
We have elected to use an econometric default and loss rate model to estimate the Allowance for credit losses, or CECL allowance. This model requires us to calculate and input lease and property-specific credit and performance metrics which in conjunction with forward-looking economic forecasts, project estimated credit losses over the life of the lease or loan. The Company then records a CECL allowance based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within our cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of our Investment in lease, financing receivable related to our Maryland Live! Lease. We have engaged a nationally recognized data analytics firm to assist us with estimating both the PD and LGD for this financing receivable. The PD and LGD are estimated during the initial term of the lease. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model was developed using the average historical default rates and historical loss rates, respectively, of over 100,000 commercial real estate loans dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivable. Management will monitor the credit risk related to its financing receivable by obtaining the rent coverage on the Maryland Live! Lease on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant. We are unable to use our historical data to estimate losses as the Company has no loss history to date on its lease portfolio. Our tenants are current on all of their rental obligations as of December 31, 2021.
The CECL allowance is recorded as a reduction to our net Investments in leases - financing receivable, on our Consolidated Balance Sheets. We are required to update our CECL allowance on a quarterly basis with the resulting change being recorded in the Consolidated Statement of Income for the relevant period. Finally, each time the Company makes a new investment in an asset subject to ASC 326, we will be required to record an initial CECL allowance for such asset, which will result in a non-cash charge to the Consolidated Statement of Income for the relevant period. See Note 8 for further information.
Charge-offs are deducted from the allowance in the period in which they are deemed uncollectible. Recoveries previously written off are recorded when received. The Company recorded a recovery of $4 million for the year ended December 31, 2021 for the settlement of a loan that had been previously written off to Casino Queen.
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 1315 for further information related to 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, 2019.2021.
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.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, 2019, 20182021, 2020 and 2017,2019, the Company recognized 0no 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”. Finally, in advance of the UPREIT Transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021.
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 stockshareholders 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 effect of the conversion of the Operating Partnership ("OP") units to common shares is excluded from the computation on basic and diluted earnings per share because all net income attributable to the Noncontrolling interest holders are recorded as income attributable to non-controlling interests, thus is excluded from net income available to common shareholders. See Note 1517 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-ownedconsolidated subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Properties.Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Properties reportable segmentSegment consists of Hollywood Casino Perryville (until July 1, 2021 and subsequent to this date includes rental income from the Perryville Lease) and Hollywood Casino Baton Rouge.Rouge (until December 17, 2021), as well as the real estate of Tropicana Las Vegas. The Company anticipates completing a transaction in the near future related to Tropicana Las Vegas. As such in 2022, the Company expects to have one reportable segment. See Note 1719 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, 2019,2021, substantially all of the Company's real estate properties were leased to Penn, EldoradoCaesars and Boyd. During the year ended December 31, 2019,2021, approximately 79%75%, 11% and 9%10% of the Company's collective income from real estate was derived from tenant leases and real estate loans with Penn, EldoradoCaesars and Boyd, respectively. 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, 2019,2021, the Company's portfolio of 4451 properties is diversified by location across 1617 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
Recently Adopted Accounting Pronouncements
Adopted in 2021
In February 2016, the Financial Accounting Standards Board ("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 more significantly impacted the accounting for leases in which GLPI is the lessee by requiring the Company to record a right-of-use asset and lease liability on its consolidated balance sheet for these leases. The Company's accounting treatment of its triple-net tenant leases, which are the primary source of revenues to the Company, were not significantly impacted by the adoption of ASU 2016-02, other than to eliminate the real estate tax gross-up discussed below.
In July 2018,March 2020, the FASB issued ASU No. 2018-11,2020-04, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") which permits companies to apply the transition provisions of ASU 2016-02 at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842):Narrow Scope Improvements for LessorsReference Rate Reform ("ASU 2018-20"2020-04"). ASU 2018-20 clarifiesReference 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 lessor costs paid directly toare based on a third-party by a lessee on behalflarger and more liquid population of the lessorobservable transactions. The one month, three month, six month and twelve month LIBOR rates are no longer requiredexpected to be recognized indiscontinued as of June 30, 2023. ASU 2020-04 provides optional expedients for applying the lessor's financial statements. Therefore, uponguidance 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. The adoption of ASU 2016-02, the Companythis pronouncement had no longer grosses-up its financial statements for real estate taxes paid directly to third-parties by its tenants. The Company notes, however, that ground leases for which the tenant pays the landlord directlymaterial impact on the Company's behalf are still required to be grossed-up within its consolidated financial statements upon the adoptionConsolidated Financial Statements.
Table of ASU 2016-02 as these are not considered lessor costs. On January 1, 2019, the Company adopted ASU 2016-02 using the new transition option available under ASU 2018-11 and recorded right-of-use assets and related lease liabilities of $203 million on its consolidated balance sheet to represent its rights to underlying assets and its future lease obligations. Also in connection with the adoption of ASC 842 - Leases ("ASC 842"), the land rights recorded on balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets are now required to beContents
reported in the aggregate with the Company's operating lease right-of-use assets, reflected as right-of-use assets and land rights, net on the consolidated balance sheet. Furthermore, the Company elected the package of practical expedients, which among other things, did not require the Company to reassess the lease classification of its existing leases and the practical expedient related to land easements, which allowed the Company to bypass the reassessment of existing or expired land easements for the existence of a lease under ASC 842. See Note 7 for further disclosures related to the adoption of ASU 2016-02.
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. The Company adopted ASU 2018-15 on January 1, 2020 and does not expect the adoption of ASU 2018-15 to have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04. This ASU simplifies an entity's goodwill impairment test by eliminating Step 2 from the test. The new guidance also amends the definition of impairment to a condition that exists when the carrying amount of goodwill exceeds its fair value. By eliminating Step 2 from the test, entities are no longer required to determine the implied fair value of goodwill by computing the fair value (at impairment testing date) of all assets and liabilities in a manner similar to that required in conjunction with business combinations. Upon the adoption of ASU 2017-04, an impairment charge is simply recorded as the difference between carrying value and fair value, when carrying value exceeds fair value. The Company adopted ASU 2017-04 on January 1, 2020 and expects the new guidance to simplify the analysis required under its future goodwill impairment tests.
In June 2016, the FASB issued ASU No. 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. The Company adopted ASU 2016-13 on January 1, 2020 and did not record any allowances against its financial instruments subject to the new guidance.
4. Real Estate Investments
Real estate investments, net, represent investments in 4250 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | 3,141,646 | | | $ | 2,667,616 | |
Building and improvements | 6,311,573 | | | 6,030,482 | |
Construction in progress | 5,699 | | | — | |
Total real estate investments | 9,458,918 | | | 8,698,098 | |
Less accumulated depreciation | (1,681,367) | | | (1,410,940) | |
Real estate investments, net | $ | 7,777,551 | | | $ | 7,287,158 | |
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| (in thousands) |
Land and improvements | $ | 2,552,285 |
| | $ | 2,552,475 |
|
Building and improvements | 5,749,211 |
| | 5,762,071 |
|
Total real estate investments | 8,301,496 |
| | 8,314,546 |
|
Less accumulated depreciation | (1,200,941 | ) | | (983,086 | ) |
Real estate investments, net | $ | 7,100,555 |
| | $ | 7,331,460 |
|
On June 30, 2019,The increase in real estate investments is primarily due to the Resorts Casino Tunica property was closed byacquisition of Dover Downs and Tropicana Evansville in a transaction with Bally's as well as the reclassification of the land associated with Tropicana Las Vegas from its own line item on the Company's tenant, resulting in the acceleration of $10.3 million of depreciation expense related to the building at this property. The net book value of this building is 0 at December 31, 2019. The Company entered intoConsolidated Balance Sheets as an agreement to terminatesell the long-term groundbuilding and lease the land back to Bally's was entered into and is expected to close in the second half of 2022. The building has been reclassified to assets held for this property, which will be effectivesale. Finally, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge during 2021 and leased back the real estate to Penn and Casino Queen, respectively. This resulted in February 2020, at which time such ground lease will be removed from the Penn Master Lease.an increase to real estate investments of $102.5 million. See Note 6 for further details on these transactions.
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 Propertiesfollowing.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | — | | | $ | 30,540 | |
Building and improvements | — | | | 117,333 | |
Furniture, fixtures, and equipment (1) | 28,832 | | | 28,767 | |
Construction in progress | — | | | 474 | |
Total property and equipment | 28,832 | | | 177,114 | |
Less accumulated depreciation (1) | (15,855) | | | (96,496) | |
Property and equipment, net | $ | 12,977 | | | $ | 80,618 | |
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| (in thousands) |
Land and improvements | $ | 30,492 |
| | $ | 30,431 |
|
Building and improvements | 116,904 |
| | 116,776 |
|
Furniture, fixtures, and equipment | 118,766 |
| | 117,247 |
|
Construction in progress | 120 |
| | 284 |
|
Total property and equipment | 266,282 |
| | 264,738 |
|
Less accumulated depreciation | (172,202 | ) | | (163,854 | ) |
Property and equipment, net | $ | 94,080 |
| | $ | 100,884 |
|
(1) The majority of the decline at December 31, 2021 compared to the prior year is related to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge. See Note 6 for further details.
6. ReceivablesAssets Held for Sale
Real Estate Loans As described in Note 1, the Company completed the sale of the operating assets at Hollywood Casino Perryville to Penn for $31.1 million and the operating assets of Hollywood Casino Baton Rouge to Casino Queen for $28.2 million during 2021. The operating assets of these two properties had been classified as assets held for sale at December 31, 2020. The Company recorded a pre-tax gain of $15.6 million ($11.3 million after-tax gain) on the sale of the operating assets of Hollywood Casino Perryville and a pre-tax gain of $6.8 million ($7.7 million after-tax loss) on the sale of the operating assets of Hollywood Casino Baton Rouge.
On April 13, 2021, Bally’s agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI will retain ownership of the land and concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million. The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022. At December 31, 2019,2021, the Company has two loans,classified the proceeds building value
of whichTropicana Las Vegas in Assets held for sale and the land value in Real estate investments, net on the Consolidated Balance Sheet since the transaction is expected to close within 12 months of the most recent balance sheet date. At December 31, 2020, the Company classified the real property associated with Tropicana Las Vegas as a separate caption on the Consolidated Balance Sheet.
The Company's assets and liabilities held for sale were usedcomprised of the following at December 31, 2021 and December 31, 2020, respectively (in thousands).
| | | | | | | | | | | |
Assets | December 31, 2021 | | December 31, 2020 |
Property and equipment, used in operations, net | — | | | $ | 8,780 | |
Real Estate Tropicana LV, net | 77,728 | | | — | |
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 | 77,728 | | | 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, 2021, 2020 and 2019.
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.
Current year acquisitions
As described in Note 1, the Company acquired the real estate byproperty assets of Live! Casino & Hotel Maryland, on December 29, 2021. The purchase price allocation of these assets and liabilities based on their fair values at the respective casino owner-operators. On Octoberacquisition date are summarized below (in thousands)
| | | | | |
Investment in leases, financing receivables | $ | 1,213,896 | |
Lease Liabilities | (53,309) | |
Total Purchase Price | $ | 1,160,587 | |
The table above excludes the reserve for financing receivables of $12.2 million that was recorded through the Consolidated Statement of Operations for the year ended December 31, 2021.
As previously discussed in Note 1, 2018, Eldorado purchasedon June 3, 2021, the Company completed its previously announced transaction with Bally's in which the real estate assets of Lumière PlaceTropicana Evansville and Dover Downs Hotel & Casino were acquired. The final purchase price allocation of these assets based on their fair values at the acquisition date are summarized below (in thousands).
| | | | | |
| |
Land and improvements | $ | 219,579 | |
Building and improvements | 201,430 | |
Real estate investments, net | 421,009 | |
Right-of-use assets and land rights, net | 101,813 | |
Lease liabilities | (35,372) | |
Total purchase price | $ | 487,450 | |
Pending acquisitions
As discussed in Note 1, the Company anticipates closing of the acquisition of the assets comprising the Pennsylvania Live! Master Lease from Cordish in early 2022 subject to the receipt of regulatory approvals and Hotel from Tropicanaother customary closing conditions. Total consideration of approximately $674 million will consist of 3.0 million OP Units and cash. Annual rent under the Pennsylvania Live! Master Lease will be $50 million and will have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
On April 13, 2021, the Company announced that it had entered into a binding term sheet with Bally's to acquire the real estate of Bally’s casino property in Black Hawk, CO and its recently acquired property in Rock Island, IL, in a transaction that is subject to regulatory approval. Total consideration for the acquisition is $150.0 million and the parties expect to add the properties to the Bally's Master Lease for incremental rent of $12 million. This transaction is expected to close in the second half of 2022.
In addition, Bally’s has granted GLPI a right of first refusal to fund the real property acquisition or development project costs associated with any and all potential future transactions in Michigan, Maryland, New York and Virginia through one or more sale-leaseback or similar transactions for a term of 7 years.
On April 13, 2021, Bally’s also agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash purchaseacquisition price of $246.0$150 million. GLPI would retain ownership of the land and will concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million exclusiveThe ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of transaction fees. Financing2022.
Both GLPI and Bally’s have committed to a structure in which GLPI has the potential to acquire additional assets in sale-leaseback transactions to the extent Bally’s elects to utilize GLPI’s capital as a funding source for the transaction was provided by the Companyits proposed acquisition of Gamesys Group plc ("Gamesys"). The $500 million commitment provides Bally’s alternative financing which, in GLPI’s sole discretion, may be funded in the form of $246.0equity, additional prepaid sale-leaseback transactions or secured loans. However, on July 26, 2021, Bally's announced that as a result of better than expected operating performance at its land-based retail casinos and interactive businesses, it does not plan to draw on this commitment to fund the Gamesys acquisition.
Prior 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.
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 was 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 loan (the "Eldorado Loan"). The Eldorado Loan bears interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversaryassets of the Eldorado Loan,Waterloo and Bettendorf properties in exchange for the mortgage evidencedtransfer by the Company to Caesars of the real property assets of the Tropicana Evansville, plus a deedcash payment of trust$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 | |
8. Investment in leases, financing receivables, net and other receivables
In connection with the Maryland Live! Lease that became effective on December 29, 2021, the Company recorded an investment in leases, financing receivables, net, as the sale lease back transaction was accounted for as a failed sale leaseback. The following is a summary of the balances of the Company's investment in leases, financing receivables.
| | | | | | | |
| December 31, 2021 | | |
| (in thousands) | | |
Minimum lease payments receivable | $ | 4,012,937 | | | |
Estimated residual values of lease property (unguaranteed) | 601,947 | | | |
Gross investment in leases, financing receivables | 4,614,884 | | | |
| | | |
Less: Unearned income | (3,400,988) | | | |
Less: Allowance for credit losses | (12,226) | | | |
Net Investment in leases, financing receivables | $ | 1,201,670 | | | |
The net investment in the lease payment receivable and unguaranteed residual value at December 31, 2021 was $1,178.0 million and $35.9 million, respectively.
At December 31, 2021, minimum lease payments owed to us for each of the five succeeding years under the Company's financing receivables was as follows (in thousands):
| | | | | |
Year ending December 31, | Future Minimum Lease Payments |
2022 | $ | 77,200 | |
2023 | 77,222 | |
2023 | 77,244 | |
2025 | 78,579 | |
2026 | 79,937 | |
Thereafter | 3,622,755 | |
Total | $ | 4,012,937 | |
The rollforward of the allowance for credit losses for the Company's financing receivables is illustrated below.
| | | | | |
| (in thousands) |
Balance at December 31, 2020 | $ | — | |
Provision for expected credit losses | 12,226 | |
Ending balance at December 31, 2021 | $ | 12,226 | |
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 property terminated and the loan became unsecured and will remain unsecured until its final maturity on the two-year anniversaryreal estate in satisfaction of the closing. The parties anticipate that the Eldorado Loan will be fully repaid on or prior to maturity by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferredCZR loan, subject to the CompanyLumière Place Lease, and added to the Eldorado Master Lease.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 $57.7 million secured mortgage loan onthe Belterra Park (the "Belterra Park Loan").Loan. The Belterra Park Loan's initial interest rate was equal to 11.11% and the loan maturesmatured in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). At December 31, 2019,In May 2020, the interest rate onCompany acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, had increasedsubject to 11.20%.the Belterra Park Lease.
At December 31, 2019, the Company does not have any allowances recorded against its real estate loans as the collection of the remaining principal and interest payments is reasonable assured.
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.
Other Loans ReceivableAssets
Other assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for further details on the deferred compensation plan). Other assets also include deferred taxes and prepaid 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.
In January 2014,Debt Issuance Costs and Bond Premiums and Discounts
Debt issuance costs that are incurred by the Company completedin connection with the asset acquisitionissuance of debt are deferred and amortized to interest expense over the contractual term of the real propertyunderlying 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 Casino Queeninputs 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 East St. Louis, Illinois. GLPIactive 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 accounts for our investments in leases under ASC 842. Upon lease inception or lease modification, we assess lease classification to determine whether the lease should be classified as a sales-type, direct financing or operating lease. As required by ASC 842, we separately assess the land and building components of the property back to Casino Queen ondetermine the classification of each component. If the lease component is determined to be a triple-net basis on terms similar to thosesales-type lease or direct financing lease, we record a net investment in the Company's existing master leases. The lease, has an initial termwhich is equal to the sum of 15 yearsthe lease receivable and the tenant has an option to renew itunguaranteed residual asset, discounted at the same termsrate implicit in the lease. Any difference between the fair value of the asset and conditions for 4 successive 5-year periods (the "Casino Queen Lease").
Simultaneouslythe net investment in the lease is considered selling profit or loss and is either recognized upon execution of the lease or deferred and recognized over the life of the lease, depending on the classification of the lease. Since we purchase properties and simultaneously enter into new leases directly with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, pre-payable at any time, which, together withtenants, the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017,net investment in 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% andlease is pre-payable 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 and through December 31, 2019, the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind. In additiongenerally equal 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 paymentpurchase price of the principal was still expected,asset, and, due to the anticipation thatlong term nature of our leases, the operations wereland and building components of an investment generally have the same lease classification.
The Company recognizes the related income from our financing receivables using an effective interest rate at a constant rate over the term of the applicable leases. As a result, the cash payments received under financing receivables will not equal the income recognized for accounting purposes. Rather, a portion of the cash rent the Company will receive is recorded as interest income with the remainder as a change to be soldfinancing receivables. Initial direct costs incurred in connection with entering into financing receivables are included in the near term for an amount allowing for repaymentbalance of the full $13.0 millionfinancing receivables. Such amounts will be recognized as a reduction to interest income from financing receivables over the term of loan principal duethe lease using the effective interest rate method. Costs that would have been incurred regardless of whether the lease was signed, such as legal fees and certain other third party fees, are expensed as incurred.
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to GLPI. However,operating leases, on a straight-line basis over the paid-in-kind interest dueterm of the related leases when collectability is reasonably assured in accordance with ASC 842. 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 Company at December 31, 2018 was not expected to be collected, resultingtenant.
Additionally, 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 toaccordance with ASC 842, the Company records revenue for the quarter ended December 31, 2018ground lease rent paid by its tenants with an offsetting expense in land rights 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. Thus, because the Company did not expect Casino Queen to be able to repay the $13.0 million of principal due to the Company under the Casino Queen Loan, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million throughground lease expense within the consolidated statement of income for the year ended December 31, 2019 to reflect the write-off of the Casino Queen Loan.
At December 31, 2019, all lease payments due from Casino Queen remain current, however Casino Queen was in violation of the rent coverage ratio required under its lease withas the Company andhas concluded that as the Company provided notice and a reservation of rights to Casino Queen and its secured lenders of such default.
7. Lease Assets and Lease Liabilities
Lease Assets
lessee it is the primary obligor under the ground leases. The Company is subject to various operating leases as lessee for both real estate and equipment, the majority of which aresubleases these ground leases related to properties the Company leasesback 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 tenantswho are responsible for payment directly to the third-party landlord. Under ASC 842,
The Company may periodically loan funds to casino owner-operators for the Companypurchase of gaming related real estate. Interest income related to real estate loans is requiredrecorded 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 gross-up its consolidated financial statementsa 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 these ground leasesfunds 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 is consideredalso defers a portion of 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 resultedrevenue received from customers (who participate in the land right assets the Company recorded on its consolidated balance sheet in conjunction with the Company's assumption of below market leasespoints-based loyalty programs) at the time it acquiredof play until a later period when 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 favorablepoints are redeemed or unfavorable, given market conditionsforfeited. Other revenues at the acquisition date. BecauseTRS Properties are derived from 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 marketproperties' dining, retail and were therefore required to be recordedcertain other ancillary activities and revenue for these activities is recognized as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, netservices are detailed below (in thousands):
|
| | | |
| December 31, 2019 |
Right-of use assets - operating leases | $ | 184,063 |
|
Land rights, net | 654,671 |
|
Right-of-use assets and land rights, net | $ | 838,734 |
|
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 will be 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, 2019 | | December 31, 2018 |
| (in thousands) |
Land rights | $ | 694,077 |
| | $ | 700,997 |
|
Less accumulated amortization | (39,406 | ) | | (27,790 | ) |
Land rights, net | $ | 654,671 |
| | $ | 673,207 |
|
performed. As of December 31, 2019,2021, the Company no longer operates gaming assets and therefore gaming revenue will no longer be recorded.
Allowance for Credit Losses
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investments in leases - financing receivables and real estate loans. The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 did not result in the Company recording any allowances against its real estate loans for expected losses.
We have elected to use an econometric default and loss rate model to estimate the Allowance for credit losses, or CECL allowance. This model requires us to calculate and input lease and property-specific credit and performance metrics which in conjunction with forward-looking economic forecasts, project estimated future amortization expensecredit losses over the life of the lease or loan. The Company then records a CECL allowance based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within our cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of our Investment in lease, financing receivable related to our Maryland Live! Lease. We have engaged a nationally recognized data analytics firm to assist us with estimating both the Company’s land rightsPD and LGD for this financing receivable. The PD and LGD are estimated during the initial term of the lease. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model was developed using the average historical default rates and historical loss rates, respectively, of over 100,000 commercial real estate loans dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivable. Management will monitor the credit risk related to its financing receivable by fiscal year isobtaining the rent coverage on the Maryland Live! Lease on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant. We are unable to use our historical data to estimate losses as follows (in thousands):the Company has no loss history to date on its lease portfolio. Our tenants are current on all of their rental obligations as of December 31, 2021.
|
| | | |
Year ending December 31, | |
2020 | $ | 12,081 |
|
2021 | 12,081 |
|
2022 | 12,081 |
|
2023 | 12,081 |
|
2024 | 12,081 |
|
Thereafter | 594,266 |
|
Total | $ | 654,671 |
|
The CECL allowance is recorded as a reduction to our net Investments in leases - financing receivable, on our Consolidated Balance Sheets. We are required to update our CECL allowance on a quarterly basis with the resulting change being recorded in the Consolidated Statement of Income for the relevant period. Finally, each time the Company makes a new investment in an asset subject to ASC 326, we will be required to record an initial CECL allowance for such asset, which will result in a non-cash charge to the Consolidated Statement of Income for the relevant period. See Note 8 for further information.
Lease Liabilities
AtCharge-offs are deducted from the allowance in the period in which they are deemed uncollectible. Recoveries previously written off are recorded when received. The Company recorded a recovery of $4 million for the year ended December 31, 2019, maturities2021 for the settlement of a loan that had been previously written off to Casino Queen.
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 operating lease liabilities weretime-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 follows (in thousands):expense over the awards’ remaining vesting periods. See Note 15 for further information related to stock-based compensation.
Income Taxes
|
| | | |
Year ending December 31, | |
2020 | $ | 14,071 |
|
2021 | 13,766 |
|
2022 | 13,659 |
|
2023 | 13,638 |
|
2024 | 13,617 |
|
Thereafter | 644,059 |
|
Total lease payments | $ | 712,810 |
|
Less: interest | (528,839 | ) |
Present value of lease liabilities | $ | 183,971 |
|
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 transitioning from 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 ASC 840 to ASC 842, the Company's annual minimum lease paymentsinterim periods, disclosure and transition. The Company did not change.have any uncertain tax positions for the three years ended December 31, 2021.
Lease Expense
Operating lease costs representThe Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the entire amount of interest and penalties charged to 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, 2019 |
| (in thousands) |
Operating lease cost | $ | 15,482 |
|
Variable lease cost | 9,048 |
|
Short-term lease cost | 1,060 |
|
Amortization of land right assets | 18,536 |
|
Total lease cost | $ | 44,126 |
|
Amortization expense related to the land right intangibles,each period, as well as variable lease coststhe cumulative amounts recorded in the Consolidated Balance Sheets. If and when they occur, the majority of the Company's operating lease costs are recordedCompany will classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within land rights and ground lease expense in the consolidated statements of income. During the years ended December 31, 2021, 2020 and 2019, the Company recognized no 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”. Finally, in advance of the UPREIT Transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021.
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 short-term lease costsnet 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 shareholders 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 effect of the conversion of the Operating Partnership ("OP") units to common shares is excluded from the computation on basic and diluted earnings per share because all net income attributable to the Noncontrolling interest holders are recorded as income attributable to non-controlling interests, thus is excluded from net income available to common shareholders. 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 both gaming, food, beverageASC 280 - Segment Reporting) reviews and other expenseassesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a consolidated subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and generalthe TRS Segment. The GLP Capital reportable segment consists of the leased real property and administrative expenserepresents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville (until July 1, 2021 and subsequent to this date includes rental income from the Perryville Lease) and Hollywood Casino Baton Rouge (until December 17, 2021), as well as the real estate of Tropicana Las Vegas. The Company anticipates completing a transaction in the consolidated statementsnear future related to Tropicana Las Vegas. As such in 2022, the Company expects to have one reportable segment. See Note 19 for further information with respect to the Company’s segments.
Concentration of income, whileCredit Risk
Concentrations of credit risk arise when a small portionnumber of operating lease costs is also recorded in both gaming, food, beverage and other expense and general and administrative expense in the consolidated statements of income. Amortization expenseoperators, 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, 2021, substantially all of the Company's real estate properties were leased to Penn, Caesars and Boyd. During the year ended December 31, 2021, approximately 75%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases 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, 2021, the Company's portfolio of 51 properties is diversified by location across 17 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 2021
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. The one month, three month, six month and twelve month LIBOR rates are expected to be discontinued as of June 30, 2023. 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. The adoption of this pronouncement had no material impact on the Company's Consolidated Financial Statements.
4.Real Estate Investments
Real estate investments, net, represent investments in 50 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | 3,141,646 | | | $ | 2,667,616 | |
Building and improvements | 6,311,573 | | | 6,030,482 | |
Construction in progress | 5,699 | | | — | |
Total real estate investments | 9,458,918 | | | 8,698,098 | |
Less accumulated depreciation | (1,681,367) | | | (1,410,940) | |
Real estate investments, net | $ | 7,777,551 | | | $ | 7,287,158 | |
The increase in real estate investments is primarily due to the acquisition of Dover Downs and Tropicana Evansville in a transaction with Bally's as well as the reclassification of the land right intangibles totaled $11.3associated with Tropicana Las Vegas from its own line item on the Company's Consolidated Balance Sheets as an agreement to sell the building and lease the land back to Bally's was entered into and is expected to close in the second half of 2022. The building has been reclassified to assets held for sale. Finally, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge during 2021 and leased back the real estate to Penn and Casino Queen, respectively. This resulted in an increase to real estate investments of $102.5 million. See Note 6 for further details on these transactions.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | — | | | $ | 30,540 | |
Building and improvements | — | | | 117,333 | |
Furniture, fixtures, and equipment (1) | 28,832 | | | 28,767 | |
Construction in progress | — | | | 474 | |
Total property and equipment | 28,832 | | | 177,114 | |
Less accumulated depreciation (1) | (15,855) | | | (96,496) | |
Property and equipment, net | $ | 12,977 | | | $ | 80,618 | |
(1) The majority of the decline at December 31, 2021 compared to the prior year is related to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge. See Note 6 for further details.
6. Assets Held for Sale
As described in Note 1, the Company completed the sale of the operating assets at Hollywood Casino Perryville to Penn for $31.1 million and $10.4the operating assets of Hollywood Casino Baton Rouge to Casino Queen for $28.2 million during 2021. The operating assets of these two properties had been classified as assets held for sale at December 31, 2020. The Company recorded a pre-tax gain of $15.6 million ($11.3 million after-tax gain) on the sale of the operating assets of Hollywood Casino Perryville and a pre-tax gain of $6.8 million ($7.7 million after-tax loss) on the sale of the operating assets of Hollywood Casino Baton Rouge.
On April 13, 2021, Bally’s agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI will retain ownership of the land and concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million. The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022. At December 31, 2021, the Company classified the building value
of Tropicana Las Vegas in Assets held for sale and the land value in Real estate investments, net on the Consolidated Balance Sheet since the transaction is expected to close within 12 months of the most recent balance sheet date. At December 31, 2020, the Company classified the real property associated with Tropicana Las Vegas as a separate caption on the Consolidated Balance Sheet.
The Company's assets and liabilities held for sale were comprised of the following at December 31, 2021 and December 31, 2020, respectively (in thousands).
| | | | | | | | | | | |
Assets | December 31, 2021 | | December 31, 2020 |
Property and equipment, used in operations, net | — | | | $ | 8,780 | |
Real Estate Tropicana LV, net | 77,728 | | | — | |
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 | 77,728 | | | 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, 20182021, 2020 and 2017. Other lease2019.
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 totaled $18.9incurred to acquire the purchased assets are also included as part of the asset cost.
Current year acquisitions
As described in Note 1, the Company acquired the real property assets of Live! Casino & Hotel Maryland, on December 29, 2021. The purchase price allocation of these assets and liabilities based on their fair values at the acquisition date are summarized below (in thousands)
| | | | | |
Investment in leases, financing receivables | $ | 1,213,896 | |
Lease Liabilities | (53,309) | |
Total Purchase Price | $ | 1,160,587 | |
The table above excludes the reserve for financing receivables of $12.2 million and $15.8 million, respectively,that was recorded through the Consolidated Statement of Operations for the yearsyear ended December 31, 20182021.
As previously discussed in Note 1, on June 3, 2021, the Company completed its previously announced transaction with Bally's in which the real estate assets of Tropicana Evansville and 2017.Dover Downs Hotel & Casino were acquired. The final purchase price allocation of these assets based on their fair values at the acquisition date are summarized below (in thousands).
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| |
Land and improvements | December 31, 2019$ | 219,579 | |
Weighted average remaining lease term - operating leasesBuilding and improvements | 53.51 years201,430 | |
Weighted average discount rate - operating leasesReal estate investments, net | 6.7%421,009 | |
Right-of-use assets and land rights, net | 101,813 | |
Lease liabilities | (35,372) | |
Total purchase price | $ | 487,450 | |
Pending acquisitions
Supplemental cash flow information related
As discussed in Note 1, the Company anticipates closing of the acquisition of the assets comprising the Pennsylvania Live! Master Lease from Cordish in early 2022 subject to the Company's operating leases was as follows:
|
| | | |
| Year Ended December 31, 2019 |
| (in thousands) |
Cash paid for amounts included in the measurement of leases liabilities: | |
Operating cash flows from operating leases (1) | $ | 2,226 |
|
| |
Right-of-use assets obtained in exchange for new lease obligations: | |
Operating leases | $ | 293 |
|
receipt of regulatory approvals and other customary closing conditions. Total consideration of approximately $674 million will consist of 3.0 million OP Units and cash. Annual rent under the Pennsylvania Live! Master Lease will be $50 million and will have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
(1)
The Company's cash paid for operating leases
On April 13, 2021, the Company announced that it had entered into a binding term sheet with Bally's to acquire the real estate of Bally’s casino property in Black Hawk, CO and its recently acquired property in Rock Island, IL, in a transaction that is significantly less than the lease costsubject to regulatory approval. Total consideration for the same period dueacquisition is $150.0 million and the parties expect to add the properties to the majorityBally's Master Lease for incremental rent of $12 million. This transaction is expected to close in the second half of 2022.
In addition, Bally’s has granted GLPI a right of first refusal to fund the real property acquisition or development project costs associated with any and all potential future transactions in Michigan, Maryland, New York and Virginia through one or more sale-leaseback or similar transactions for a term of 7 years.
On April 13, 2021, Bally’s also agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI would retain ownership of the Company'sland and will concurrently enter into a ground lease for 50 years with initial annual rent being paid directlyof $10.5 million The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022.
Both GLPI and Bally’s have committed to a structure in which GLPI has the potential to acquire additional assets in sale-leaseback transactions to the landlords by the Company's tenants. Although GLPI expends no cash relatedextent Bally’s elects to these leases, they are required toutilize GLPI’s capital as a funding source for its proposed acquisition of Gamesys Group plc ("Gamesys"). The $500 million commitment provides Bally’s alternative financing which, in GLPI’s sole discretion, may be grossed upfunded in the Company's financial statements under ASC 842.form of equity, additional prepaid sale-leaseback transactions or secured loans. However, on July 26, 2021, Bally's announced that as a result of better than expected operating performance at its land-based retail casinos and interactive businesses, it does not plan to draw on this commitment to fund the Gamesys acquisition.
Prior year acquisitions
8. Goodwill and Intangible Assets
Goodwill is an asset representingAs previously discussed in Note 1, the future economic benefits arising from other assets acquiredimpact of COVID-19 resulted in casino-wide closures by all of our tenants. As a business combination that are not individually identified and separately recognized. The only goodwillresult of COVID-19, on April 16, 2020, the Company isand certain of its subsidiaries acquired the goodwill 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 accordancereal property associated with the provisionsTropicana Las Vegas from Penn in exchange for $307.5 million of ASC 505. There is no goodwill recorded onrent credits, which were fully utilized in 2020 for rent due under the Company's GLP Capital segment, which holds the Company's REIT operations.parties' existing leases.
Changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 are as follows:
|
| | | |
| TRS Properties Business Segment |
| (in thousands) |
Balance at December 31, 2017 | $ | 75,521 |
|
Acquisitions | — |
|
Impairment losses | (59,454 | ) |
Balance at December 31, 2018 | $ | 16,067 |
|
Acquisitions | — |
|
Impairment losses | — |
|
Balance at December 31, 2019 | $ | 16,067 |
|
The Company recorded an initial land and building value of $226.2 million and $81.3 million, respectively. During the year ended December 31, 2018,2020 depreciation expense of $2.7 million was recorded. Additionally, deferred rent of $307.5 million was recorded at the acquisition date, which was 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 goodwill impairment chargenon-cash gain of $59.5$41.4 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 secondfourth quarter of 2018, both of2020 related to the transaction, which significantly impactedrepresented 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 described below, 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 ofdifference between the fair value of the Baton Rouge reporting unit and its comparisonproperties received compared 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 of Tropicana Evansville and proceeded to Step 2. In Step 2the cash payment 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$5.7 million. The following table summarizes the fair value of the reporting unit calculatedassets acquired in Step 1 to all assetsthe Exchange Agreement 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 property 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 faircarrying value of the recorded assetTropicana Evansville assets that were transferred to its carrying amount. IfCaesars. (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 | |
8. Investment in leases, financing receivables, net and other receivables
In connection with 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 conducted its annual impairment assessment of the gaming licenseMaryland Live! Lease that became effective on October 1, 2019 using the Greenfield Method which estimates the fair value of the gaming license assumingDecember 29, 2021, the Company builtrecorded an investment in leases, financing receivables, net, as the sale lease back transaction was accounted for as 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, 2019 and 2018, the gaming license had a carrying value of $9.6 million.
9.Long-term Debt
Long-term debt, net of current maturities and unamortized debt issuance costs is as follows:
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| (in thousands) |
Unsecured $1,175 million revolver | $ | 46,000 |
| | $ | 402,000 |
|
Unsecured term loan A-1 | 449,000 |
| | 525,000 |
|
$1,000 million 4.875% senior unsecured notes due November 2020 | 215,174 |
| | 1,000,000 |
|
$400 million 4.375% senior unsecured notes due April 2021 | 400,000 |
| | 400,000 |
|
$500 million 5.375% senior unsecured notes due November 2023 | 500,000 |
| | 500,000 |
|
$400 million 3.35% senior unsecured notes due September 2024 | 400,000 |
| | — |
|
$850 million 5.250% 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 5.30% senior unsecured notes due January 2029 | 750,000 |
| | 750,000 |
|
$700 million 4.00% senior unsecured notes due January 2030 | 700,000 |
| | — |
|
Finance lease liability | 989 |
| | 1,112 |
|
Total long-term debt | 5,786,163 |
| | 5,903,112 |
|
Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (48,201 | ) | | (49,615 | ) |
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 5,737,962 |
| | $ | 5,853,497 |
|
failed sale leaseback. The following is a schedulesummary of future minimum repaymentsthe balances of long-term debt asthe Company's investment in leases, financing receivables.
| | | | | | | |
| December 31, 2021 | | |
| (in thousands) | | |
Minimum lease payments receivable | $ | 4,012,937 | | | |
Estimated residual values of lease property (unguaranteed) | 601,947 | | | |
Gross investment in leases, financing receivables | 4,614,884 | | | |
| | | |
Less: Unearned income | (3,400,988) | | | |
Less: Allowance for credit losses | (12,226) | | | |
Net Investment in leases, financing receivables | $ | 1,201,670 | | | |
The net investment in the lease payment receivable and unguaranteed residual value at December 31, 2019 (in thousands): 2021 was $1,178.0 million and $35.9 million, respectively.
|
| | | |
2020 | $ | 215,303 |
|
2021 | 849,135 |
|
2022 | 142 |
|
2023 | 546,149 |
|
2024 | 400,156 |
|
Over 5 years | 3,775,278 |
|
Total minimum payments | $ | 5,786,163 |
|
Senior Unsecured Credit Facility
The Company's senior unsecured credit facility (the "Credit Facility"), consists of a $1,175 million revolving credit facility and a $449 million Term Loan A-1 facility. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021.
At December 31, 2019, the Credit Facility had a gross outstanding balance of $495 million, consisting2021, minimum lease payments owed to us for each of the $449 million Term Loan A-1 facility and $46 million of borrowingsfive succeeding years under the revolvingCompany's financing receivables was as follows (in thousands):
| | | | | |
Year ending December 31, | Future Minimum Lease Payments |
2022 | $ | 77,200 | |
2023 | 77,222 | |
2023 | 77,244 | |
2025 | 78,579 | |
2026 | 79,937 | |
Thereafter | 3,622,755 | |
Total | $ | 4,012,937 | |
The rollforward of the allowance for credit facility. Additionally, at December 31, 2019,losses for the Company's financing receivables is illustrated below.
| | | | | |
| (in thousands) |
Balance at December 31, 2020 | $ | — | |
Provision for expected credit losses | 12,226 | |
Ending balance at December 31, 2021 | $ | 12,226 | |
Real Estate Loans
As discussed in Note 1, the Company historically had the CZR loan outstanding which was contingently obligated under lettersutilized by Caesars in connection with its acquisition of credit issued pursuant to the Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $1,128.6 million of available borrowing capacity under the revolving credit facility as of December 31, 2019.
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, 2019, the applicable margin was 1.50% for LIBOR loans and 0.50% for base rate loans. In addition,Lumière Place. On June 24, 2020, the Company is requiredreceived approval from the Missouri Gaming Commission to pay a commitment fee onown the unused portionLumière Place real estate in satisfaction 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, 2019, 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,CZR loan, subject to the absenceLumière Place Lease, and closed this transaction on September 29, 2020.
On October 15, 2018, Boyd purchased the real estate assets of payment or bankruptcy defaults. GLPI is also permittedBelterra 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 make other dividends and distributions subject to pro forma compliance with the financial covenants11.11% 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, 2019, the Company was in compliance with all required financial covenants under the Credit Facility.
Senior Unsecured Notes
At December 31, 2019, the Company had an outstanding balance of $5,290.2 million of senior unsecured notes (the "Senior Notes").
On August 29, 2019, the Company issued $400 million of 3.35% Senior Unsecured Notes maturing on September 1, 2024 at an issue price equal to 99.899% of the principal amount (the "2024 Notes") and $700 million of 4.00% Senior Unsecured Notes maturing on January 15, 2030 at an issue price equal to 99.751% of the principal amount (the "2030 Notes"). Interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2020. Interest on the 2030 Notes is payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2020. The net proceeds from the sale of the 2024 Notes and 2030 Notes were used to (i) finance the Company's cash tender offer to purchase its 4.875% Senior Unsecured Notes due 2020 (described below) (ii) repay outstanding borrowings under the Company's revolving credit facility and (iii) repay a portion of the outstanding borrowings under the Company's Term Loan A-1 facility.
On September 12, 2019, the Company completed a cash tender offer (the "2019 Tender Offer") to purchase its $1,000 million aggregate principal amount 4.875% Senior Unsecured Notes due 2020 (the "2020 Notes"). The Company received early tenders from the holders of approximately $782.6 million in aggregate principal of the 2020 Notes, or approximately 78% of its outstanding 2020 Notes,loan matured in connection with the 2019 Tender Offer at a price of 102.337%expiration of the unpaid principal amount plus accrued and unpaid interest throughBoyd Master Lease (as may be extended at the settlement date. Subsequenttenant'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 early tender deadline, an additional $2.2 million in aggregate principal of the 2020 Notes were tendered at a price of 99.337% of the unpaid principal amount plus accrued and unpaid interest through the settlement date, for a total redemption of $784.8 million of the 2020 Notes. The Company recorded a loss on the early extinguishment of debt related to the 2019 Tender Offer, of approximately $21.0 million, for the difference between the reaquisition price of the tendered 2020 Notes and their net carrying value.
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. Belterra Park Lease.
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. See Note 21 for additional financial information on the parent guarantor and subsidiary issuers of the Senior 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, 2019, the Company was in compliance with all required financial covenants under its Senior Notes.
Finance Lease Liability
The Company assumed the finance lease obligations related to certain assets at its Aurora, Illinois property. GLPI recorded the asset and liability associated with the finance lease on its consolidated balance sheet. The original term of the finance lease is 30 years and it will terminate in 2026.
10. 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 Company considers all cash balances and highly-liquid investments with original maturities of three months or less to be cash and cash equivalents.
Other Assets
Other assets primarily consists of accounts receivable and deferred compensation plan assets (See Note 13 for further details on the deferred compensation plan). Other assets also include deferred taxes and prepaid 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.
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 accounts for our investments in leases under ASC 842. Upon lease inception or lease modification, we assess lease classification to determine whether the lease should be classified as a sales-type, direct financing or operating lease. As required by ASC 842, we separately assess the land and building components of the property to determine the classification of each component. If the lease component is determined to be a sales-type lease or direct financing lease, we record a net investment in the lease, which is equal to the sum of the lease receivable and the unguaranteed residual asset, discounted at the rate implicit in the lease. Any difference between the fair value of the asset and the net investment in the lease is considered selling profit or loss and is either recognized upon execution of the lease or deferred and recognized over the life of the lease, depending on the classification of the lease. Since we purchase properties and simultaneously enter into new leases directly with the tenants, the net investment in the lease is generally equal to the purchase price of the asset, and, due to the long term nature of our leases, the land and building components of an investment generally have the same lease classification.
The Company recognizes the related income from our financing receivables using an effective interest rate at a constant rate over the term of the applicable leases. As a result, the cash payments received under financing receivables will not equal the income recognized for accounting purposes. Rather, a portion of the cash rent the Company will receive is recorded as interest income with the remainder as a change to financing receivables. Initial direct costs incurred in connection with entering into financing receivables are included in the balance of the financing receivables. Such amounts will be recognized as a reduction to interest income from financing receivables over the term of the lease using the effective interest rate method. Costs that would have been incurred regardless of whether the lease was signed, such as legal fees and certain other third party fees, are expensed as incurred.
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. 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. As of December 31, 2021, the Company no longer operates gaming assets and therefore gaming revenue will no longer be recorded.
Allowance for Credit Losses
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investments in leases - financing receivables and real estate loans. The Company's adoption of Accounting Standards Update ASU 2016-13 on January 1, 2020 did not result in the Company recording any allowances against its real estate loans for expected losses.
We have elected to use an econometric default and loss rate model to estimate the Allowance for credit losses, or CECL allowance. This model requires us to calculate and input lease and property-specific credit and performance metrics which in conjunction with forward-looking economic forecasts, project estimated credit losses over the life of the lease or loan. The Company then records a CECL allowance based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within our cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of our Investment in lease, financing receivable related to our Maryland Live! Lease. We have engaged a nationally recognized data analytics firm to assist us with estimating both the PD and LGD for this financing receivable. The PD and LGD are estimated during the initial term of the lease. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model was developed using the average historical default rates and historical loss rates, respectively, of over 100,000 commercial real estate loans dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivable. Management will monitor the credit risk related to its financing receivable by obtaining the rent coverage on the Maryland Live! Lease on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant. We are unable to use our historical data to estimate losses as the Company has no loss history to date on its lease portfolio. Our tenants are current on all of their rental obligations as of December 31, 2021.
The CECL allowance is recorded as a reduction to our net Investments in leases - financing receivable, on our Consolidated Balance Sheets. We are required to update our CECL allowance on a quarterly basis with the resulting change being recorded in the Consolidated Statement of Income for the relevant period. Finally, each time the Company makes a new investment in an asset subject to ASC 326, we will be required to record an initial CECL allowance for such asset, which will result in a non-cash charge to the Consolidated Statement of Income for the relevant period. See Note 8 for further information.
Charge-offs are deducted from the allowance in the period in which they are deemed uncollectible. Recoveries previously written off are recorded when received. The Company recorded a recovery of $4 million for the year ended December 31, 2021 for the settlement of a loan that had been previously written off to Casino Queen.
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, 2021.
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, 2021, 2020 and 2019, the Company recognized no 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”. Finally, in advance of the UPREIT Transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021.
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 shareholders 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 effect of the conversion of the Operating Partnership ("OP") units to common shares is excluded from the computation on basic and diluted earnings per share because all net income attributable to the Noncontrolling interest holders are recorded as income attributable to non-controlling interests, thus is excluded from net income available to common shareholders. 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 consolidated 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 (until July 1, 2021 and subsequent to this date includes rental income from the Perryville Lease) and Hollywood Casino Baton Rouge (until December 17, 2021), as well as the real estate of Tropicana Las Vegas. The Company anticipates completing a transaction in the near future related to Tropicana Las Vegas. As such in 2022, the Company expects to have one reportable segment. 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, 2021, substantially all of the Company's real estate properties were leased to Penn, Caesars and Boyd. During the year ended December 31, 2021, approximately 75%, 11% and 10% of the Company's collective income from real estate was derived from tenant leases 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, 2021, the Company's portfolio of 51 properties is diversified by location across 17 states.
Financial instruments that subject the Company to credit risk consist of cash and cash equivalents, approximatesaccounts 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 2021
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. The one month, three month, six month and twelve month LIBOR rates are expected to be discontinued as of June 30, 2023. 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. The adoption of this pronouncement had no material impact on the Company's Consolidated Financial Statements.
4.Real Estate Investments
Real estate investments, net, represent investments in 50 rental properties and the corporate headquarters building and is summarized as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | 3,141,646 | | | $ | 2,667,616 | |
Building and improvements | 6,311,573 | | | 6,030,482 | |
Construction in progress | 5,699 | | | — | |
Total real estate investments | 9,458,918 | | | 8,698,098 | |
Less accumulated depreciation | (1,681,367) | | | (1,410,940) | |
Real estate investments, net | $ | 7,777,551 | | | $ | 7,287,158 | |
The increase in real estate investments is primarily due to the acquisition of Dover Downs and Tropicana Evansville in a transaction with Bally's as well as the reclassification of the land associated with Tropicana Las Vegas from its own line item on the Company's Consolidated Balance Sheets as an agreement to sell the building and lease the land back to Bally's was entered into and is expected to close in the second half of 2022. The building has been reclassified to assets held for sale. Finally, the Company sold the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge during 2021 and leased back the real estate to Penn and Casino Queen, respectively. This resulted in an increase to real estate investments of $102.5 million. See Note 6 for further details on these transactions.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Land and improvements | $ | — | | | $ | 30,540 | |
Building and improvements | — | | | 117,333 | |
Furniture, fixtures, and equipment (1) | 28,832 | | | 28,767 | |
Construction in progress | — | | | 474 | |
Total property and equipment | 28,832 | | | 177,114 | |
Less accumulated depreciation (1) | (15,855) | | | (96,496) | |
Property and equipment, net | $ | 12,977 | | | $ | 80,618 | |
(1) The majority of the decline at December 31, 2021 compared to the prior year is related to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge. See Note 6 for further details.
6. Assets Held for Sale
As described in Note 1, the Company completed the sale of the operating assets at Hollywood Casino Perryville to Penn for $31.1 million and the operating assets of Hollywood Casino Baton Rouge to Casino Queen for $28.2 million during 2021. The operating assets of these two properties had been classified as assets held for sale at December 31, 2020. The Company recorded a pre-tax gain of $15.6 million ($11.3 million after-tax gain) on the sale of the operating assets of Hollywood Casino Perryville and a pre-tax gain of $6.8 million ($7.7 million after-tax loss) on the sale of the operating assets of Hollywood Casino Baton Rouge.
On April 13, 2021, Bally’s agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI will retain ownership of the land and concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million. The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022. At December 31, 2021, the Company classified the building value
of Tropicana Las Vegas in Assets held for sale and the land value in Real estate investments, net on the Consolidated Balance Sheet since the transaction is expected to close within 12 months of the most recent balance sheet date. At December 31, 2020, the Company classified the real property associated with Tropicana Las Vegas as a separate caption on the Consolidated Balance Sheet.
The Company's assets and liabilities held for sale were comprised of the following at December 31, 2021 and December 31, 2020, respectively (in thousands).
| | | | | | | | | | | |
Assets | December 31, 2021 | | December 31, 2020 |
Property and equipment, used in operations, net | — | | | $ | 8,780 | |
Real Estate Tropicana LV, net | 77,728 | | | — | |
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 | 77,728 | | | 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, 2021, 2020 and 2019.
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.
Current year acquisitions
As described in Note 1, the Company acquired the real property assets of Live! Casino & Hotel Maryland, on December 29, 2021. The purchase price allocation of these assets and liabilities based on their fair values at the acquisition date are summarized below (in thousands)
| | | | | |
Investment in leases, financing receivables | $ | 1,213,896 | |
Lease Liabilities | (53,309) | |
Total Purchase Price | $ | 1,160,587 | |
The table above excludes the reserve for financing receivables of $12.2 million that was recorded through the Consolidated Statement of Operations for the year ended December 31, 2021.
As previously discussed in Note 1, on June 3, 2021, the Company completed its previously announced transaction with Bally's in which the real estate assets of Tropicana Evansville and Dover Downs Hotel & Casino were acquired. The final purchase price allocation of these assets based on their fair values at the acquisition date are summarized below (in thousands).
| | | | | |
| |
Land and improvements | $ | 219,579 | |
Building and improvements | 201,430 | |
Real estate investments, net | 421,009 | |
Right-of-use assets and land rights, net | 101,813 | |
Lease liabilities | (35,372) | |
Total purchase price | $ | 487,450 | |
Pending acquisitions
As discussed in Note 1, the Company anticipates closing of the acquisition of the assets comprising the Pennsylvania Live! Master Lease from Cordish in early 2022 subject to the receipt of regulatory approvals and other customary closing conditions. Total consideration of approximately $674 million will consist of 3.0 million OP Units and cash. Annual rent under the Pennsylvania Live! Master Lease will be $50 million and will have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
On April 13, 2021, the Company announced that it had entered into a binding term sheet with Bally's to acquire the real estate of Bally’s casino property in Black Hawk, CO and its recently acquired property in Rock Island, IL, in a transaction that is subject to regulatory approval. Total consideration for the acquisition is $150.0 million and the parties expect to add the properties to the Bally's Master Lease for incremental rent of $12 million. This transaction is expected to close in the second half of 2022.
In addition, Bally’s has granted GLPI a right of first refusal to fund the real property acquisition or development project costs associated with any and all potential future transactions in Michigan, Maryland, New York and Virginia through one or more sale-leaseback or similar transactions for a term of 7 years.
On April 13, 2021, Bally’s also agreed to acquire both GLPI’s non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price of $150 million. GLPI would retain ownership of the land and will concurrently enter into a ground lease for 50 years with initial annual rent of $10.5 million The ground lease will be supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease. This transaction is expected to close in the second half of 2022.
Both GLPI and Bally’s have committed to a structure in which GLPI has the potential to acquire additional assets in sale-leaseback transactions to the extent Bally’s elects to utilize GLPI’s capital as a funding source for its proposed acquisition of Gamesys Group plc ("Gamesys"). The $500 million commitment provides Bally’s alternative financing which, in GLPI’s sole discretion, may be funded in the form of equity, additional prepaid sale-leaseback transactions or secured loans. However, on July 26, 2021, Bally's announced that as a result of better than expected operating performance at its land-based retail casinos and interactive businesses, it does not plan to draw on this commitment to fund the Gamesys acquisition.
Prior 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.
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 was 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 Company’s cashTropicana 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 | |
8. Investment in leases, financing receivables, net and cash equivalents, due toother receivables
In connection with the short maturityMaryland Live! Lease that became effective on December 29, 2021, the Company recorded an investment in leases, financing receivables, net, as the sale lease back transaction was accounted for as a failed sale leaseback. The following is a summary 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 valuebalances of the Company's real estate loans, as collection oninvestment in leases, financing receivables.
| | | | | | | |
| December 31, 2021 | | |
| (in thousands) | | |
Minimum lease payments receivable | $ | 4,012,937 | | | |
Estimated residual values of lease property (unguaranteed) | 601,947 | | | |
Gross investment in leases, financing receivables | 4,614,884 | | | |
| | | |
Less: Unearned income | (3,400,988) | | | |
Less: Allowance for credit losses | (12,226) | | | |
Net Investment in leases, financing receivables | $ | 1,201,670 | | | |
The net investment in the outstanding loan balances is reasonably assured. The fairlease payment receivable and unguaranteed residual value measurementat December 31, 2021 was $1,178.0 million and $35.9 million, respectively.
At December 31, 2021, minimum lease payments owed to us for each of the real estate loans is considered a Level 3 measurement as definedfive succeeding years under ASC 820.
Long-term Debt
The fair value of the Senior Notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820.
The estimated fair values of the Company’s financial instruments areCompany's financing receivables was as follows (in thousands):
| | | | | |
Year ending December 31, | Future Minimum Lease Payments |
2022 | $ | 77,200 | |
2023 | 77,222 | |
2023 | 77,244 | |
2025 | 78,579 | |
2026 | 79,937 | |
Thereafter | 3,622,755 | |
Total | $ | 4,012,937 | |
|
| | | | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | |
| | |
| | |
| | |
|
Cash and cash equivalents | $ | 26,823 |
| | $ | 26,823 |
| | $ | 25,783 |
| | $ | 25,783 |
|
Deferred compensation plan assets | 28,855 |
| | 28,855 |
| | 22,709 |
| | 22,709 |
|
Real estate loans | 303,684 |
| | 303,684 |
| | 303,684 |
| | 303,684 |
|
Financial liabilities: | |
| | |
| | |
| | |
|
Long-term debt: | |
| | |
| | |
| | |
|
Senior unsecured credit facility | 495,000 |
| | 493,533 |
| | 927,000 |
| | 909,308 |
|
Senior unsecured notes | 5,290,174 |
| | 5,707,996 |
| | 4,975,000 |
| | 4,958,455 |
|
The rollforward of the allowance for credit losses for the Company's financing receivables is illustrated below.
Assets
| | | | | |
| (in thousands) |
Balance at December 31, 2020 | $ | — | |
Provision for expected credit losses | 12,226 | |
Ending balance at December 31, 2021 | $ | 12,226 | |
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 Liabilities Measuredclosed 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 matured in connection with the expiration of the Boyd Master Lease (as may be extended at Fair Valuethe 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 Nonrecurring Basistriple-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.
Certain assets
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 liabilities are measuredretired 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 fair value onany time.
On June 12, 2018, the Company received a nonrecurring basisNotice 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 periods subsequentJune 2018 the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind. In addition to initial recognition. Assets measured at fair value onthe covenant violation noted above under its senior credit agreement, CQ Holding Company also had a nonrecurring basispayment 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 yearsyear ended December 31, 2019 and 2018 are categorized in the tables below based upon the lowest level of significant input to the valuation. There were no liabilities measured at fair value on a nonrecurring basis during the years ended2018.
At December 31, 20192018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and 2018.
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total Impairment Charges Recorded during the Year Ended December 31, 2019 |
| (in thousands) |
Assets: | | | | | | | |
Loan receivable | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,000 |
|
Total assets measured at fair value on a nonrecurring basis | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,000 |
|
|
| | | | | | | | | | | | | | | |
| 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 |
|
Loan Receivable
During the first quarter of 2019, the Company recorded an impairment charge of $13.0 million related to the write-offcovenant defaults noted above, at that time, full payment of the principal was still expected, due to the Company under its unsecured loan to CQ Holding Company. During 2019,anticipation that 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 loanoperations were to be repaid.
Duringsold in the fourth quarternear term for an amount allowing for repayment of 2018, the Company recorded an impairment chargefull $13.0 million of $1.5 million relatedloan principal due to the paid-in-kind interest income on its Casino Queen Loan. The Company determined, based upon facts and circumstances existing at December 31, 2018, thatGLPI. However, the paid-in-kind interest due to the Company at December 31, 2018 iswas not expected to be collected. Therefore,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. See Note 6 for further details surrounding
During 2019, the operating results of Casino Queen Loan.
Goodwill
Duringcontinued 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, 2018,2019.
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 in 2020 to permit the tenant to defer payments in the event the property was closed due to COVID-19. As such, the tenant deferred payments temporarily in 2020 and 2021 however all such delinquent rental payments were received in the fourth quarter of 2020. Additionally, during the year ended December 31, 2021, the Company received a $4.0 million payment in full satisfaction of the Casino Queen Loan in connection with the HCBR transaction which was recorded as a provision for credit losses, net, on the Consolidated Statement of Income.
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 goodwill impairment charges of $59.5 millionright-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, 2021 | | December 31, 2020 |
Right-of-use assets - operating leases (1) (2) | $ | 183,136 | | | $ | 151,339 | |
Land rights, net | 668,683 | | | 617,858 | |
Right-of-use assets and land rights, net | $ | 851,819 | | | $ | 769,197 | |
(1) The increase in right of use assets - operating leases relates to a ground lease acquired in connection with the Tropicana Evansville transaction which closed on June 3, 2021.
(2) In addition, there is $0.3 million of operating lease right-of-use assets included in assets held for sale for the year ended December 31, 2020.
The Greenville Inn property lease was not renewed by the Company's tenant, resulting in the acceleration of $3.4 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 zero at December 31, 2021.
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, 2021 | | December 31, 2020 |
| (in thousands) |
Land rights | $ | 730,783 | | | $ | 667,751 | |
Less accumulated amortization | (62,100) | | | (49,893) | |
Land rights, net | $ | 668,683 | | | $ | 617,858 | |
The increase from December 31, 2020 relates to land rights recorded in connection with the Tropicana Evansville
acquisition which closed on June 3, 2021.
As of December 31, 2021, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
| | | | | |
Year ending December 31, | |
2022 | $ | 13,209 | |
2023 | 13,209 | |
2024 | 13,209 | |
2025 | 13,209 | |
2026 | 13,209 | |
Thereafter | 602,638 | |
Total | $ | 668,683 | |
Operating Lease Liabilities
At December 31, 2021, maturities of the Company's operating lease liabilities were as follows (in thousands):
| | | | | |
Year ending December 31, | |
2022 | $ | 13,561 | |
2023 | 13,556 | |
2024 | 13,505 | |
2025 | 13,452 | |
2026 | 13,459 | |
Thereafter | 610,693 | |
Total lease payments | $ | 678,226 | |
Less: interest | (494,281) | |
Present value of lease liabilities | $ | 183,945 | |
.
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the Consolidated Balance Sheets. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| (in thousands) |
Operating lease cost | $ | 12,959 | | | $ | 13,907 | |
Variable lease cost | 9,075 | | | 3,364 | |
Short-term lease cost | 947 | | | 625 | |
Amortization of land right assets | 15,616 | | | 12,022 | |
Total lease cost | $ | 38,597 | | | $ | 29,918 | |
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.
Supplemental Disclosures Related to Operating Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| December 31, 2021 |
Weighted average remaining lease term - operating leases | 51.79 years |
Weighted average discount rate - operating leases | 6.6% |
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| (in thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases (1) (2) | $ | 1,617 | | | $ | 1,600 | |
| | | |
Right-of-use assets obtained in exchange for new lease obligations: | | | |
Operating leases (2) | $ | 35,372 | | | $ | 95 | |
(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.
Financing Lease Liabilities
In connection with the acquisition of the real property assets of Live! Casino & Hotel Maryland, the Company acquired the rights to land subject to a long-term ground lease which expires on June 6, 2111. As the Maryland Live! Lease was accounted for as an Investment in lease, financing receivable, the underlying ground lease was accounted for as a financing lease obligation within Lease liabilities on the Consolidated Balance Sheets. In accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenant with an offsetting expense in interest expense as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The ground lease contains variable lease payments based on a percentage of gaming revenues generated by the facility and has fixed minimum annual payments. The Company discounted the fixed minimum annual payments at 5.0% to arrive at the initial lease obligation. At December 31, 2021, maturities of this finance lease were as follows (in thousands):
| | | | | |
Year ending December 31, | |
2023 | $ | 2,200 | |
2024 | 2,222 | |
2025 | 2,244 | |
2026 | 2,267 | |
2027 | 2,289 | |
Thereafter | 304,371 | |
Total lease payments | $ | 315,593 | |
Less: Interest | (262,284) | |
Present value of finance lease liability | $ | 53,309 | |
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 was recorded on the books of Hollywood Casino Baton Rouge, reporting unit, resulting from a significant reductionin connection with Penn's purchase of this entity prior to the Spin-Off. The only intangible assets of the Company was related to Hollywood Casino Perryville's gaming license that was recognized by Penn 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 were no changes in the carrying value of goodwill or intangible assets for the years ended December 31, 2020 and 2019. As described in Note 6, the Company's goodwill and intangible asset balance at December 31, 2020 had been reclassified to Assets held for sale. Since the operations of both Hollywood Casino Baton Rouge and Hollywood Casino Perryville were sold in 2021, the Company no longer has any goodwill or intangible assets on its Consolidated Balance Sheet at December 31, 2021.
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.
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, 2021 | | December 31, 2020 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | |
Cash and cash equivalents (1) | $ | 724,595 | | | $ | 724,595 | | | $ | 486,451 | | | $ | 486,451 | |
Investment in leases, financing receivables, net (2) | 1,201,670 | | | 1,213,896 | | | — | | | — | |
Deferred compensation plan assets | 34,549 | | | 34,549 | | | 35,514 | | | 35,514 | |
| | | | | | | |
Financial liabilities: | | | | | | | |
Long-term debt: | | | | | | | |
Senior unsecured credit facility | 424,019 | | | 424,019 | | | 424,019 | | | 424,019 | |
Senior unsecured notes | 6,175,000 | | | 6,645,574 | | | 5,375,000 | | | 6,026,840 | |
(1) In addition, there was $22.1 million in cash and cash equivalents in assets held for sale at December 31, 2020.
(2) The fair value materially approximates the purchase price of the acquisition of these financial assets given the transaction closed on December 29, 2021.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
There were no assets or liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2021 and 2020.
12.Long-term Debt
Long-term debt, net of current maturities and unamortized debt issuance costs is as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| (in thousands) |
Unsecured $1,175 million revolver | $ | — | | | $ | — | |
| | | |
Unsecured term loans A-2 | 424,019 | | | 424,019 | |
| | | |
| | | |
$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 4.000% senior unsecured notes due January 2031 | 700,000 | | | 700,000 | |
$800 million 3.250% senior unsecured notes due January 2032 | 800,000 | | | — | |
Other | 725 | | | 860 | |
Total long-term debt | 6,599,744 | | | 5,799,879 | |
Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (47,372) | | | (45,190) | |
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 6,552,372 | | | $ | 5,754,689 | |
The following is a schedule of future minimum repayments of long-term earnings forecastdebt as of this property.December 31, 2021 (in thousands):
| | | | | |
2022 | $ | 142 | |
2023 | 924,168 | |
2024 | 400,156 | |
2025 | 850,164 | |
2026 | 975,114 | |
Over 5 years | 3,450,000 | |
Total minimum payments | $ | 6,599,744 | |
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 an issue price equal to 98.827% of the principal amount. The Company utilized the income approachproceeds from these two financings along with cash on hand to measurerepay all outstanding obligations under its Revolver. On August 18, 2020, the fairCompany borrowed an additional $200 million of 4.00% unsecured senior notes due in January 2031 priced at an issue price equal to 103.824% of the principal amount. The Company utilized the net proceeds from this additional borrowing to repay indebtedness under the Term Loan A-1 facility.
At December 31, 2021, the Amended 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, 2021, 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 $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 Amended Credit Facility. At December 31, 2021, 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 Amended Credit Facility. At December 31, 2021, the commitment fee rate was 0.25%. The Company is not required to repay any loans under the Amended Credit Facility prior to maturity 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 goodwill, which involvescertain 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 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, 2021, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
At December 31, 2021, the Company had an outstanding balance of $6,175.0 million of senior unsecured notes (the "Senior Notes").
On December 13, 2021, the Company issued $800 million of 3.25% senior unsecured notes due January 2032 at an issue price equal to 99.376% of the principal amount. The proceeds are being used to partially finance the Company's acquisition of certain real estate assets in the Cordish transaction as described in Note 7.
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 consolidated 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 Amended 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 key assumptions, such as cash flow forecastsimportant and discount rates. See Note 8 for additional information regardingsignificant limitations, qualifications and exceptions.
At December 31, 2021, the calculation of the impairment charge.
Company was in compliance with all required financial covenants under its Senior Notes.
11.
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 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.
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, 2019, 20182021, 2020 and 2017.2019.
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, 2021, 2020 and 2019 2018 and 2017 were $0.6$0.5 million, $0.7 million and $0.6 million, respectively. The Company's deferred compensation liability, which was included in other liabilities within the consolidated balance sheet,Consolidated Balance Sheets, was $25.2$33.8 million and $22.8$32.4 million at December 31, 20192021 and 2018,2020, respectively. Assets held in the Trust were $28.9$34.5 million and $22.7$35.5 million at December 31, 20192021 and 2018,2020, respectively, and are included in other assets within the consolidated balance sheet.Consolidated Balance Sheets.
Some of Hollywood Casino Perryville's employees are currently represented by labor unions. The Seafarers Entertainment and Allied Trade Union represents 145 of Hollywood Casino Perryville's employees under an agreement that expires in January 2032. Additionally, 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 and 2032, 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, 2019,2021, 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, 2 of the Company's real estate investment properties were leased to a subsidiary of Bally's under the Bally's Master Lease and 2 of the Company's real estate properties were leased to a subsidiary of Casino Queen under the Casino Queen Master Lease. Additionally, the Meadows real estate assets are leased to Penn pursuant to the Meadows Lease and the land under a Penn development facility subject to the Morgantown Lease. Finally, the Company has single property triple-net lease (the "Meadows Lease")triple net leases with Caesars under the Lumière Place Lease, Boyd under the Belterra Park Lease, Penn under the Perryville Lease and Cordish under the Casino Queen real estate assets are leased back to the operator under an additional single property triple-net lease.Maryland Live! Lease.
Guarantees
The obligations under the Penn Master Lease and Amended Pinnacle Master Leases,Lease, as well as the Meadows Lease, Perryville Lease and Morgantown Lease are guaranteed by Penn and, with respect to each lease, jointly and severally by Penn's subsidiaries that occupy and operate the facilities covered by such lease. Similarly, the obligations under the EldoradoAmended and Restated Caesars Master Lease and Bally's Master Lease are jointly and severally guaranteed by Eldoradothe parent company and by most of Eldorado'sthe subsidiaries that occupy and operate the facilities leased under the Eldorado Master Lease.facilities. The obligations under the Boyd Master LeasesLease are jointly and severally guaranteed by Boyd's subsidiaries that occupy and operate the facilities leased under the Boyd Master Lease. The obligations under the Maryland Live! Lease are guaranteed by the subsidiary that operates the facility.
Rent
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 (namely the Hollywood Casino at Penn National Race Course property due to Penn's opening of a competing facility) (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 (namely the Bossier City Boomtown property due to Penn's acquisition of a competing facility, Margaritaville Resort Casino), 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 annualadditional 20 years at the tenants' option are not reasonably certain of being exercised as failure to renew would not result in a significant penalty to the tenant. In the fifth and sixth lease years the building base rent escalates at 1.25%. In the seventh and eighth lease years it escalates at 1.75% and then escalates at 2% escalator if certain rent coverage ratio thresholds are metin the ninth lease year and each lease year thereafter. In addition, the guaranteed fixed escalations in the new initial lease term will be recognized on a component that is based onstraight line basis.
On December 18, 2020, following the performancereceipt of required regulatory approvals, 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. 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 terms were adjusted on December 1, 2021 such that the annual escalator is now fixed at 1.25% for the second through fifth lease years, increasing to 1.75% for the sixth and seventh lease years and thereafter increasing by 2.0% for the remainder of the lease.
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 $31.0 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 structureof $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 initial rent under the Casino Queen Master Lease is $21.4 million and such amount increases annually by 0.5% for the first six years. Beginning with the seventh lease year through the remainder of the lease term, if the CPI increases by at least 0.25% for any lease year then annual rent shall be increased by 1.25%, and if the CPI increase is less than 0.25% then rent will remain unchanged for such lease year. The Company will also includescomplete the current landside development project that is in process and rent under the Casino Queen Master Lease will be adjusted to reflect a fixed component, a portionyield of 8.25% on GLPI's project costs.
The Perryville Lease that became effective on July 1, 2021 has an initial annual rent of $7.77 million, $5.83 million of which will be subject to escalation provisions beginning in the second lease year through the fourth lease year and increasing by 1.50% during such period and then increasing by 1.25% for the remaining lease term. The escalation provisions beginning in the fifth lease year are subject to the CPI being at least 0.5% for the preceding lease year.
The Bally's Master Lease rent is $40 million annually and is subject to an annual escalator of up to 2% escalator if certaindetermined in relation to the annual increase in CPI.
The Maryland Live! Lease rent coverage ratio thresholds are met,is $75 million and a component that is based onincreases by 1.75% upon the performancesecond anniversary of the facility, which is reset every five years tolease commencement. This lease was accounted for as an amount equal to the greater of (i) the annual amount of non-fixed rent applicableInvestment in leases, financing receivable. See Note 8 for the lease year immediately preceding such rent reset year and (ii) an amount equalfurther information including the future annual cash payments to 4% ofbe received under the average annual net revenues of the facility for the trailing five-year period.lease.
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 immediately preceding the year in
which the competing facility is acquired or first operated by the tenant. In June 2019, aA 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.Michigan and a percentage rent floor on the Amended Pinnacle Master Lease was triggered on the Bossier City Boomtown property due to Penn's acquisition of Margaritaville Resort Casino.Additionally, a percentage rent floor was triggered on the Hollywood Casino at Penn National Race Course in connection with Penn opening a facility in York, Pennsylvania which will go into effect at the next reset.
Costs
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.
Lease terms
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 them 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 appeared 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 4 of the 5-year renewal options.
As discussedThe Casino Queen Master Lease became effective December 17, 2021 and required an accounting reassessment due to changes in Note 18,the rent and lease terms. The Company concluded the lease term is limited to its initial 15 year term. This was due to several factors that were not present at the inception of the original Casino Queen Lease. Since the formation of the Company on November 1, 2013, the Company has reassessed four of its nine leases that were originated prior to 2021. All four of these reassessments were done before the completion of their original initial lease terms. Additionally, Pinnacle sold its operations to Penn for fair value whose underlying real estate for the casino operations were leased from the Company. Finally, additional competitive threats have emerged in the regional markets for the properties in the Casino Queen Master Lease that were not present previously, particularly in the state of Illinois with respect to additional competitive pressures from video gaming terminals that have rapidly expanded in the state and continue to take market share from land based casinos. We believe all these factors preclude the Company from concluding all renewal periods are reasonably assured to be exercised in the Casino Queen Master Lease.
On October 15, 2018, in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended by a fourth amendment 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 did not represent a meaningful portion of Penn's business at the time Penn assumed the lease,Amended Pinnacle Master Lease, the Company concluded that the lease term of the Amended Pinnacle Master Lease is 10 years, equal to the initial 10-year term only.
In connection with Penn exercising its first renewal option on October 1, 2020, the Company reassessed 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 straight-line basis over the new initial lease term ending on May 1, 2031.
Because the Meadows Lease was a single property lease operated by a large multi-property operator, GLPI concluded it was not reasonably assured at lease inception that the 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 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 each of the master leases did not represent a meaningful portion of either tenant's business at lease inception; therefore, the Company 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, Perryville Lease, Morgantown Lease, Maryland Live! 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, 20192021 was as follows (in thousands):
| | | | | |
| Year Ended December 31, 2021 |
Building base rent (1) | $ | 726,542 | |
Land base rent | 206,604 | |
Percentage rent | 150,725 | |
Total cash rental income | $ | 1,083,871 | |
Straight-line rent adjustments | 3,993 | |
Ground rent in revenue | 18,587 | |
Other rental revenue | 207 | |
Total rental income | $ | 1,106,658 | |
|
| | | |
| Year Ended December 31, 2019 |
Building base rent (1) | $ | 659,620 |
|
Land base rent | 190,168 |
|
Percentage rent | 159,107 |
|
Total cash rental income | $ | 1,008,895 |
|
Straight-line rent adjustments | (34,574 | ) |
Ground rent in revenue | 21,347 |
|
Other rental revenue | 498 |
|
Total rental income | $ | 996,166 |
|
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 7.9.
The Company may periodically loan funds to casino owner-operators for the purchase of 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. At December 31, 2019, the Company has two loans, the proceeds of which were used to acquire real estate, the Belterra Park Loan and the Eldorado Loan. During the years ended December 31, 20192020 and 2018,2019, the Company recognized interest income from these real estate loans of $19.1 million and $28.9 million, and $6.9 million, respectively. No loans were outstanding during the year ended December 31, 2021.
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 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) at the time of play until a later period when the points are redeemed or forfeited. Other revenues at our TRS Properties are derived from our dining, retail and certain other ancillary activities. During the years ended December 31, 20192021, 2020 and 2018,2019, the Company recognized gaming, food, beverage and other revenue of $128.4$109.7 million, $103.0 million, and $132.5$128.4 million, respectively.
The following table contains information on restricted stock award activity for the years ended December 31, 20192021 and 2018:2020: