UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
or | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36124
Gaming and Leisure Properties, Inc.
(Exact name of registrant as specified in its charter) | | | | | | | | |
| Pennsylvania | | 46-2116489 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
845 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip Code)
610-401-2900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, par value $.01 per share | | GLPI | | Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. | | | | | | | | |
| Title | | July 26, 2021April 22, 2022 |
| Common Stock, par value $.01 per share | | 234,301,083247,544,343 |
Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, goals and objectives.
Forward-looking statements in this document include, but are not limited to, statements regarding the extent and duration of the economic disruptions related to the novel coronavirus COVID-19 (including variants thereof, "COVID-19") global pandemic on our tenants' operations and statements regarding our taxable real estate investment trust ("REIT") subsidiaries' ("TRS") operations.ability to grow our portfolio of gaming facilities. In addition, statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates," "plans," "may increase," "may fluctuate," and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:
•The novel coronavirus impact that higher inflation rates and uncertainty with respect to the future state of the economy could have on discretionary consumer spending, including on casino operations;
•the impact of rising interest rates, inflation, and the phasing out of the London Interbank Offered Rate ("LIBOR");
•unforeseen consequences related to United States government monetary policies and stimulus packages on inflation rates and economic growth;
•COVID-19 (including variants thereof, "COVID-19") had, and may continue to have, a significant impact on our tenants' financial conditions and operations. As a result of the outbreak, our casino operations and those of our tenants were forced to close temporarily at the onset of the pandemic, as federal, state and local officials undertook various steps to mitigate the spread of infections from COVID-19. Although our tenants' operations have recommenced operations to strong results and our tenants have improved their liquidity profiles, there can be no assurance whether these encouraging results will continue in future periods, particularly with the potential for continued increased transmission from new strains of COVID-19;
•the impact that the sharp increase in unemployment levels and uncertainty with respect to the future state of the economy could have on discretionary consumer spending, including on casino operations;
•the current and uncertain future impact of the COVID-19 outbreak, including its effect on the ability or desire of people to gather in large groups (including in casinos), which is expected to impact our financial results, operations, outlooks, plans, goals, growth, cash flows, liquidity, and stock price;
•unforeseen consequences relatedGLPI's ability to United States government stimulus packagessuccessfully consummate the announced transaction for the Tropicana Las Vegas Casino Hotel Resort ("Tropicana Las Vegas") with Bally's, including the ability of the parties to satisfy the various conditions to closing, including receipt of all required regulatory approvals, or a failureother delays or impediments to mitigatecompleting the sharp economic downturn from COVID-19;proposed transaction;
•the availability of and the ability to identify suitable and attractive acquisition and development opportunities and the ability to acquire and lease the respective properties on favorable terms;
•the degree and nature of our competition;
•the ability to receive, or delays in obtaining, the regulatory approvals required to own and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects;
•our ability to maintain our status as a REIT,real estate investment trust ("REIT"), given the highly technical and complex Internal Revenue Code (the "Code") provisions for which only limited judicial and administrative authorities exist, where even a technical or inadvertent violation could jeopardize REIT qualification and where requirements may depend in part on the actions of third parties over which the Company has no control or only limited influence;
•the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis in order for the Company to maintain its REIT status;
•the ability and willingness of our tenants, operators and other third parties to meet and/or perform their obligations under their respective contractual arrangements with us, including lease and note requirements and in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;
•the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including, without limitation, to satisfy obligations under their existing credit facilities and other indebtedness;
•the ability of our tenants and operators to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract customers;
•the ability to generate sufficient cash flows to service our outstanding indebtedness;
•theour ability to access tocapital through debt and equity capital markets in amounts and at rates and costs acceptable to GLPI, including for acquisitions or refinancings due to maturities;
•adverse changes in our credit rating;
•fluctuating interest rates, inflation, and the potential phasing out of the London Interbank Offered Rate ("LIBOR") after 2021;
•the impact of global or regional economic conditions;
•the availability of qualified personnel and our ability to retain our key management personnel;
•GLPI's obligation to indemnify Penn National Gaming, Inc. (NASDAQ: PENN) ("Penn") and its subsidiaries in certain circumstances if the spin-off transaction described in Note 1 to the condensed consolidated financial statements fails to be tax-free;
•changes in the United States tax law and other state, federal or local laws, whether or not specific to real estate, REITs or the gaming, lodging or hospitality industries;
•changes in accounting standards;
•the impact of weather or climate events or conditions, natural disasters, acts of terrorism and other international hostilities, war (including the current conflict between Russia and Ukraine) or political instability;
•the historical financing statements included herein do not reflect what the business, financial position or results of operations of GLPI may be in the future;
•other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and
•additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 (our "Annual Report"), in this Quarterly Report on Form 10-Q and Current Reports on Form 8-K as filed with the United States Securities and Exchange Commission.
Certain of these factors and other factors, risks and uncertainties are discussed in the "Risk Factors" section in the Company’s Annual Report and this Quarterly Report on Form 10-Q. Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond the control of the Company.
You should consider the areas of risk described above, as well as those set forth in the "Risk Factors" section in the Company’s Annual Report and this Quarterly Report on Form 10-Q, in connection with considering any forward-looking statements that may be made by the Company generally. Except for the ongoing obligations of the Company to disclose material information under the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.
GAMING AND LEISURE PROPERTIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
| | | June 30,
2021 | | December 31, 2020 | | March 31,
2022 | | December 31,
2021 |
| | (unaudited) | | | | (unaudited) | | |
| Assets | Assets | | Assets | |
| Real estate investments, net | Real estate investments, net | $ | 7,820,070 | | | $ | 7,287,158 | | Real estate investments, net | $ | 7,721,298 | | | $ | 7,777,551 | |
| Property and equipment, used in operations, net | 79,077 | | | 80,618 | | |
| Investment in leases, financing receivables, net | | Investment in leases, financing receivables, net | 1,867,721 | | | 1,201,670 | |
| | Assets held for sale | Assets held for sale | 142,939 | | | 61,448 | | Assets held for sale | 77,728 | | | 77,728 | |
| Real estate of Tropicana Las Vegas, net | 0 | | | 304,831 | | |
| Right-of-use assets and land rights, net | Right-of-use assets and land rights, net | 865,392 | | | 769,197 | | Right-of-use assets and land rights, net | 845,316 | | | 851,819 | |
| Cash and cash equivalents | Cash and cash equivalents | 147,594 | | | 486,451 | | Cash and cash equivalents | 156,020 | | | 724,595 | |
| Prepaid expenses | 2,152 | | | 2,098 | | |
| | Deferred tax assets, net | 5,668 | | | 5,690 | | |
| Other assets | Other assets | 36,427 | | | 36,877 | | Other assets | 52,397 | | | 57,086 | |
| Total assets | Total assets | $ | 9,099,319 | | | $ | 9,034,368 | | Total assets | $ | 10,720,480 | | | $ | 10,690,449 | |
| | Liabilities | Liabilities | | Liabilities | |
| Accounts payable | $ | 585 | | | $ | 375 | | |
| Accrued expenses | 2,167 | | | 398 | | |
| Accounts payable, dividend payable and accrued expenses | | Accounts payable, dividend payable and accrued expenses | $ | 3,625 | | | $ | 63,543 | |
| | Accrued interest | Accrued interest | 70,598 | | | 72,285 | | Accrued interest | 89,189 | | | 71,810 | |
| Accrued salaries and wages | Accrued salaries and wages | 3,404 | | | 5,849 | | Accrued salaries and wages | 1,990 | | | 6,798 | |
| Gaming, property, and other taxes | 295 | | | 146 | | |
| | Lease liabilities | 186,928 | | | 152,203 | | |
| | Operating lease liabilities | | Operating lease liabilities | 183,410 | | | 183,945 | |
| Financing lease liabilities | | Financing lease liabilities | 53,433 | | | 53,309 | |
| Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,759,561 | | | 5,754,689 | | Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 6,555,077 | | | 6,552,372 | |
| Deferred rental revenue | Deferred rental revenue | 331,405 | | | 333,061 | | Deferred rental revenue | 327,525 | | | 329,068 | |
| Deferred tax liabilities | 380 | | | 359 | | |
| | Other liabilities | Other liabilities | 42,265 | | | 39,985 | | Other liabilities | 37,746 | | | 39,464 | |
| Total liabilities | Total liabilities | 6,397,588 | | | 6,359,350 | | Total liabilities | 7,251,995 | | | 7,300,309 | |
| | Commitments and Contingencies (Note 10) | Commitments and Contingencies (Note 10) | 0 | | 0 | Commitments and Contingencies (Note 10) | |
| | Shareholders’ equity | | |
| Equity | | Equity | |
| | Preferred stock ($.01 par value, 50,000,000 shares authorized, 0 shares issued or outstanding at June 30, 2021 and December 31, 2020) | 0 | | | 0 | | |
| Common stock ($.01 par value, 500,000,000 shares authorized, 234,288,809 and 232,452,220 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively) | 2,343 | | | 2,325 | | |
| Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2022 and December 31, 2021) | | Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at March 31, 2022 and December 31, 2021) | — | | | — | |
| Common stock ($.01 par value, 500,000,000 shares authorized, 247,544,343 and 247,206,937 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | | Common stock ($.01 par value, 500,000,000 shares authorized, 247,544,343 and 247,206,937 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | 2,475 | | | 2,472 | |
| Additional paid-in capital | Additional paid-in capital | 4,354,643 | | | 4,284,789 | | Additional paid-in capital | 4,949,638 | | | 4,953,943 | |
| Accumulated deficit | Accumulated deficit | (1,655,255) | | | (1,612,096) | | Accumulated deficit | (1,823,139) | | | (1,771,402) | |
| Total shareholders’ equity | 2,701,731 | | | 2,675,018 | | |
| Total liabilities and shareholders’ equity | $ | 9,099,319 | | | $ | 9,034,368 | | |
| Total equity attributable to Gaming and Leisure Properties | | Total equity attributable to Gaming and Leisure Properties | 3,128,974 | | | 3,185,013 | |
| Noncontrolling interests in GLPI's Operating Partnership (7,366,683 units and 4,348,774 units outstanding at March 31, 2022 and December 31, 2021, respectively) | | Noncontrolling interests in GLPI's Operating Partnership (7,366,683 units and 4,348,774 units outstanding at March 31, 2022 and December 31, 2021, respectively) | 339,511 | | | 205,127 | |
| Total equity | | Total equity | 3,468,485 | | | 3,390,140 | |
| Total liabilities and equity | | Total liabilities and equity | $ | 10,720,480 | | | $ | 10,690,449 | |
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| Revenues | Revenues | | | | | | | | Revenues | | | | |
| Rental income | Rental income | $ | 274,102 | | | $ | 245,749 | | | $ | 537,944 | | | $ | 495,156 | | Rental income | $ | 287,777 | | | $ | 263,842 | | |
| | Interest income from real estate loans | 0 | | | 6,240 | | | 0 | | | 13,556 | | |
| Interest income from investment in leases, financing receivables | | Interest income from investment in leases, financing receivables | 27,189 | | | — | | |
| | Total income from real estate | Total income from real estate | 274,102 | | | 251,989 | | | 537,944 | | | 508,712 | | Total income from real estate | 314,966 | | | 263,842 | | |
| Gaming, food, beverage and other | Gaming, food, beverage and other | 43,659 | | | 9,979 | | | 81,360 | | | 36,738 | | Gaming, food, beverage and other | — | | | 37,701 | | |
| Total revenues | Total revenues | 317,761 | | | 261,968 | | | 619,304 | | | 545,450 | | Total revenues | 314,966 | | | 301,543 | | |
| | Operating expenses | Operating expenses | | | | | | | | Operating expenses | | | | |
| Gaming, food, beverage and other | Gaming, food, beverage and other | 22,382 | | | 4,858 | | | 42,308 | | | 21,361 | | Gaming, food, beverage and other | — | | | 19,926 | | |
| | Land rights and ground lease expense | Land rights and ground lease expense | 8,191 | | | 5,781 | | | 14,924 | | | 13,859 | | Land rights and ground lease expense | 13,704 | | | 6,733 | | |
| General and administrative | General and administrative | 16,821 | | | 13,231 | | | 32,903 | | | 29,218 | | General and administrative | 15,732 | | | 16,082 | | |
| Losses (gains) from dispositions of property | 93 | | | (8) | | | 93 | | | (7) | | |
| (Gains) or losses from dispositions of property | | (Gains) or losses from dispositions of property | (51) | | | — | | |
| | Depreciation | Depreciation | 58,150 | | | 57,390 | | | 116,851 | | | 113,953 | | Depreciation | 59,129 | | | 58,701 | | |
| | Provision for credit losses, net | | Provision for credit losses, net | 26,656 | | | — | | |
| Total operating expenses | Total operating expenses | 105,637 | | | 81,252 | | | 207,079 | | | 178,384 | | Total operating expenses | 115,170 | | | 101,442 | | |
| Income from operations | Income from operations | 212,124 | | | 180,716 | | | 412,225 | | | 367,066 | | Income from operations | 199,796 | | | 200,101 | | |
| | Other income (expenses) | Other income (expenses) | | | | | | | | Other income (expenses) | | | | |
| Interest expense | Interest expense | (70,413) | | | (69,474) | | | (140,826) | | | (141,478) | | Interest expense | (77,922) | | | (70,413) | | |
| Interest income | Interest income | 54 | | | 273 | | | 178 | | | 469 | | Interest income | 22 | | | 124 | | |
| Losses on debt extinguishment | 0 | | | (5) | | | 0 | | | (17,334) | | |
| | Total other expenses | Total other expenses | (70,359) | | | (69,206) | | | (140,648) | | | (158,343) | | Total other expenses | (77,900) | | | (70,289) | | |
| | Income before income taxes | Income before income taxes | 141,765 | | | 111,510 | | | 271,577 | | | 208,723 | | Income before income taxes | 121,896 | | | 129,812 | | |
| Income tax provision (benefit) | 3,549 | | | (840) | | | 6,177 | | | (521) | | |
| Income tax expense | | Income tax expense | 204 | | | 2,628 | | |
| Net income | Net income | $ | 138,216 | | | $ | 112,350 | | | $ | 265,400 | | | $ | 209,244 | | Net income | $ | 121,692 | | | $ | 127,184 | | |
| Net income attributable to noncontrolling interest in the Operating Partnership | | Net income attributable to noncontrolling interest in the Operating Partnership | (2,424) | | | — | | |
| Net income attributable to common shareholders | | Net income attributable to common shareholders | $ | 119,268 | | | $ | 127,184 | | |
| | Earnings per common share: | Earnings per common share: | | | | | | | | Earnings per common share: | | | | |
| Basic earnings per common share | $ | 0.59 | | | $ | 0.52 | | | $ | 1.14 | | | $ | 0.97 | | |
| Diluted earnings per common share | $ | 0.59 | | | $ | 0.52 | | | $ | 1.14 | | | $ | 0.97 | | |
| Basic earnings attributable to common shareholders | | Basic earnings attributable to common shareholders | $ | 0.48 | | | $ | 0.55 | | |
| Diluted earnings attributable to common shareholders | | Diluted earnings attributable to common shareholders | $ | 0.48 | | | $ | 0.54 | | |
See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Total
Shareholders’
Equity |
| | Shares | | Amount | | | |
| Balance, December 31, 2020 | 232,452,220 | | | $ | 2,325 | | | $ | 4,284,789 | | | $ | (1,612,096) | | | $ | 2,675,018 | |
| Issuance of common stock, net of ATM Program offering costs | 0 | | | 0 | | | (95) | | | — | | | (95) | |
| Restricted stock activity | 329,433 | | | 3 | | | (3,971) | | | — | | | (3,968) | |
| Dividends paid ($0.65 per common share) | — | | | — | | | — | | | (151,496) | | | (151,496) | |
| Net income | — | | | — | | | — | | | 127,184 | | | 127,184 | |
| Balance, March 31, 2021 | 232,781,653 | | | $ | 2,328 | | | $ | 4,280,723 | | | $ | (1,636,408) | | | $ | 2,646,643 | |
| Issuance of common stock, net of ATM Program offering costs | 1,498,420 | | | 15 | | | 70,308 | | | — | | | 70,323 | |
| Restricted stock activity | 8,736 | | | 0 | | | 3,612 | | | — | | | 3,612 | |
| Dividends paid ($0.67 per common share) | — | | | — | | | — | | | (157,063) | | | (157,063) | |
| Net income | — | | | — | | | — | | | 138,216 | | | 138,216 | |
| Balance, June 30, 2021 | 234,288,809 | | | $ | 2,343 | | | $ | 4,354,643 | | | $ | (1,655,255) | | | $ | 2,701,731 | |
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| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Noncontrolling Interest Operating Partnership | | Total
Equity |
| | Shares | | Amount | | | | |
| Balance, December 31, 2021 | 247,206,937 | | | $ | 2,472 | | | $ | 4,953,943 | | | $ | (1,771,402) | | | $ | 205,127 | | | $ | 3,390,140 | |
| Issuance of common stock, net of costs | — | | | — | | | (37) | | | — | | | — | | | (37) | |
| Restricted stock activity | 337,406 | | | 3 | | | (4,268) | | | — | | | — | | | (4,265) | |
| Dividends paid ($0.69 per common share) | — | | | — | | | — | | | (171,005) | | | — | | | (171,005) | |
| Issuance of operating partnership units | — | | | — | | | — | | | — | | | 137,043 | | | 137,043 | |
| Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | (5,083) | | | (5,083) | |
| Net income | — | | | — | | | — | | | 119,268 | | | 2,424 | | | 121,692 | |
| Balance, March 31, 2022 | 247,544,343 | | | $ | 2,475 | | | $ | 4,949,638 | | | $ | (1,823,139) | | | $ | 339,511 | | | $ | 3,468,485 | |
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| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Total
Shareholders’
Equity |
| | Shares | | Amount | | | |
| Balance, December 31, 2019 | 214,694,165 | | | $ | 2,147 | | | $ | 3,959,383 | | | $ | (1,887,285) | | | $ | 2,074,245 | |
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| Issuance of common stock, net of ATM Program offering costs | 7,971 | | | 0 | | | 310 | | | — | | | 310 | |
| Restricted stock activity | 405,093 | | | 4 | | | (8,352) | | | — | | | (8,348) | |
| Dividends paid ($0.70 per common share) | — | | | — | | | — | | | (150,796) | | | (150,796) | |
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| Net income | — | | | — | | | — | | | 96,894 | | | 96,894 | |
| Balance, March 31, 2020 | 215,107,229 | | | $ | 2,151 | | | $ | 3,951,341 | | | $ | (1,941,187) | | | $ | 2,012,305 | |
| ATM Program offering costs | 0 | | | 0 | | | (83) | | | — | | | (83) | |
| Restricted stock activity | 12,056 | | | 0 | | | 4,062 | | | — | | | 4,062 | |
| Dividends paid ($0.60 per common share) | 2,701,952 | | | 27 | | | (27) | | | (25,869) | | | (25,869) | |
| Net income | — | | | — | | | — | | | 112,350 | | | 112,350 | |
| Balance, June 30, 2020 | 217,821,237 | | | $ | 2,178 | | | $ | 3,955,293 | | | $ | (1,854,706) | | | $ | 2,102,765 | |
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| | Common Stock | | Additional
Paid-In
Capital | | Accumulated
Deficit | | Noncontrolling Interest Operating Partnership | | Total
Equity |
| | Shares | | Amount | | |
| Balance, December 31, 2020 | 232,452,220 | | | $ | 2,325 | | | $ | 4,284,789 | | | $ | (1,612,096) | | | $ | — | | | $ | 2,675,018 | |
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| Issuance of common stock, net of costs | — | | | — | | | (95) | | | — | | | — | | | (95) | |
| Restricted stock activity | 329,433 | | | 3 | | | (3,971) | | | — | | | — | | | (3,968) | |
| Dividends paid ($0.65 per common share) | — | | | — | | | — | | | (151,496) | | | — | | | (151,496) | |
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| Net income | — | | | — | | | — | | | 127,184 | | | — | | | 127,184 | |
| Balance, March 31, 2021 | 232,781,653 | | | $ | 2,328 | | | $ | 4,280,723 | | | $ | (1,636,408) | | | $ | — | | | $ | 2,646,643 | |
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See accompanying notes to the condensed consolidated financial statements.
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited) | | Six months ended June 30, | | 2021 | | 2020 | |
| Three months ended March 31, | | Three months ended March 31, | | 2022 | | 2021 |
| | Operating activities | Operating activities | | | | | Operating activities | | | | |
| Net income | Net income | | $ | 265,400 | | | $ | 209,244 | | Net income | | $ | 121,692 | | | $ | 127,184 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | Depreciation and amortization | | 122,700 | | | 119,993 | | Depreciation and amortization | | 65,119 | | | 61,544 | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | Amortization of debt issuance costs, bond premiums and original issuance discounts | | 4,940 | | | 5,363 | | Amortization of debt issuance costs, bond premiums and original issuance discounts | | 2,771 | | | 2,470 | |
| Accretion on financing receivables | | Accretion on financing receivables | | (3,725) | | | — | |
| Non-cash adjustment to financing lease liabilities | | Non-cash adjustment to financing lease liabilities | | 124 | | | — | |
| (Gains) or losses from dispositions of property | | (Gains) or losses from dispositions of property | | (51) | | | — | |
| | Losses (gains) on dispositions of property | | 93 | | | (7) | | |
| Deferred income taxes | Deferred income taxes | | 81 | | | (1,018) | | Deferred income taxes | | — | | | 188 | |
| Stock-based compensation | Stock-based compensation | | 9,400 | | | 8,299 | | Stock-based compensation | | 7,600 | | | 5,788 | |
| Straight-line rent adjustments | Straight-line rent adjustments | | (1,656) | | | 10,322 | | Straight-line rent adjustments | | (1,543) | | | (828) | |
| Deferred revenue recognized | | 0 | | | (130,811) | | |
| Losses on debt extinguishment | | 0 | | | 17,334 | | |
| | Provision for credit losses | | Provision for credit losses | | 26,656 | | | — | |
| | (Increase), decrease | (Increase), decrease | | | | | (Increase), decrease | | | | |
| Prepaid expenses and other assets | | 3,303 | | | 1,934 | | |
| Other assets | | Other assets | | 4,782 | | | 2,907 | |
| Increase, (decrease) | Increase, (decrease) | | | | | Increase, (decrease) | | | | |
| Accounts payable and accrued expenses | Accounts payable and accrued expenses | | 1,004 | | | 389 | | Accounts payable and accrued expenses | | (1,096) | | | 607 | |
| Accrued interest | Accrued interest | | (1,687) | | | (2,545) | | Accrued interest | | 17,379 | | | 9,273 | |
| Accrued salaries and wages | Accrued salaries and wages | | (1,366) | | | (10,328) | | Accrued salaries and wages | | (4,808) | | | (4,780) | |
| Gaming, property and other taxes | | 652 | | | 688 | | |
| Income taxes | | (38) | | | 266 | | |
| Other liabilities | Other liabilities | | (255) | | | 590 | | Other liabilities | | (1,718) | | | 855 | |
| | Net cash provided by operating activities | Net cash provided by operating activities | | 402,571 | | | 229,713 | | Net cash provided by operating activities | | 233,182 | | | 205,208 | |
| Investing activities | Investing activities | | | | | Investing activities | | | | |
| Capital project expenditures | Capital project expenditures | | (1,120) | | | 0 | | Capital project expenditures | | (2,406) | | | (606) | |
| Capital maintenance expenditures | Capital maintenance expenditures | | (1,352) | | | (1,141) | | Capital maintenance expenditures | | (15) | | | (438) | |
| Proceeds from sale of property and equipment | | 93 | | | 7 | | |
| | Acquisition of real estate assets | | (487,449) | | | 0 | | |
| | Proceeds from sales of property | | Proceeds from sales of property | | 51 | | | — | |
| Investment in leases, financing receivables | | Investment in leases, financing receivables | | (129,047) | | | — | |
| Net cash used in investing activities | Net cash used in investing activities | | (489,828) | | | (1,134) | | Net cash used in investing activities | | (131,417) | | | (1,044) | |
| Financing activities | Financing activities | | | | | Financing activities | | | | |
| Dividends paid | Dividends paid | | (308,559) | | | (176,665) | | Dividends paid | | (230,396) | | | (151,496) | |
| | Noncontrolling interest distributions | | Noncontrolling interest distributions | | (5,083) | | | — | |
| Taxes paid related to shares withheld for tax purposes on restricted stock award vestings | Taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | (9,756) | | | (12,585) | | Taxes paid related to shares withheld for tax purposes on restricted stock award vestings | | (11,866) | | | (9,756) | |
| Proceeds from issuance of common stock, net | | 70,228 | | | 227 | | |
| Proceeds from issuance of long-term debt | | 0 | | | 1,868,735 | | |
| (Costs) proceeds from issuance of common stock, net | | (Costs) proceeds from issuance of common stock, net | | (37) | | | (95) | |
| | Financing costs | Financing costs | | 0 | | | (9,479) | | Financing costs | | (31) | | | — | |
| Repayments of long-term debt | Repayments of long-term debt | | (67) | | | (1,835,838) | | Repayments of long-term debt | | (422,927) | | | (33) | |
| Premium and related costs paid on retirement of certain senior unsecured notes | | 0 | | | (15,747) | | |
| | Net cash used in financing activities | Net cash used in financing activities | | (248,154) | | | (181,352) | | Net cash used in financing activities | | (670,340) | | | (161,380) | |
| Net (decrease) increase in cash and cash equivalents, including cash classified within assets held for sale | Net (decrease) increase in cash and cash equivalents, including cash classified within assets held for sale | | (335,411) | | | 47,227 | | Net (decrease) increase in cash and cash equivalents, including cash classified within assets held for sale | | (568,575) | | | 42,784 | |
| Less net change in cash classified within assets held for sale | Less net change in cash classified within assets held for sale | | 3,446 | | | 0 | | Less net change in cash classified within assets held for sale | | — | | | 8,495 | |
| Net (decrease) increase in cash and cash equivalents | Net (decrease) increase in cash and cash equivalents | | (338,857) | | | 47,227 | | Net (decrease) increase in cash and cash equivalents | | (568,575) | | | 34,289 | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 486,451 | | | 26,823 | | Cash and cash equivalents at beginning of period | | 724,595 | | | 486,451 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 147,594 | | | $ | 74,050 | | Cash and cash equivalents at end of period | | $ | 156,020 | | | $ | 520,740 | |
See accompanying notes to the condensed consolidated financial statements and Note 1615 for supplemental cash flow information and noncash investing and financing activities.
Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
1.Business and Operations
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. (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 togetherTRS. Further, as partial consideration for the transactions with The Cordish Companies ("Cordish") described below, the Company's operating partnership has issued 7,366,683 newly-issued operating partnership units ("OP Units") to affiliates of Cordish. The OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. As a result of the contribution, the OP became treated as a regarded partnership for income tax purposes, with the REIT being deemed to contribute substantially all of the assets and liabilities of the REIT in exchange for the general partnership and a majority of the limited partnership interests, and a minority limited partnership interest being owned by Cordish (the "UPREIT Transaction"). In advance of the UPREIT transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS Properties and GLP Holdings, Inc. is the Company's TRS segment (the "TRS Segment").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. In 2021, as a result of the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, GLP Holdings, Inc. was merged into GLP Capital, L.P., a wholly owned subsidiary of GLPI.
GLPI’s primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of June 30, 2021,March 31, 2022, GLPI’s portfolio consisted of interests in 5053 gaming and related facilities, including the TRS Properties,approximately 35 acres of real estate at Tropicana Las Vegas, the real property associated with 3334 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 3 gaming and related facilities operated by Cordish and the real property associated with property2 gaming and related facilities operated by Casino Queen Holding Company Inc. ("Casino Queen") in East St. Louis, Illinois.. These facilities, including our corporate headquarters building, are geographically diversified across 17 states and contain approximately 25.328.5 million square feet. As of June 30, 2021,March 31, 2022, the Company's properties were 100% occupied. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease and Casino Queen Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries underpursuant to a unitary master lease (the "Penn
"Penn Master Lease"). The Penn Master Lease is a triple-net operating lease, the current term of which expires October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions. GLPI leases the Casino Queen property in East St. Louis back to its operator on a triple-net basis on terms similar to those in the Penn Master Lease (the "Casino Queen Lease").
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease, the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated
December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by 5 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes, and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property. The Belterra Park Lease rent terms are consistent with the Boyd Master Lease. The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities which is adjusted, subject to certain floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
The Meadows Lease
The real estate assets of the Meadows 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 three3 successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to an amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to a maximum of 2% annually thereafter.
Amended and Restated Caesars Master Lease
On October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement dated April 15, 2018 between Tropicana and GLP Capital L.P,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,years, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable, (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction
of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review and approval of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement (the "Exchange Agreement") with subsidiaries of Caesars in which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. 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 millionmillion.
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 4four separate renewal options of five years each, exercisable at the tenant's option. The Lumière Place Lease's rent is subject to anwas adjusted on December 1, 2021 such that the annual escalator of up to 2% if certain rent coverage ratio thresholds are met.
Tropicana Las Vegas
On April 16, 2020, the Company and certain of its subsidiaries acquired the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of rent credits to be applied against future rent obligations. This asset has been placed in our TRS Segment. See Note 17is now fixed at 1.25% for the anticipated salesecond 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 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 which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of Penn for an initial term of 20 years, followed by six, 5 year renewal options exercisable by the tenant (the "Morgantown Lease").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-year5-year renewal options (exercisable by the tenant) on the same terms and conditions.
COVID-19Tropicana Las Vegas
InOn April 16, 2020, the first quarterCompany and certain of 2020, there was a global outbreakits subsidiaries closed on its previously announced transaction to acquire the real property associated with the Tropicana Las Vegas from Penn in exchange for $307.5 million of a new strainrent credits which were applied against future rent obligations due under the parties' existing leases during 2020. An affiliate of novel coronavirus COVID-19. The global, domestic and local response to the COVID-19 outbreakPenn continues to evolve. Responsesoperate the casino and hotel business of Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the COVID-19 outbreak included mandates from federal, state, and/earlier of two years (subject to three one-year extensions at the Company's option) or local authorities that required temporary closures of, or imposed limitations on,until the operations of non-essential businesses. AllTropicana Las Vegas is sold. See Note 15 for the anticipated sale of the Company's tenants' casino operations, in addition tobuilding and sale-lease back of 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 ofland for this asset.
COVID-19 led some jurisdictionsMorgantown Lease
On October 1, 2020, the Company and Penn closed on their previously announced transaction whereby GLPI acquired the land under Penn's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits which were fully utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to impose temporary closures once again. Asan 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. 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 datelease 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 this filing, none8.25% 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.
Perryville Lease
On December 15, 2020, the Company announced that Penn exercised its option to purchase from the Company the operations of our propertiesHollywood 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 closed.being leased to Penn on a triple net basis (the "Perryville Lease").
Maryland Live! Lease and Pennsylvania Live! Lease
On December 6, 2021, the Company announced that it had agreed to acquire the real property assets of Live! Casino & Hotel Maryland, Live! Casino & Hotel Philadelphia, and Live! Casino Pittsburgh, including applicable long-term ground leases, from affiliates of Cordish for aggregate consideration of approximately $1.81 billion excluding transaction costs at deal announcement. The transaction also includes a binding partnership on future Cordish casino developments, as well as potential financing partnerships between the Company and Cordish in other areas of Cordish's portfolio of real estate and operating businesses. On December 29, 2021, the Company completed its acquisition of the real property assets of Live! Casino & Hotel Maryland and entered into a single asset lease for Live! Casino & Hotel Maryland (the "Maryland Live Lease") which has an initial lease terms of 39 years, with a maximum term of 60 years inclusive of tenant renewal options. On March 1, 2022, the Company completed its acquisition of the real estate assets of Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh for $689 million and leased back the real estate to Cordish pursuant to a new triple net master lease with Cordish (the "Pennsylvania Live! Master Lease"). The annual rent for the Maryland Live! Lease is $75.0 million and the Pennsylvania Live! Master Lease is $50.0 million both of which have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
2.Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.
The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries.subsidiaries as well as the Company's operating partnership, which is a variable interest entity ("VIE") in which the Company is the primary beneficiary. The Company presents non-controlling interests and classifies such interests as a separate component of equity, separate from GLPI's stockholders' equity and as net income attributable to non-controlling interest in the Condensed Consolidated Statement
of Income. All intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform to the current period presentation. Specifically, gainsproperty and losses from dispositions of properties were previouslyequipment, net, is now classified within General and administrative expenses and are now presented separatelyin other assets on the Condensed Consolidated Statements of Income.Balance Sheets, accounts payable has been combined with dividend payable and accrued expenses and finally, gaming, property and other taxes and income taxes payable were reclassified to other liabilities on the Condensed Consolidated Balance Sheets.
Operating results for the three and six months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 20202021 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 20202021 financial information has been derived from the Company’s audited consolidated financial statements.
The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report and since the date of those financial statements, the Company has not had any significant changes to these accounting policies that have had a material impact on the Company's financial statements.
Segment Information
As described in Note 1, due to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, the Company's operations consist solely of investments in real estate for which all such real estate properties are similar to one another in that they consist of destination and leisure properties and related offerings, whose tenants offer casino gaming, hotel, convention, dining, entertainment and retail amenities, have similar economic characteristics and are governed by triple-net operating leases. The operating results of the Company's real estate investments are reviewed in the aggregate, by the chief operating decision maker (as such term is defined in ASC 280 - Segment Reporting). As such as of January 1, 2022, the Company has one reportable segment.
3. New Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In March 2020,2022, the FASB issued ASU No. 2020-04,No 2022-02, Reference Rate ReformFinancial Instruments-Credit Losses ("ASU 2020-04"). Reference rates such as London Interbank Offered Rate ("LIBOR") are widely used in a broad range of financial instruments and other agreements. Regulators and market participants in various jurisdictions have undertaken efforts, generally referred to as "reference rate reform", to eliminate certain reference rates and introduce new reference rates that are based on a larger and more liquid population of observable transactions. As a result of this reform initiative, certain widely used rates such as LIBOR are expected to be discontinued. ASU 2020-04 provides optional expedients for applyingwhich eliminates the accounting guidance for contract modifications or other situations affectedtroubled debt restructurings ("TDRs) and requires that entities disclose current-period gross write-offs by reference rate reform, specifically addressing the accountingyear of origination for modifications of contractsfinancing receivables and net investment in leases within the scope of ASC Topic 310 on receivables, ASC 470 on debt,326-20, Financial Instruments-Credit Losses-Measured and ASC 842 on leases and ASC subtopic 815-15 on embedded derivatives.Amortized Cost. The adoption ofCompany early adopted the amendments in this pronouncementupdate which had no material impact on its financial statements or related disclosures as the Company's financial statements.Company has no TDRs or write-offs to disclose on its net investment in leases.
4. Investment in leases, financing receivables, net
In connection with the Maryland Live! Lease that became effective on December 29, 2021 and the Pennsylvania Live! Master Lease that became effective March 1, 2022, the Company recorded an Investment in leases, financing receivables, net, as the sale lease back transactions were accounted for as failed sale leasebacks. The following is a summary of the balances of the Company's Investment in leases, financing receivables, net.
| | | | | | | | | | | |
| March 31,
2022 | | December 31,
2021 |
| (in thousands) |
| Minimum lease payments receivable | $ | 6,771,931 | | | $ | 4,012,937 | |
| Estimated residual values of lease property (unguaranteed) | 940,885 | | | 601,947 | |
| Total | 7,712,816 | | | 4,614,884 | |
| Less: Unearned income | (5,806,213) | | | (3,400,988) | |
| Less: Allowance for credit losses | (38,882) | | | (12,226) | |
| Investment in leases - financing receivables, net | $ | 1,867,721 | | | $ | 1,201,670 | |
4.
The present value of the net investment in the lease payment receivable and unguaranteed residual value at March 31, 2022 was $1,858.6 million and $48.0 million compared to $1,178.0 million and $35.9 million at December 31, 2021.
At March 31, 2022, minimum lease payments owed to us for each of the five succeeding years under the Company's financing receivables was as follows (in thousands):
| | | | | |
| Year ending December 31, | Future Minimum Lease Payments |
| 2022 (remainder of year) | $ | 95,403 | |
| 2023 | 127,222 | |
| 2023 | 129,286 | |
| 2025 | 131,532 | |
| 2026 | 133,816 | |
| Thereafter | 6,154,672 | |
| Total | $ | 6,771,931 | |
The Company follows ASC 326 “Credit Losses” (“ASC 326”), which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investment in leases - financing receivables. The Company has elected to use an econometric default and loss rate model to estimate the Allowance for credit losses, or CECL allowance. This model requires us to calculate and input lease and property-specific credit and performance metrics which in conjunction with forward-looking economic forecasts, project estimated credit losses over the life of the lease. The Company then records a CECL allowance based on the expected loss rate multiplied by the outstanding investment in lease balance.
Expected losses within our cash flows are determined by estimating the probability of default (“PD”) and loss given default (“LGD”) of our Investment in leases, financing receivables. We have engaged a nationally recognized data analytics firm to assist us with estimating both the PD and LGD. The PD and LGD are estimated during the initial term of the leases. The PD and LGD estimates for the lease term were developed using current financial condition forecasts. The PD and LGD predictive model was developed using the average historical default rates and historical loss rates, respectively, of over 100,000 commercial real estate loans dating back to 1998 that have similar credit profiles or characteristics to the real estate underlying the Company's financing receivables. Management will monitor the credit risk related to its financing receivable by obtaining the rent coverage on the lease on a periodic basis. The Company also monitors legislative changes to assess whether it would have an impact on the underlying performance of its tenant. We are unable to use our historical data to estimate losses as the Company has no loss history to date on its lease portfolio. Our tenants are current on all of their rental obligations as of March 31, 2022 and December 31, 2021.
The rollforward of the allowance for credit losses for the Company's financing receivables is illustrated below (in thousands):
| | | | | | | | | | | |
| Maryland Live! Lease | Pennsylvania Live! Master Lease | Total |
| Balance at December 31, 2021 | $ | 12,226 | | $ | — | | $ | 12,226 | |
| Provision for credit losses | (5,621) | | 32,277 | | 26,656 | |
| Ending balance at March 31, 2022 | $ | 6,605 | | $ | 32,277 | | $ | 38,882 | |
The amortized cost basis of the Company's investment in leases, financing receivables by year of origination is shown below as of March 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Origination year | | |
| 2022 | | 2021 | | Total |
| Investment in leases, financing receivables | $ | 689,648 | | | $ | 1,216,955 | | | $ | 1,906,603 | |
| Allowance for credit losses | (32,277) | | | (6,605) | | | (38,882) | |
| Amortized cost basis at March 31, 2022 | $ | 657,371 | | | $ | 1,210,350 | | | $ | 1,867,721 | |
| | | | | |
| Allowance as a percentage of outstanding financing receivable | (4.68) | % | | (0.54) | % | | (2.04) | % |
During the three months ended March 31, 2022, the Company received an updated earnings forecast from its tenant on the Maryland Live! Casino & Hotel operations for 2022. This resulted in an improved rent coverage ratio in its reserve calculation which led to a reduction in its reserve at March 31, 2022. The reason for the higher allowance for credit losses as a percentage of the outstanding investment in leases for the Pennsylvania Live! Master Lease compared to the Maryland Live! Lease is primarily due to the significantly higher expected rent coverage ratio on the Maryland Live! Lease compared to the Pennsylvania Live! Master Lease among other factors such as a changing economic forecast. Future changes in economic probability factors and earnings assumptions at the underlying facilities may result in non-cash provisions or recoveries in future periods that could materially impact our results of operations.
5. Real Estate Investments
Real estate investments, net, represents investments in 4752 rental properties and the corporate headquarters building and is summarized as follows:
| | | June 30,
2021 | | December 31,
2020 | | March 31,
2022 | | December 31,
2021 |
| | | (in thousands) | | (in thousands) |
| Land and improvements | Land and improvements | $ | 3,117,451 | | | $ | 2,667,616 | | Land and improvements | $ | 3,141,553 | | | $ | 3,141,646 | |
| Building and improvements | Building and improvements | 6,226,731 | | | 6,030,482 | | Building and improvements | 6,311,573 | | | 6,311,573 | |
| | Construction in progress | | Construction in progress | 8,105 | | | 5,699 | |
| Total real estate investments | Total real estate investments | 9,344,182 | | | 8,698,098 | | Total real estate investments | 9,461,231 | | | 9,458,918 | |
| Less accumulated depreciation | Less accumulated depreciation | (1,524,112) | | | (1,410,940) | | Less accumulated depreciation | (1,739,933) | | | (1,681,367) | |
| Real estate investments, net | Real estate investments, net | $ | 7,820,070 | | | $ | 7,287,158 | | Real estate investments, net | $ | 7,721,298 | | | $ | 7,777,551 | |
Increase in real estate investments is due to the acquisition of Dover Downs and Tropicana Evansville in the previously announced transaction with Bally's as well as the reclassification of the land associated with Tropicana Las Vegas from its own line item on the Condensed Consolidated Balance Sheet as the Company has entered into an agreement to sell the building and lease the land back to Bally's. This deal is expected to close in less than one year. The building has been reclassified to assets held for sale. See Note 6 for further details.
5.Property and Equipment Used in Operations
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized at the TRS Properties as the real estate will be leased to third party operators subsequent to the completion of the sale transactions as discussed in Note 6.
| | | | | | | | | | | |
| June 30,
2021 | | December 31,
2020 |
| | (in thousands) |
| Land and improvements | $ | 30,586 | | | $ | 30,540 | |
| Building and improvements | 117,333 | | | 117,333 | |
| Furniture, fixtures, and equipment | 28,832 | | | 28,767 | |
| Construction in progress | 1,593 | | | 474 | |
| Total property and equipment | 178,344 | | | 177,114 | |
| Less accumulated depreciation | (99,267) | | | (96,496) | |
| Property and equipment, net | $ | 79,077 | | | $ | 80,618 | |
6. Assets Held for Sale
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million. The Company will retain ownership of all real estate assets at Hollywood Casino Baton Rouge and will simultaneously enter into a master lease with Casino Queen, which will include the Casino Queen property in East St. Louis that is currently leased by us to Casino Queen and the Hollywood Casino Baton Rouge facility (the "Casino Queen Master Lease"). The initial annual cash rent on the retained real estate will be approximately $21.4 million and the Casino Queen Master Lease will have an initial term of 15 years with 4 5-year renewal options exercisable by the tenant. Additionally, the Company will complete the current land side development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The transaction is subject to customary closing conditions and regulatory approvals and is expected to close in the second half of 2021.
On December 15, 2020, the Company announced that Penn exercised it option to purchase from the Company the operations of our Hollywood Casino Perryville, located in Perryville, Maryland, for $31.1 million, which closed on July 1, 2021. The Company is leasing the real estate of the Perryville facility to Penn pursuant to a lease providing for initial annual rent on the retained real estate of $7.77 million, subject to escalation provisions.
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 earlythe second half of 2022. At June 30, 2021, theThe Company has classified the building value of Tropicana Las Vegas in Assets held for sale which totals $77.7 million and the land value in Real estate investments, net on the Condensed Consolidated Balance SheetSheets since the transaction is expected to close within 12 monthsin the second half 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 Condensed Consolidated Balance Sheet.2022.
The Company has classified the building value
| | | | | |
Assets | |
Property and equipment, used in operations, net | $ | 9,873 | |
Real estate of Tropicana Las Vegas, net | 77,728 | |
Right-of-use assets and land rights, net | 867 |
Cash and cash equivalents | 25,577 | |
Prepaid expenses | 2,080 | |
Goodwill | 16,067 | |
| |
Other intangible assets | 9,577 | |
Other assets | 1,170 | |
Total | $ | 142,939 | |
| |
Liabilities | |
Accounts payable | 4 | |
Accrued expenses | 3,739 | |
Accrued salaries and wages | 3,143 | |
Gaming, property and other taxes | 901 | |
Lease liabilities | 867 | |
Other liabilities | 828 | |
Total which is classified in Other Liabilities | $ | 9,482 | |
The assets held for sale reside in the Company's TRS Segment. See Note 15 for the pre-tax income of this segment for the three and six month periods ended June 30, 2021 and 2020, respectively.
7. 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 consumer price index ("CPI"),CPI, and have maturity dates ranging from 2028 to 2108, when considering all renewal options. For certain of these ground leases, the Company’s tenants are responsible for payment directly to the third-party landlord. Under ASC 842, the Company is required to gross-up its condensed consolidated financial statements for these ground leases as the Company is considered the primary obligor. In conjunction with the adoption of ASU 2016-02 on January 1, 2019, the Company recorded right-of-use assets and related lease liabilities on its condensed consolidated balance sheetsheets to represent its
rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its condensed consolidated balance sheetsheets in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the condensed consolidated balance sheet.sheets.
Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.
Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
| | | | | | | | |
| June 30, 2021 | December 31, 2020 |
Right-of use assets - operating leases (1) | $ | 185,858 | | $ | 151,339 | |
| Land rights, net | 679,534 | | 617,858 | |
| Right-of-use assets and land rights, net | $ | 865,392 | | $ | 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. In addition, there is $0.9 million and $0.3 million of operating lease right-of-use assets included in assets held for sale at June 30, 2021 and December 31, 2020, respectively. | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Right-of use assets - operating leases | $ | 182,623 | | | $ | 183,136 | |
| Land rights, net | 662,693 | | | 668,683 | |
| Right-of-use assets and land rights, net | $ | 845,316 | | | $ | 851,819 | |
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:
| | | | | | | | | | | |
| June 30,
2021 | | December 31,
2020 |
| (in thousands) |
| Land rights | $ | 735,276 | | | $ | 667,751 | |
| Less accumulated amortization | (55,742) | | | (49,893) | |
| Land rights, net | $ | 679,534 | | | $ | 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.
| | | | | | | | | | | |
| March 31,
2022 | | December 31,
2021 |
| (in thousands) |
| Land rights | $ | 727,796 | | | $ | 730,783 | |
| Less accumulated amortization | (65,103) | | | (62,100) | |
| Land rights, net | $ | 662,693 | | | $ | 668,683 | |
During the three month period ended March 31, 2022, the Company recorded $2.7 million of accelerated land right amortization as it donated a portion of the land underlying a ground lease.
As of June 30, 2021,March 31, 2022, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):
| | Year ending December 31, | Year ending December 31, | | Year ending December 31, | |
| 2021 (remainder of year) | $ | 6,665 | | |
| 2022 | 13,330 | | |
| 2022 (remainder of year) | | 2022 (remainder of year) | $ | 9,869 | |
| 2023 | 2023 | 13,330 | | 2023 | 13,159 | |
| 2024 | 2024 | 13,330 | | 2024 | 13,159 | |
| 2025 | 2025 | 13,330 | | 2025 | 13,159 | |
| 2026 | | 2026 | 13,159 | |
| Thereafter | Thereafter | 619,549 | | Thereafter | 600,188 | |
| Total | Total | $ | 679,534 | | Total | $ | 662,693 | |
Operating Lease Liabilities
At June 30, 2021,March 31, 2022, maturities of the Company's operating lease liabilities were as follows (in thousands):
| | | | | |
| Year ending December 31, | |
| 2021 (remainder of year) | $ | 6,833 | |
| 2022 | 13,666 | |
| 2023 | 13,664 | |
| 2024 | 13,617 | |
| 2025 | 13,567 | |
| Thereafter | 630,492 | |
| Total lease payments | $ | 691,839 | |
| Less: interest | (504,911) | |
Present value of lease liabilities (1) | $ | 186,928 | |
(1) In addition, there is $0.9 million of lease liabilities included in other liabilities related to liabilities held for sale. | | | | | |
| Year ending December 31, | |
| 2022 (remainder of year) | $ | 10,170 | |
| 2023 | 13,556 | |
| 2024 | 13,505 | |
| 2025 | 13,452 | |
| 2026 | 13,459 | |
| Thereafter | 610,692 | |
| Total lease payments | $ | 674,834 | |
| Less: interest | (491,424) | |
| Present value of lease liabilities | $ | 183,410 | |
Lease Expense
Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the condensed consolidated balance sheet.sheets. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.
The components of lease expense were as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | 2020 | | 2021 | 2020 |
| | | | | |
| Operating lease cost | $ | 3,228 | | $ | 3,472 | | | $ | 6,156 | | $ | 7,167 | |
Variable lease cost (1) | 2,129 | | (652) | | | 3,139 | | 810 | |
| Short-term lease cost | 301 | | (5) | | | 628 | | 222 | |
| Amortization of land right assets | 3,006 | | 3,020 | | | 5,849 | | 6,040 | |
| Total lease cost | $ | 8,664 | | $ | 5,835 | | | $ | 15,772 | | $ | 14,239 | |
(1)Variable lease costs for the three months ended June 30, 2020 included a true up of the monthly rental payments
paid by our tenants on certain ground leases that are based on estimated current year annual performance which were impacted by casino closures due to COVID-19. As discussed previously, under ASC 842, the Company is required to gross up its financial statements by recording both expense and revenue (recorded within rental income on the condensed consolidated statements of income) for these payments since the Company is considered the primary obligor. | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | |
| | | | | | |
| Operating lease cost | $ | 3,370 | | | $ | 2,928 | | | | |
| Variable lease cost | 4,355 | | | 1,010 | | | | |
| Short-term lease cost | — | | | 327 | | | | |
| Amortization of land right assets | 5,990 | | | 2,843 | | | | |
| Total lease cost | $ | 13,715 | | | $ | 7,108 | | | | |
Amortization expense related to the land right intangibles, as well as variable lease costs and the majority of the Company's operating lease costs are recorded within land rights and ground lease expense in the condensed consolidated statements of income. 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 condensed consolidated statements of income.
Supplemental Disclosures Related to Leases
Supplemental balance sheet information related to the Company's operating leases was as follows:
| | | | | |
| June 30, 2021March 31, 2022 |
| Weighted average remaining lease term - operating leases | 51.9751.62 years |
| Weighted average discount rate - operating leases | 6.56%6.6% |
In addition, the weighted average remaining lease term and the weighted average discount rate for those operating
leases included in assets held for sale and other liabilities is 2.11 years and 3.32%, respectively.
Supplemental cash flow information related to the Company's operating leases was as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | 2020 | | 2021 | 2020 |
| (in thousands) | | (in thousands) |
| Cash paid for amounts included in the measurement of leases liabilities: | | | | | |
Operating cash flows from operating leases (1) (2) | $ | 403 | | $ | 449 | | | $ | 807 | | $ | 937 | |
| | | | | |
| Right-of-use assets obtained in exchange for new lease obligations: | | | | | |
Operating leases (2) | $ | 35,372 | | $ | 0 | | | $ | 35,372 | | $ | 185 | |
| | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | |
| (in thousands) | | |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows from operating leases (1) | $ | 405 | | | $ | 404 | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's condensed consolidated financial statements under ASC 842.
(2)
Financing Lease Liabilities
In addition, there is $0.2 million relatedconnection with the acquisition of the real property assets of Live! Casino & Hotel Maryland, the Company acquired the rights to assets heldland subject to a long-term ground lease which expires on June 6, 2111. As the Maryland Live! Lease was accounted for sale and otheras an Investment in lease, financing receivable, the underlying ground lease was accounted for as a financing lease obligation within Lease liabilities for operating cash flows from cash paid for amounts included inon the measurement of lease liabilities and $1.0 million for right-of-use assets obtained in exchange for new lease obligationsCondensed Consolidated Balance Sheets. In accordance with ASC 842, the Company records revenue for the threeground 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 six months ended June 30, 2021.has fixed minimum annual payments. The Company discounted the fixed minimum annual payments at 5.0% to arrive at the initial lease obligation. At March 31, 2022, maturities of this finance lease were as follows (in thousands):
| | | | | |
| Three Months Ended March 31, 2022 | |
| 2022 (remainder of year) | $ | 1,653 | |
| 2023 | 2,222 | |
| 2024 | 2,244 | |
| 2025 | 2,267 | |
| 2026 | 2,289 | |
| Thereafter | 304,372 | |
| Total lease payments | $ | 315,047 | |
| Less: Interest | (261,614) | |
| Present value of finance lease liability | $ | 53,433 | |
8.Long-term Debt
Long-term debt is as follows:
| | | June 30,
2021 | | December 31,
2020 | | March 31,
2022 | | December 31,
2021 |
| | | (in thousands) | | (in thousands) |
| Unsecured $1,175 million revolver | Unsecured $1,175 million revolver | $ | 0 | | | $ | 0 | | Unsecured $1,175 million revolver | $ | — | | | $ | — | |
| | Unsecured term loan A-2 | Unsecured term loan A-2 | 424,019 | | | 424,019 | | Unsecured term loan A-2 | 424,019 | | | 424,019 | |
| $500 million 5.375% senior unsecured notes due November 2023 | $500 million 5.375% senior unsecured notes due November 2023 | 500,000 | | | 500,000 | | $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 million 3.35% senior unsecured notes due September 2024 | 400,000 | | | 400,000 | | $400 million 3.35% senior unsecured notes due September 2024 | 400,000 | | | 400,000 | |
| $850 million 5.25% senior unsecured notes due June 2025 | $850 million 5.25% senior unsecured notes due June 2025 | 850,000 | | | 850,000 | | $850 million 5.25% senior unsecured notes due June 2025 | 850,000 | | | 850,000 | |
| $975 million 5.375% senior unsecured notes due April 2026 | $975 million 5.375% senior unsecured notes due April 2026 | 975,000 | | | 975,000 | | $975 million 5.375% senior unsecured notes due April 2026 | 975,000 | | | 975,000 | |
| $500 million 5.75% senior unsecured notes due June 2028 | $500 million 5.75% senior unsecured notes due June 2028 | 500,000 | | | 500,000 | | $500 million 5.75% senior unsecured notes due June 2028 | 500,000 | | | 500,000 | |
| $750 million 5.30% senior unsecured notes due January 2029 | $750 million 5.30% senior unsecured notes due January 2029 | 750,000 | | | 750,000 | | $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 million 4.00% senior unsecured notes due January 2030 | 700,000 | | | 700,000 | | $700 million 4.00% senior unsecured notes due January 2030 | 700,000 | | | 700,000 | |
| $700 million 4.00% senior unsecured notes due January 2031 | $700 million 4.00% senior unsecured notes due January 2031 | 700,000 | | | 700,000 | | $700 million 4.00% senior unsecured notes due January 2031 | 700,000 | | | 700,000 | |
| Finance lease liability | 793 | | | 860 | | |
| $800 million 3.25% senior unsecured notes due January 2032 | | $800 million 3.25% senior unsecured notes due January 2032 | 800,000 | | | 800,000 | |
| Other | | Other | 690 | | | 725 | |
| Total long-term debt | Total long-term debt | 5,799,812 | | | 5,799,879 | | Total long-term debt | 6,599,709 | | | 6,599,744 | |
| Less: unamortized debt issuance costs, bond premiums and original issuance discounts | Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (40,251) | | | (45,190) | | Less: unamortized debt issuance costs, bond premiums and original issuance discounts | (44,632) | | | (47,372) | |
| Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 5,759,561 | | | $ | 5,754,689 | | Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | $ | 6,555,077 | | | $ | 6,552,372 | |
The following is a schedule of future minimum repayments of long-term debt as of June 30, 2021March 31, 2022 (in thousands):
| | | | | |
Within one year | $ | 139 | |
2-3 years | 924,317 | |
4-5 years | 2,225,328 | |
Over 5 years | 2,650,028 | |
Total minimum payments | $ | 5,799,812 | |
| | | | | |
| 2022 (remainder of year) | $ | 107 | |
| 2023 | 924,168 | |
| 2024 | 400,156 | |
| 2025 | 850,164 | |
| 2026 | 975,114 | |
| Over 5 years | 3,450,000 | |
| Total minimum payments | $ | 6,599,709 | |
Senior Unsecured Credit Facility
Prior to June 25, 2020, theThe Company's senior unsecured credit facility (the "Credit"Amended Credit Facility") consistedconsists of a $1,175 million revolving credit facility (the "Revolver") with a maturity date of May 21, 2023, and a $449$424 million Term Loan A-1 facility with a maturity date of April 28, 2021.
A-2 facility. 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. 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 closed on an offering of $500 million of 4.00% unsecured senior notes due in January 2031 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.A-2 facility mature on May 21, 2023.
At June 30, 2021,March 31, 2022, the Amended Credit Facility had a gross outstanding balance of $424.0 million, consisting of the Term Loan A-2 facility. Additionally, at June 30, 2021,March 31, 2022, 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 as of June 30, 2021.March 31, 2022.
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 June 30, 2021,March 31, 2022, 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 June 30, 2021,March 31, 2022, 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 June 30, 2021,March 31, 2022, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
In the first quarter of 2020, the Company redeemed all $215.2 million aggregate principal amount of the Company’s outstanding 4.875% senior unsecured notes due in November 2020 and all $400 million aggregate principal amount of the Company’s outstanding 4.375% senior unsecured notes due in April 2021. The Company recorded 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.
At June 30, 2021,March 31, 2022, the Company had $5,375.0$6,175.0 million of outstanding senior unsecured notes (the "Senior Notes"). Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
At June 30, 2021,March 31, 2022, the Company was in compliance with all required financial covenants under its Senior Notes.
9. Fair Value of Financial Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are classified based upon the level of judgment associated with the inputs used to measure their fair value. ASC 820 - Fair Value Measurements and Disclosures ("ASC 820") establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). The levels of the hierarchy related to the subjectivity of the valuation inputs are described below:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; these include quoted prices for similar assets or liabilities in active markets, such as interest rates and yield curves that are observable at commonly quoted intervals.
•Level 3: Unobservable inputs that reflect the reporting entity's own assumptions, as there is little, if any, related market activity.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.
Cash and Cash Equivalents
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.
Investment in leases, financing receivables, net
The fair value of the Company's net investment in leases, financing receivables, is based on the value of the underlying real estate property the Company owns related to the Maryland Live! Lease and the Pennsylvania Live! Master Lease. The initial fair value was the price paid by the Company to acquire the real estate. The initial fair value is then adjusted for changes in the commercial real estate price index and as such is a Level 3 measurement as defined under ASC 820.
Deferred Compensation Plan Assets
The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the condensed consolidated balance sheets.
Long-term Debt
The fair value of the Senior Notes are estimated based on quoted prices in active markets and as such is a Level 1 measurement 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): | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Financial assets: | | | | | | | |
Cash and cash equivalents (1) | $ | 147,594 | | | $ | 147,594 | | | $ | 486,451 | | | $ | 486,451 | |
| Deferred compensation plan assets | 33,236 | | | 33,236 | | | 35,514 | | | 35,514 | |
| Financial liabilities: | | | | | | | |
| Long-term debt: | | | | | | | |
| Amended Credit Facility | 424,019 | | | 424,019 | | | 424,019 | | | 424,019 | |
| Senior Notes | 5,375,000 | | | 6,053,415 | | | 5,375,000 | | | 6,026,840 | |
(1) In addition, there is $25.6 million at June 30, 2021 and $22.1 million at December 31, 2020 in cash and cash equivalents in assets held for sale. | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| Financial assets: | | | | | | | |
| Cash and cash equivalents | $ | 156,020 | | | $ | 156,020 | | | $ | 724,595 | | | $ | 724,595 | |
| Investment in leases, financing receivables, net | 1,867,721 | | | 1,926,682 | | | 1,201,670 | | | 1,213,896 | |
| Deferred compensation plan assets | 32,032 | | | 32,032 | | | 34,549 | | | 34,549 | |
| Financial liabilities: | | | | | | | |
| Long-term debt: | | | | | | | |
| Amended Credit Facility | 424,019 | | | 424,019 | | | 424,019 | | | 424,019 | |
| Senior Notes | 6,175,000 | | | 6,186,270 | | | 6,175,000 | | | 6,645,574 | |
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 sixthree months ended June 30, 2021March 31, 2022 and 2020.
10.Commitments and Contingencies
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, results of operations or liquidity. 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.
11. Revenue Recognition
Revenues from Real Estate
As of June 30, 2021,March 31, 2022, 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, 6 of the Company's real estate investment properties were leased to a subsidiary of Caesars under the Amended and Restated Caesars Master Lease, 3 of the Company's real estate investment properties were leased to a subsidiary of Boyd under the Boyd Master Lease, and 2 of the Company's real estate investment properties were leased to a subsidiary of Bally's under the Bally's Master Lease, 2 of the Company's real estate investment properties were leased to a subsidiary of Cordish under the Pennsylvania Live! 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, the Hollywood Casino Perryville real estate assets are leased to Penn pursuant to the Perryville Lease and the land under a Penn development facilityPenn's Hollywood Casino Morgantown is subject to the Morgantown Lease and the Casino Queen real estate assets are leased back to the operator under the Casino Queen Lease. Finally, the Company has single property triple net leases with Caesars under the Lumière Place Lease, and Boyd under the Belterra Park Lease, and Cordish under the Maryland Live! Lease.
Guarantees
The obligations under the Penn Master Lease and Amended Pinnacle Master Lease, as well as the Meadows Lease, Morgantown Lease and MorgantownPerryville 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 Amended and Restated Caesars Master Lease and Bally's Master Lease are jointly and severally guaranteed by Caesarsthe parent company and by most of Caesars'sthe subsidiaries that occupy and operate the leased facilities. The obligations under the Bally's Master Lease are guaranteed by Bally's and jointly and severally by Bally's subsidiaries that occupy and operate the facilities covered by the Bally's Master Lease. The obligations under the Boyd Master Lease 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 and the Pennsylvania Live! Master Lease are guaranteed by the Cordish subsidiaries that operate the facilities.
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 in excess of a contractual baseline, although Hollywood Casino Toledo has a monthly percentage rent floor which equals $22.9 million annually due to Penn's acquisition of a competing facility, Greektown Casino-Hotel in Detroit, Michigan.
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 net revenues of all facilities under the Amended Pinnacle Master Lease during the preceding two years in excess of a contractual baseline.
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 new lease which the Company concluded continued to meet the criteria for operating lease treatment. As a result, the existing deferred revenue at the time of the amendment is being recognized in the income statement over the Amended and Restated Caesars Master Lease's new initial lease term, which now expires in September 2038. The Company has concluded the renewal options of up to an additional 20 years at the tenant's 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% in the ninth lease year and each lease year thereafter. In addition, the guaranteed fixed escalations in the new initial lease term will beare recognized on a straight line basis.
On December 18, 2020, following the receipt of required regulatory approvals, the Company and Caesars completed thean 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 TransactionAgreement 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.
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 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 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 tenant's option. The Lumière Place Lease's rent is subject to anterms 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 up to 2% if certain rent coverage ratio thresholds are met.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 a maximum of 2% annually thereafter.
The Morgantown Lease became effective on October 1, 2020 whereby the Company is leasing the land under Penn's gaming facility under construction for an initial cash rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the CPI increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year.
The initial rent under the Casino Queen Master Lease, which became effective on December 17, 2021, 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 complete the current landside development project that is in process and rent under the Casino Queen Master Lease will be adjusted to reflect a yield of 8.25% on GLPI's project costs.
The Perryville Lease with Penn that became effective 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 became effective on June 3, 2021 in connection with the Company's acquisition of the real estate assets of Tropicana Evansville and Dover Downs Casino & Hotel. Rent under the Bally's Master Lease is $40 million annually and is subject to an annual escalator of up to 2% determined in relation to the annual increase in CPI.
TheOn December 29, 2021, the Maryland Live! Lease with Cordish became effective. Annual rent structure underis $75.0 million and increases by 1.75% upon the Casino Queen Lease also includes a fixed component, a portion of which is subject to an annual 2% escalator if certain rent coverage ratio thresholds are met, and a component that is based on the performancesecond anniversary of the facility, which is reset every five years tolease commencement. The Pennsylvania Live! Master Lease with Cordish became effective March 1, 2022 and has annual rent of $50 million initially, increasing by 1.75% upon the second anniversary of the lease commencement. These leases were accounted for as an amount equal to the greater of (i) the annual amount of non-fixed rent applicableInvestment in leases, financing receivables. See Note 4 for the lease year immediately preceding such rent reset year and (ii) an amount equalfurther information including the future annual cash payments to 4% of the average annual net revenues of the facility for the trailing five-year period.be received under these leases.
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. A percentage rent floor was triggered on Penn's Hollywood Casino Toledo property, as a result of Penn's purchase of the operations of the Greektown Casino-Hotel in Detroit, Michigan 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.
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 Penn Master Lease and the Casino 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 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 Penn 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.
The Casino Queen Master Lease became effective December 17, 2021 and required an accounting reassessment due to changes in 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 Amended 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 Amended Pinnacle Master Lease, the Company concluded that the lease term of the Amended Pinnacle Master Lease was 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 any lease renewal options. Therefore, the Company concluded that the lease term of the Meadows Lease was 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 Caesars, Boyd or Bally's would elect to exercise all lease renewal options under the Caesars Master Lease, the Boyd Master Lease and the Bally's Master Lease as the earnings from these properties did not represent a meaningful portion of either tenant's business at lease inception. The Company concluded that the lease term of the Amended and Restated Caesars Master Lease was its remaining initial lease term which was extended by 5 years when the Amended and Restated Caesars Master Lease became effective on July 23, 2020. The lease termterms of the Boyd Master Lease and Bally's Master Lease isare 10 years and 15 years, respectively, equal to the initial terms of such master leases.
The Belterra Park Lease, Morgantown Lease, Perryville Lease, Maryland Live! Lease and Lumière Park Lease are single property leases 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. Accordingly,options; as such, the lease term of these leases is equal to their initial terms.
Details of the Company's rental income from real estate for the three and six months ended June 30, 2021March 31, 2022 was as follows (in thousands):
| | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 | |
Building base rent (1) | $ | 177,917 | | | $ | 350,366 | | |
| Land base rent | 51,408 | | | 102,816 | | |
| Percentage rent | 39,615 | | | 75,611 | | |
| Total cash rental income | 268,940 | | | 528,793 | | |
| Straight-line rent adjustments | 828 | | | 1,656 | | |
| Ground rent in revenue | 4,259 | | | 7,370 | | |
| Other rental revenue | 75 | | | 125 | | |
| Total rental income | $ | 274,102 | | | $ | 537,944 | | |
| | | | | | | | |
| Three Months Ended March 31, 2022 | | | |
| Building base rent | $ | 214,413 | | | | |
| Land base rent | 51,905 | | | | |
| Percentage rent | 35,508 | | | | |
| Total cash income | $ | 301,826 | | | | |
| Straight-line rent adjustments | 1,543 | | | | |
| Ground rent in revenue | 7,738 | | | | |
| Accretion on financing receivables | 3,725 | | | | |
| Other rental revenue | 134 | | | | |
| Total income from real estate | $ | 314,966 | | | | |
(1) Building base rent is subject to the annual rent escalators described above.
As of June 30, 2021,March 31, 2022, the future minimum rental income from the Company's rental properties under non-cancelable operating leases, including any reasonably assured renewal periods, was as follows (in thousands):
| | Year ending December 31, | Year ending December 31, | Future Rental Payments Receivable | | Straight-Line Rent Adjustments | | Future Base Ground Rents Receivable | | Future Income to be Recognized Related to Operating Leases | Year ending December 31, | Future Rental Payments Receivable | | Straight-Line Rent Adjustments | | Future Base Ground Rents Receivable | | Future Income to be Recognized Related to Operating Leases |
| 2021 (remainder of year) | $ | 530,712 | | | $ | 1,656 | | | $ | 6,024 | | | $ | 538,392 | | |
| 2022 | 1,033,895 | | | 22,180 | | | 12,051 | | | 1,068,126 | | |
| 2022 (remainder of year) | | 2022 (remainder of year) | $ | 784,665 | | | $ | 23,377 | | | $ | 8,960 | | | $ | 817,002 | |
| 2023 | 2023 | 1,008,443 | | | 30,927 | | | 12,057 | | | 1,051,427 | | 2023 | 1,030,382 | | | 33,180 | | | 11,948 | | | 1,075,510 | |
| 2024 | 2024 | 976,127 | | | 30,053 | | | 12,063 | | | 1,018,243 | | 2024 | 998,598 | | | 31,812 | | | 11,951 | | | 1,042,361 | |
| 2025 | 2025 | 977,489 | | | 28,927 | | | 12,069 | | | 1,018,485 | | 2025 | 1,000,443 | | | 30,202 | | | 11,953 | | | 1,042,598 | |
| 2026 | | 2026 | 935,217 | | | 24,719 | | | 11,130 | | | 971,066 | |
| Thereafter | Thereafter | 12,930,119 | | | 217,662 | | | 100,259 | | | 13,248,040 | | Thereafter | 12,192,059 | | | 184,235 | | | 87,272 | | | 12,463,566 | |
| Total | Total | $ | 17,456,785 | | | $ | 331,405 | | | $ | 154,523 | | | $ | 17,942,713 | | Total | $ | 16,941,364 | | | $ | 327,525 | | | $ | 143,214 | | | $ | 17,412,103 | |
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.
The Company may periodically loan funds to casino owner-operators See Note 4 for the purchase of real estate. Interest income relatedfuture contractual cash receipts to real estate loans is recorded as revenue from real estate within the Company's consolidated statements of income in the period earned. During the three and six months ended June 30, 2021,be received by the Company had no real estate loans.under its Investment in leases, financing receivables.
Gaming, Food, Beverage and Other Revenues
Gaming revenue generated by the TRS Properties in 2021 mainly consistsconsisted 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 - Revenue from Contracts with Customers. The Company also defersdeferred a portion of the revenue received from customers (who participate in 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 arewere derived from our dining, retail and certain other ancillary activities.
12. Earnings Per Share
The Company calculates earnings per share ("EPS") in accordance with ASC 260 - Earnings per Share ("ASC 260"). Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted EPS reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. The effect of the conversion of the 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 and thus is excluded from net income available to common shareholders. In accordance with ASC 260, the Company includes all performance-based restricted shares that would
restricted shares that would have vested based upon the Company’s performance at quarter-end in the calculation of diluted EPS. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
The following table reconciles the weighted-average common shares outstanding used in the calculation of basic EPS to the weighted-average common shares outstanding used in the calculation of diluted EPS for the three and six months ended June 30, 2021March 31, 2022 and 2020:2021:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| | | (in thousands) | | (in thousands) |
| Determination of shares: | Determination of shares: | | | | | | | | Determination of shares: | | | | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 233,250 | | | 215,267 | | | 233,014 | | | 215,178 | | Weighted-average common shares outstanding | 247,531 | | | 232,775 | | |
| | Assumed conversion of restricted stock awards | Assumed conversion of restricted stock awards | 144 | | | 25 | | | 131 | | | 37 | | Assumed conversion of restricted stock awards | 120 | | | 116 | | |
| Assumed conversion of performance-based restricted stock awards | Assumed conversion of performance-based restricted stock awards | 656 | | | 640 | | | 623 | | | 653 | | Assumed conversion of performance-based restricted stock awards | 390 | | | 574 | | |
| Diluted weighted-average common shares outstanding | Diluted weighted-average common shares outstanding | 234,050 | | | 215,932 | | | 233,768 | | | 215,868 | | Diluted weighted-average common shares outstanding | 248,041 | | | 233,465 | | |
The following table presents the calculation of basic and diluted EPS for the Company’s common stock for the three and six months ended June 30, 2021March 31, 2022 and 2020:2021:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| | | (in thousands, except per share data) | | (in thousands, except per share data) |
| Calculation of basic EPS: | Calculation of basic EPS: | | | | | | | | Calculation of basic EPS: | | | | |
| Net income | $ | 138,216 | | | $ | 112,350 | | | $ | 265,400 | | | $ | 209,244 | | |
| Net income attributable to common shareholders | | Net income attributable to common shareholders | $ | 119,268 | | | $ | 127,184 | | |
| Less: Net income allocated to participating securities | Less: Net income allocated to participating securities | (85) | | | (161) | | | (149) | | | (300) | | Less: Net income allocated to participating securities | (58) | | | (157) | | |
| Net income attributable to common shareholders | $ | 138,131 | | | $ | 112,189 | | | $ | 265,251 | | | $ | 208,944 | | |
| Net income for earnings per share purposes | | Net income for earnings per share purposes | $ | 119,210 | | | $ | 127,027 | | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | 233,250 | | | 215,267 | | | 233,014 | | | 215,178 | | Weighted-average common shares outstanding | 247,531 | | | 232,775 | | |
| Basic EPS | Basic EPS | $ | 0.59 | | | $ | 0.52 | | | $ | 1.14 | | | $ | 0.97 | | Basic EPS | $ | 0.48 | | | $ | 0.55 | | |
| | Calculation of diluted EPS: | Calculation of diluted EPS: | | | | | | | | Calculation of diluted EPS: | | | | |
| Net income | $ | 138,216 | | | $ | 112,350 | | | $ | 265,400 | | | $ | 209,244 | | |
| Net income attributable to common shareholders | | Net income attributable to common shareholders | $ | 119,268 | | | $ | 127,184 | | |
| Diluted weighted-average common shares outstanding | Diluted weighted-average common shares outstanding | 234,050 | | | 215,932 | | | 233,768 | | | 215,868 | | Diluted weighted-average common shares outstanding | 248,041 | | | 233,465 | | |
| Diluted EPS | Diluted EPS | $ | 0.59 | | | $ | 0.52 | | | $ | 1.14 | | | $ | 0.97 | | Diluted EPS | $ | 0.48 | | | $ | 0.54 | | |
| | Antidilutive securities excluded from the computation of diluted earnings per share (in shares) | 35 | | | 129 | | | 97 | | | 78 | | |
| Antidilutive securities excluded from the computation of diluted earnings per share | | Antidilutive securities excluded from the computation of diluted earnings per share | 81 | | | 228 | | |
13.Shareholders' Equity
Common StockNon-controlling interests
On August 14, 2019,As partial consideration for the closing of the real property assets under the Pennsylvania Live! Master Lease that occurred on March 1, 2022, the Company's operating partnership issued 3,017,909 newly-issued OP Units to affiliates of Cordish which were valued at $137.0 million. The OP Units are exchangeable for common shares of the Company commencedon a continuous equity offering underone-for-one basis, subject to certain terms and conditions. As of March 31, 2022, the Company holds a 98.01% controlling financial interest in the operating partnership. The operating partnership is a VIE in which the Company may sell upis the primary beneficiary because it has the power to an aggregatedirect the activities of $600the VIE that most significantly impact the partnership's economic performance and has the obligation to absorb losses of the VIE that could be potentially significant to the VIE and the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company consolidates the accounts of the operating partnership, and reflects the third party ownership in this entity as a non-controlling interest in the Condensed Consolidated Balance Sheets. The Company also paid $5.1 million of its common stock from timein distributions to time through a sales agent in "at the market" offerings (the "ATM Program"). Actual sales will depend on a variety of factors, including market conditions,non-controlling interest holders concurrently with the trading price ofdividends paid to the Company's common stock and determinations ofshareholders, during the appropriate sources of funding. The Company may sell the shares in amounts and at times to be determined by the Company, but has no obligation to sell any of the shares in the ATM Program. The ATM Program also allows the Company to enter into forward sale agreements. In no event will the aggregate number of shares sold under the ATM Program (whether under any forward sale agreement or through a sales agent), have an aggregate sales price in excess of $600 million. The Company expects, that if it enters into a forward sale contract, to physically settle each forward sale agreement with the forward purchaser on one or more dates specified by the Company prior to the maturity date of that particular forward sale agreement, in which case the aggregate net cash proceeds at settlement will equal the number of shares underlying the particular forward sale agreement multiplied by the relevant forward sale price. However, thethree month period ended March 31, 2022.
Company may also elect to cash settle or net share settle a particular forward sale agreement, in which case proceeds may or may not be received or cash may be owed to the forward purchaser.
In connection with the ATM Program, the Company engaged a sales agent who may receive compensation of up to 2% of the gross sales price of the shares sold. Similarly, in the event the Company enters into a forward sale agreement, it will pay the relevant forward seller a commission of up to 2% of the sales price of all borrowed shares of common stock sold during the applicable selling period of the forward sale agreement.
During the three months ended June 30, 2021, the Company sold 1.5 million shares of its common stock under the ATM Program which raised net proceeds of $70.2 million. As of June 30, 2021, the Company had $528.9 million remaining for issuance under the ATM Program and had not entered into any forward sale agreements.
Dividends
The following table lists the dividends declared and paid by the Company during the sixthree months ended June 30, 2021March 31, 2022 and 2020:2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Declaration Date | | Shareholder Record Date | | Securities Class | | Dividend Per Share | | Period Covered | | Distribution Date | | Dividend Amount (1) |
| | | | | | | | | | | | (in thousands) |
| 2021 | | | | | | | | | | | | |
| February 22, 2021 | | March 9, 2021 | | Common Stock | | $0.65 | | First Quarter 2021 | | March 23, 2021 | | $151,308 |
| May 20, 2021 | | June 11, 2021 | | Common Stock | | $0.67 | | Second Quarter 2021 | | June 25, 2021 | | $156,876 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | |
| February 20, 2020 | | March 6, 2020 | | Common Stock | | $0.70 | | First Quarter 2020 | | March 20, 2020 | | $150,574 |
| April 29, 2020 | | May 13, 2020 | | Common Stock | | $0.60 | | Second Quarter 2020 | | June 26, 2020 | | $129,071 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(1) Dividend distributed on June 26, 2020 was paid $25.8 million in cash and $103.2 million in stock (2,697,946 shares at $38.2643). For accounting purposes since the Company was in an accumulated deficit position the value of the stock dividend was recorded at its par value. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Declaration Date | | Shareholder Record Date | | Securities Class | | Dividend Per Share | | Period Covered | | Distribution Date | | Dividend Amount (1) |
| | | | | | | | | | | | (in thousands) |
| 2022 | | | | | | | | | | | | |
| February 24, 2022 | | March 11, 2022 | | Common Stock | | $0.69 | | First Quarter 2022 | | March 25, 2022 | | $170,805 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 2021 | | | | | | | | | | | | |
| February 22, 2021 | | March 9, 2021 | | Common Stock | | $0.65 | | First Quarter 2021 | | March 23, 2021 | | $151,308 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
In addition, for both the three and six months ended June 30,March 31, 2022 and 2021, and 2020, dividend payments were made to GLPI restricted stock award holders in the amount of $0.2 millionmillion. Finally, the Company declared a special earnings and $0.4 million, respectively. Dividend distributedprofits dividend related to the Company's employeessale of the operations at Hollywood Casino Perryville and Hollywood Casino Baton Rouge of $59.3 million to shareholders of record on June 26, 2020 wereDecember 27, 2021. The dividend was accrued in 2021 and paid $33 thousand in cash and $153 thousand in stock (4,006 shares at $38.2643).on January 7, 2022.
14. Stock-Based Compensation
The Company accounts for stock compensation under ASC 718 - Compensation - Stock Compensation, which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The fair value of the Company's time-based restricted stock awards is equivalent to the closing stock price on the day of grant. The Company utilizes a third party valuation firm to measure the fair value of performance-based restricted stock awards at grant date using the Monte Carlo model.
As of June 30, 2021,March 31, 2022, there was $5.6$7.3 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 1.751.95 years. For the three and six months ended June 30, 2021,March 31, 2022, the Company recognized $1.2 million and $4.6$4.2 million of compensation expense associated with these awards, compared to $1.7 million and $3.5$3.4 million for the three and six months ended June 30, 2020,March 31, 2021, within general and administrative expenses on the condensed consolidated statements of income.
The following table contains information on restricted stock award activity for the sixthree months ended June 30, 2021:March 31, 2022:
| | | | | |
| | Number of Award
Shares |
Outstanding at December 31, 20202021 | 252,560254,664 | |
| Granted | 236,569237,613 | |
| Released | (209,278)(202,098) | |
| Canceled | (849)— | |
Outstanding at June 30, 2021March 31, 2022 | 279,002290,179 | |
Performance-based restricted stock awards have a three-year cliff vesting with the amount of restricted shares vesting at the end of the three-year period determined based upon the Company’s performance as measured against its peers. More specifically, the percentage of shares vesting at the end of the measurement period will be based on the Company’s three-year total shareholder return measured against the three-year total shareholder return of the companies included in the MSCI US REIT index and the Company's stock performance ranking among a group of triple-net REIT peer companies. The triple-net measurement group includes publicly traded REITs, which the Company believes derive at least 75% of revenues from triple-net leases. As of June 30, 2021,March 31, 2022, there was $16.1$23.1 million of total unrecognized compensation cost, which will be recognized over the performance-based restricted stock awards' remaining weighted average vesting period of 2.052.26 years. For both the three and six months ended June 30, 2021 and 2020,March 31, 2022, the Company recognized $2.4 million and $4.8$3.4 million of compensation expense associated with these awards
within general and administrative expenses on the condensed consolidated statements of income respectively.compared to $2.4 million for the corresponding period in the prior year.
The following table contains information on performance-based restricted stock award activity for the sixthree months ended June 30, 2021:March 31, 2022:
| | | | | |
| Number of Performance-Based Award Shares |
Outstanding at December 31, 20202021 | 1,193,9941,305,106 | |
| Granted | 478,000500,000 | |
| Released | (366,888)(380,070) | |
Canceled | 0 (30,816) | |
Outstanding at June 30, 2021March 31, 2022 | 1,305,1061,394,220 | |
15.Segment Information
Consistent with how the Company’s Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses the Company’s financial performance, the Company has 2 reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets) and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas.
The following tables present certain information with respect to the Company’s segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2021 | | Three Months Ended June 30, 2020 |
| (in thousands) | | GLP Capital (1) | | TRS Segment | | Total | | GLP Capital (1) | | TRS Segment | | Total |
| Total revenues | | $ | 274,102 | | | $ | 43,659 | | | $ | 317,761 | | | $ | 251,989 | | | $ | 9,979 | | | $ | 261,968 | |
| Income from operations | | 197,945 | | | 14,179 | | | 212,124 | | | 182,198 | | | (1,482) | | | 180,716 | |
| Interest expense | | 65,954 | | | 4,459 | | | 70,413 | | | 65,014 | | | 4,460 | | | 69,474 | |
| Income before income taxes | | 132,045 | | | 9,720 | | | 141,765 | | | 117,450 | | | (5,940) | | | 111,510 | |
| Income tax expense | | 204 | | | 3,345 | | | 3,549 | | | 182 | | | (1,022) | | | (840) | |
| Net income | | 131,841 | | | 6,375 | | | 138,216 | | | 117,268 | | | (4,918) | | | 112,350 | |
| Depreciation | | 57,251 | | | 899 | | | 58,150 | | | 55,049 | | | 2,341 | | | 57,390 | |
| Capital project expenditures | | 0 | | | 514 | | | 514 | | | 0 | | | 0 | | | 0 | |
| Capital maintenance expenditures | | 44 | | | 870 | | | 914 | | | 56 | | | 439 | | | 495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | | Six Months Ended June 30, 2020 |
| (in thousands) | | GLP Capital (1) | | TRS Segment | | Total | | GLP Capital (1) | | TRS Segment | | Total |
| Total revenues | | $ | 537,944 | | | $ | 81,360 | | | $ | 619,304 | | | $ | 508,712 | | | $ | 36,738 | | | $ | 545,450 | |
| Income from operations | | 388,116 | | | 24,109 | | | 412,225 | | | 365,382 | | | 1,684 | | | 367,066 | |
| Interest expense | | 131,908 | | | 8,918 | | | 140,826 | | | 134,417 | | | 7,061 | | | 141,478 | |
| Income before income taxes | | 256,385 | | | 15,192 | | | 271,577 | | | 214,098 | | | (5,375) | | | 208,723 | |
| Income tax expense | | 496 | | | 5,681 | | | 6,177 | | | 309 | | | (830) | | | (521) | |
| Net income | | 255,889 | | | 9,511 | | | 265,400 | | | 213,789 | | | (4,545) | | | 209,244 | |
| Depreciation | | 114,112 | | | 2,739 | | | 116,851 | | | 109,825 | | | 4,128 | | | 113,953 | |
| Capital project expenditures | | 0 | | | 1,120 | | | 1,120 | | | 0 | | | 0 | | | 0 | |
| Capital maintenance expenditures | | 65 | | | 1,287 | | | 1,352 | | | 144 | | | 997 | | | 1,141 | |
| | | | | | | | | | | | |
| Balance sheet at June 30, 2021 | | | | | | | | | | | | |
| Total assets | | $ | 8,652,427 | | | $ | 446,892 | | | $ | 9,099,319 | | | | | | | |
| | | | | | | | | | | | |
| Balance sheet at December 31, 2020 | | | | | | | | | | | | |
| Total assets | | $ | 8,590,190 | | | $ | 444,178 | | | $ | 9,034,368 | | | | | | | |
(1)Interest expense is net of intercompany interest eliminations of $4.5 million and $8.9 million for the three and six months ended
June 30, 2021, respectively, compared to $4.5 million and $7.1 million for the corresponding periods in the prior year.
16.15. Supplemental Disclosures of Cash Flow Information and Noncash Activities
Supplemental disclosures of cash flow information are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
| Cash paid for income taxes, net of refunds received | $ | 6,540 | | | $ | (891) | | | $ | 6,564 | | | $ | (891) | |
| Cash paid for interest | $ | 78,878 | | | $ | 86,271 | | | 137,523 | | | 138,610 | |
| | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
| (in thousands) |
| Cash paid for income taxes, net of refunds received | $ | — | | | $ | 24 | | | | | |
| Cash paid for interest | $ | 57,076 | | | $ | 58,645 | | | | | |
Noncash Investing and Financing Activities
On March 1, 2022, as part of the consideration for the real estate assets acquired pursuant to the Pennsylvania Live! Master Lease, the Company issued approximately 3.0 million OP Units that were valued at $137.0 million and assumed debt of $422.9 million that was repaid after closing with the offsetting increase to Investment in leases, financing receivables. The Company did not engage in any noncash investing or noncash financing activities during the six months ended June 30, 2021.
On April 16, 2020, the Company acquired from Penn the real property associated with the Tropicana Las Vegas in exchange for rent credits of $307.5 million.Additionally, in the three months ended June 30, 2020, the Company acquired the real property of Belterra Park in satisfaction of the real estate loan of $57.7 million held on the property, subject to the Belterra Park Lease.Additionally, see Note 13 for a description of the stock dividend that was recorded for the three months ended June 30, 2020.The Company did not engage in any other noncash investing or any noncash financing activities during the six months ended June 30, 2020.
17.16. Acquisitions
The Company accounts for its acquisitions of real estate assets as asset acquisitions under ASC 805 - Business Combinations. Under asset acquisition accounting, incremental transaction costs incurred to acquire the purchased assets are also included as part of the asset cost.
Current year acquisitions
As previously discussed in NoteOn March 1, on June 3, 2021,2022, the Company completed its previously announced transaction with Bally's in whichCordish to acquire the real estateproperty assets of Tropicana EvansvilleLive! Casino & Hotel Philadelphia and Dover Downs Hotel &Live! Casino were acquired.Pittsburgh and simultaneously entered into the Pennsylvania Live! Master Lease such that Cordish continues to operate the facilities. The preliminaryCompany has concluded that the Pennsylvania Live! Master Lease is required to be accounted for as an Investment in leases, financing receivables on our Condensed 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 lease term of the Pennsylvania Live! Master Lease which was 39 years. The purchase price allocation of these assets based on their fair values at$689.0 million was recorded in Investment in leases, financing receivables, net and the acquisition date are summarized below (in thousands).
| | | | | |
| |
Real estate investments, net | $ | 419,843 | |
Right-of-use assets and land rights, net | 67,525 | |
Total purchase price | $ | 487,368 | |
Pending acquisitions
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 iswas subject to regulatory approval. TotalThis transaction closed on April 1, 2022 and total consideration for the acquisition iswas $150 million and themillion. The parties expect to addadded the properties to the Bally's Master Lease for incremental rent of $12 million. This transaction is expected to close in early 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 seven 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 earlythe 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.
18.17. Subsequent Events
On July 1, 2021,As discussed in Note 16, the Company completed the saleclosed its acquisition of the operationsreal estate assets of Hollywood Casino Perryville to Penn. See Note 6 for additional details.Bally's casino properties in Black Hawk, CO and Rock Island, IL on April 1, 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Operations
GLPI is a self-administered and self-managed Pennsylvania REIT. The Company was formed from the 2013 tax-free spin-off of the real estate assets of Penn and was incorporated in Pennsylvania on February 13, 2013, as a wholly-owned subsidiary of 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 the TRS Properties and then spun-off GLPI to holders of Penn's common and preferred stock in the Spin-Off. 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. (d/b/a Hollywood Casino Baton Rouge) and Penn Cecil Maryland, Inc. (d/b/a Hollywood Casino Perryville) (which are referred to herein as a "taxable REIT subsidiary" effective on the "TRS Properties") and then spun-offfirst day of the first taxable year of GLPI to holders of Penn's common and preferred stock inas a tax-free distribution (the "Spin-Off").REIT. In addition, during 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company which holds the real estate of the Tropicana Las Vegas, Casino Hotel Resort ("Tropicana Las Vegas"), elected to treat Tropicana LV, LLC as a “taxable REIT subsidiary,” which togethersubsidiary”. Further, as partial consideration for the transactions with The Cordish Companies ("Cordish") described below, the Company's operating partnership issued 7,366,683 newly-issued operating partnership units ("OP Units") to affiliates of Cordish. The OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. As a result of the contribution, the OP became treated as a regarded partnership for income tax purposes, with the REIT being deemed to contribute substantially all of the assets and liabilities of the REIT in exchange for the general partnership and a majority of the limited partnership interests, and a minority limited partnership interest being owned by Cordish (the "UPREIT Transaction"). In advance of the UPREIT Transaction, the Company elected GLP Financing II, Inc. to be treated as a TRS Properties and GLP Holdings, Inc. is the Company's TRS segment (the "TRS Segment").
In connection witheffective December 23, 2021. As a result of the Spin-Off, Penn allocated its accumulated earnings and profitsGLPI owns substantially all of Penn's former real property assets (as determined for U.S. federal income tax purposes) for periods prior toof the consummation of the Spin-Off betweenSpin-Off) and leases back most of those assets to Penn and GLPI. In connection withfor use by its election to be taxed assubsidiaries, under a REIT for U.S. federal income tax purposes for the year ended December 31, 2014, 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.unitary master lease (the "Penn Master Lease"). The assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off. In 2021, as a result of the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, GLP Holdings, Inc. was merged into GLP Capital, L.P., a wholly owned subsidiary of GLPI.
GLPI's primary business consists of acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements. As of June 30, 2021,March 31, 2022, GLPI's portfolio consisted of interests in 5053 gaming and related facilities, including the TRS Segment,Tropicana Las Vegas, the real property associated with 3334 gaming and related facilities operated by Penn, the real property associated with 7 gaming and related facilities operated by Caesars Entertainment Corporation ("Caesars"), the real property associated with 4 gaming and related facilities operated by Boyd Gaming Corporation ("Boyd"), the real property associated with 2 gaming and related facilities operated by Bally's Corporation ("Bally's) and, the real property associated with the2 gaming and related facilities operated by Casino Queen Holding Company Inc. ("Casino Queen") in East St. Louis, Illinois.and the real property associated with 3 gaming and related facilities operated by Cordish. These facilities, including our corporate headquarters building, are geographically diversified across 17 states and contain approximately 25.328.5 million square feet. As of June 30, 2021,March 31, 2022, our properties were 100% occupied. We expect to continue growing our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
Penn Master Lease and Casino Queen Lease
As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease (the "Penn Master Lease"). The Penn Master Lease is a triple-net operating lease, the current term of which expires October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions. GLPI leases the Casino Queen property in East St. Louis back to its operators on a triple-net basis on terms similar to those in the Penn Master Lease (the "Casino Queen Lease").
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease, the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed the previously announced transactions with Penn, Pinnacle and Boyd to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original
April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by five 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and
taxes and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment ("Belterra Park") whereby the Company loaned Boyd $57.7 million (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property. The Belterra Park Lease rent terms are consistent with the Boyd Master Lease. The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities which is adjusted, subject to certain floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
The Meadows Lease
The real estate assets of the Meadows Racetrack and Casino are leased to Penn pursuant to single property triple-net lease (the "Meadows Lease"). The Meadows Lease commenced on September 9, 2016 and has an initial term of 10 years, with no purchase option, and the option to renew for three successive 5-year terms and one 4-year term (exercisable by the tenant) on the same terms and conditions. The Meadows Lease contains a fixed component, subject to annual escalators, and a component that is based on the performance of the facility, which is reset every two years to an amount determined by multiplying (i) 4% by (ii) the average annual net revenues of the facility for the trailing two-year period. The Meadows Lease contains an annual escalator provision for up to 5% of the base rent, if certain rent coverage ratio thresholds are met, which remains at 5% until the earlier of ten years or the year in which total rent is $31 million, at which point the escalator will be reduced to 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,L.P. ("GLP Capital"), the operating partnership of GLPI, which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars) acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Caesars and a wholly-owned subsidiary of Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by four successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions (the "Caesars Master Lease").
On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year, increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease year,years, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, is at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable, (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review of certain gaming regulatory
agencies and the expiration of applicable gaming regulatory advance notice periods which were received on July 23, 2020. On December 18, 2020, the Company and Caesars completed an Exchange Agreement (the "Exchange Agreement") with subsidiaries of Caesars in which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. 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 4four separate renewal options of five years each, exercisable at the tenant's option. The Lumière Place Lease's rent is subject to anwas 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 up to 2% if certain rent coverage ratio thresholds are met.the lease.
Bally's Master Lease
On June 3, 2021, the Company completed its previously announced transaction pursuant to which a subsidiary of Bally's acquired 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company reacquired the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company purchased the real estate assets of Dover Downs Hotel & Casino from Bally's for a cash purchase price of approximately $144.0 million. The real estate assets of these two facilities were added to a new triple net master lease (the "Bally's Master Lease") which has an initial term of 15 years, with no purchase option, followed by four five-year renewal options (exercisable by the tenant) on the same terms and conditions. Rent under the Bally's Master Lease is $40 million annually and is subject to an annual escalator of up to 2% determined in relation to the annual increase in Consumer Price Index ("CPI").
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 will continue to operate the casino and hotel business of the Tropicana Las Vegas pursuant to a triple net lease with GLPI for nominal rent for the earlier of two years (subject to three one-year extensions at the Company's option) or until the Tropicana Las Vegas is sold.
On April 13, 2021, Bally's agreed to acquire the Company's non-land real estate assets and Penn's outstanding equity interests in Tropicana Las Vegas for $150.0 million. The Company will retain ownership of the land and concurrently enter into a 50 year ground lease with an 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 earlythe second half of 2022.
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 utilized by Penn in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of Penn for an initial annual rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the CPIConsumer Price Index ("CPI") increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year subject to escalation provisions following the opening of the property (the "Morgantown Lease").
Hollywood
Casino Baton RougeQueen 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"). This 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 will retainretained ownership of all
real estate assets at Hollywood Casino Baton Rouge and will simultaneously enterentered into a triple net master lease with Casino Queen, which will includeincludes the Casino Queen property in East St. Louis that is currently leased by usthe Company to themCasino Queen and the Hollywood Casino Baton Rouge facility.facility (the "Casino Queen Master Lease"). The initial annual cash rent will beis approximately $21.4 million and the lease will havehas an initial term of 15 years with four 5 year renewal options exercisable by the tenant. This rental amount will be increased annually by 0.5% for the first six years. Beginning with the seventh lease year through the remainder of the lease term, if the 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 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, upon the closing of the transaction, which is anticipated to occur in the second half of 2021, subject to regulatory approvals and customary closing conditions, GLPI will forgive 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 written off in return for a one-time cash payment of $4 million.
Hollywood Casino Perryville
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 for 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.year (the "Perryville Lease").
As of June 30,
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 excluding transaction costs (the "Cordish Acquisitions"). The transaction also includes a binding partnership on future Cordish casino developments, as well as potential financing partnerships between the Company and Cordish in other areas of Cordish's portfolio of real estate and operating businesses. On December 29, 2021, GLPI closed the acquisition of the Live! Casino & Hotel Maryland transaction and GLPI entered into a single asset lease for Live! Casino & Hotel Maryland (the "Maryland Live! Lease"). On March 1, 2022, GLPI closed the acquisition of the Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh and leased back the real estate to Cordish pursuant to a new triple net master lease with Cordish for Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh (the "Pennsylvania Live! Master Lease"). The Pennsylvania Live! Master Lease and the Maryland Live! Lease have 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 is $50 million both of which have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
The majority of our earnings are the result of the rental revenues we receive from our triple-net master leases with Penn, Boyd, Bally's, Cordish and Caesars. Additionally, we have rental revenue from the Casino Queen propertyMaster Lease which is leased back to a third-party operator onalso a triple-net basis pursuant to the Casino Queen Lease.lease. In addition to rent, the 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.
Additionally, in accordance with Accounting Standards Codification ("ASC") 842, we record revenue for the ground lease rent paid by our tenants with an offsetting expense in land rights and ground lease expense within the Condensed Consolidated StatementStatements of Income as we have concluded that as the lessee we are the primary obligor under the ground leases. We sublease these ground leases back to our tenants, who are responsible for payment directly to the landlord.
Gaming revenue for our TRS Properties is derived primarily from gaming on slot machines and to a lesser extent, table game and poker revenue, which is highly dependent upon the volume and spending levels of customers at our TRS Properties. Other revenues at our TRS Properties are derived from our dining, retail and certain other ancillary activities.
Recent Developments and Business Outlook
COVID-19
The spread of the novel coronavirus (COVID-19) and the recent developments surrounding the global pandemic had material negative impacts on the global and United States economies that resulted in an unprecedented drop in economic activity in 2020. In mid-March 2020, many businesses in the United States were forced to close by state governments in an effort to limit the spread of COVID-19, which resulted in record unemployment claims. As the U.S. economy began to reopen in the second quarter of 2020, the unemployment rate, which was approximately 3.5% at the beginning of 2020, declined from its April 2020 peak of 14.7% and steadily improved to its current rate of approximately 5.9%. Additional impacts and recent developments include:
•During the initial stages of the COVID-19 outbreak, federal, state and local government officials took steps to require various non-essential businesses to close to slow the spread of COVID-19. In mid-March 2020, all casinos closed across the country, which in turn had a significant negative impact on our tenants' and our own operating results. Although the majority of casinos have reopened throughout the country, it is possible that individual jurisdictions may elect to close them again (which has occurred in certain instances) to mitigate the spread of COVID-19.
•The Company's wholly-owned and operated TRS Properties closed in mid-March 2020 due to the COVID-19 outbreak. Our property in Baton Rouge reopened on May 18, 2020 and our property in Perryville, Maryland reopened on June 19, 2020 with enhanced safety protocols and capacity restrictions. To date, both properties have performed well as results for the first half of 2021 have exceeded comparable 2019 levels (prior to the COVID-19 outbreak). Current year results have benefited from pent up demand, reduced competition from non-gaming leisure related activities and federal stimulus.
•On October 27, 2020, the Company entered into a series of definitive agreements pursuant to which a subsidiary of Bally's acquired 100% of the equity interests in the Caesars subsidiary that operated 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 entered into a real estate purchase agreement with Bally's pursuant to which the Company purchased the real estate assets of the Dover Downs Hotel & Casino, located in Dover, Delaware, which is currently operated by Bally's, for a cash purchase price of approximately $144.0 million. On November 6, 2020, the Company issued 9.2 million common shares at $36.25 to partially finance the funding required for this transaction. These transactions closed on June 3, 2021, and the real estate assets are being leased pursuant to the Bally's Master Lease. The Bally's Master Lease has an initial term of 15 years, with no purchase option, followed by four five-year renewal options (exercisable by the tenant) on the same terms and conditions. The initial rent under the Bally's Master Lease is $40.0 million annually, subject to escalations tied to the CPI. If the CPI increase is at least 0.5% for any lease year, then the rent under the Bally's Master Lease shall increase by the greater of 1% of the rent as of the immediately preceding lease year or the actual CPI increase for such lease year, capped at 2%. If the CPI is less than 0.5% for such lease year, then the rent shall not increase for such lease year.
•On April 13, 2021, the Company announced that it entered into a binding term sheet with Bally's to acquire the real estate of Bally’s casino property in Black Hawk, CO and Rock Island, IL which it recently acquired in June 2021. Total consideration for the acquisition is $150 million. The parties expect to add the properties to the Bally's Master Lease, for incremental rent of $12.0 million. Normalized rent coverage on the assets is expected to be 2.25x in the first calendar year post-acquisition. The acquisitions of the real estate assets of Bally’s properties in Rock Island and Black Hawk are expected to close in early 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 seven 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 will retain ownership of the land and will concurrently enter into a 50-year ground lease 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 early 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 their proposed acquisition of Gamesys. The $500 million commitment provides Bally’s an alternative financing commitment that 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 the previously disclosed commitment to fund the Gamesys acquisition.
•On July 1, 2021, the Company completed its sale of the operations of Hollywood Casino Perryville, located in Perryville, Maryland, to Penn for $31.1 million. The Company is leasing the real estate of the Perryville facility to Penn pursuant to a lease providing for initial annual rent on the retained real estate of $7.77 million, $5.83 million of which will be subject to escalation provisions beginning in the second lease year through the fourth lease year and shall increase by 1.50% and then by 1.25% for the remaining lease term. The escalation provisions beginning in the fifth lease year are subject to CPI being at least 0.5% for the preceding lease year.
Segment Information
Consistent with how our Chief Operating Decision Maker (as such term is defined in ASC 280 - Segment Reporting) reviews and assesses our financial performance, we have two reportable segments, GLP Capital and the TRS Segment. The GLP Capital reportable segment consists of the leased real property and represents the majority of our business. The TRS
Segment consists of our operations at Hollywood Casino Perryville and Hollywood Casino Baton Rouge, as well as the real estate of Tropicana Las Vegas we acquired in 2020.
Executive Summary
Financial Highlights
We reported total revenues and income from operations of $317.8$315.0 million and $212.1$199.8 million, respectively, for the three months ended June 30, 2021,March 31, 2022, compared to $262.0$301.5 million and $180.7$200.1 million, respectively, for the corresponding period in the prior year.
The major factors affecting our results for the three and six months ended June 30, 2021,March 31, 2022, as compared to the three and six months ended June 30, 2020,March 31, 2021, were as follows:
•Total income from real estate was $274.1increased by $51.1 million and $537.9to $315.0 million for the three and six months ended June 30,March 31, 2022 compared to $263.8 million for the corresponding period in the prior year. Results for the three months ended March 31, 2022 benefited from the additions of the Casino Queen Master Lease, the Bally's Master Lease, the Perryville Lease, the Maryland Live! Lease and Pennsylvania Live! Master Lease which in the aggregate increased cash rental income by $38.9 million. The three months ended March 31, 2022 also benefited by $2.9 million compared to the corresponding period in the prior year from full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Park Lease effective May 1, 2021 and $252.0the Penn Master Lease on November 1, 2021. The Company also recognized accretion of $3.7 million on its Investment in leases, financing receivables and favorable straight-line rent adjustments of $0.7 million and $508.7had higher ground rent income due primarily from the addition of the Bally's Master Lease and the Maryland Live! Lease.
•Gaming, food, beverage and other revenue decreased by $37.7 million for the three and six months ended June 30, 2020, respectively. Total income from real estate increased by $22.1 million and $29.2 million for the three and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding period in the prior year. This was primarily the result of higher percentage rent on our Penn Master Lease of $11.1 million and $14.3 million for the three month and six month periods ended June 30, 2021year due to strong results atthe sale of the operations of the Hollywood Casino ColumbusPerryville and Hollywood Casino ToledoBaton Rouge in the current year coupled with the negative impact from the temporary closures from COVID-19 in the prior year. We also recognized cash rental income of $3.1 million from our Bally's Master Lease that became effective on June 3, 2021. The Company also recognized higher rents of $3.4 million and $1.2 million on the Casino Queen Lease for the three month and six month periods ended June 30, 2021 due to the negative impact from COVID-19 closures in the prior year that resulted in rent deferrals in the second quarter of 2020 that were subsequently collected in the fourth quarter of 2020. Additionally, in accordance with the rent deferral agreement that was signed in 2020 with Casino Queen, $2.1 million of rent was deferred due to the property's temporary closure in the first quarter of 2021. GLPI anticipates this amount will be collected at the closing of the HCBR transaction. Also benefiting current year results was the impact of our Morgantown Lease that became effective on October 1, 2020, which added $0.75 million and $1.5 million in rent during the three and six month periods ended June 30, 2021, as well as year over year favorable straight-line rent adjustments in accordance with ASC 842 of $2.5 million and $12.0 million. Partially offsetting these favorable variances was lower percentage rents of $1.1 million and $3.2 million for the three month and six month periods ended June 30, 2021 on our Amended Pinnacle Master Lease, Boyd Master Lease and Meadows Lease as these leases reset in 2020 and were negatively impacted by COVID-19 mandated closures. Additionally, we had lower cash rental income of $0.7 million and $1.3 million for the three month and six month periods ended June 30, 2021 from the Amended and Restated Caesars Master Lease that became effective in July 2020.
•Revenues for our TRS Properties increased by $33.7 million and $44.6 million for the three and six months ended June 30, 2021, as compared to the corresponding periods in the prior year, primarily due to strong results in 2021 and the impact of COVID-19 on the prior year which, as previously discussed, closed both of these properties in mid-March 2020.
•Total operating expensesexpenses increased by $24.4 million and $28.7by $13.7 million for the three and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding periods in the prior year. The increase in operating expenses for the three and six months ended June 30, 2021March 31, 2022 was the result of a provision for credit losses of $26.7 million on our Investment in leases, financing receivables due primarily driven by higher expenses in our TRS Segmentto the origination of $18.0 million and $22.2 million due to their closures in mid-March 2020 from COVID-19. Additionally, the Company had higher depreciation expense by $0.8 million and $2.9 million forPennsylvania Live! Master Lease during the three and six months ended June 30, 2021 due to its recent acquisitions. Additionally, the Company hadMarch 31, 2022 as well as higher land rights and ground lease expense of $2.4 $7.0 million and $1.1 million. The Company's ground leases tied to tenants revenues increased by $2.4 million and $1.9 million fordue primarily from the three and six month periods ended June 30, 2021 due to COVID-19 closures in the prior year. Partially offsetting this increase was lower ground lease expense due to the exchange agreement with Caesars in the fourth quarter of 2020, which led to the exchangeadditions of the Tropicana Evansville property, which containedBally's Master Lease and the Maryland Live! Lease as well as accelerated amortization of $2.7 million from a portion of donated land on a ground lease, with Waterloo and Bettendorf, which did not contain ground leases. Finally, thelease. The Company also incurred higher general and administrative expense of $5.7 million primarily related to bonus expense and stock based compensation expense due to improved performance. Partially offsetting these increases was the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2021 which resulted in lower gaming, food, beverage and other expense of $19.9 million and lower general and administrative expenses in its REIT segmentof $6.1 million for the three and six months ended June 30, 2021 by $1.8 million and $1.1 million, respectively, due to higher bonus accruals in the current year as a result of improved financial performance relative to the prior year.March 31, 2022.
•Other expenses increased by $1.2 million and decreased by $17.7$7.6 million for the three and six months ended June 30, 2021,March 31, 2022, due to higher interest expense associated with the increased borrowings to fund our recent acquisitions.
•Income tax expense decreased by $2.4 million for the three months ended March 31, 2022, as compared to the corresponding periods in the prior year due to increased interest expense in the second quartersale of 2021 due to the issuanceoperations of Senior Notes in June 2020Hollywood Casino Perryville and August 2020 to lengthen the duration of our debt obligations. The proceeds were utilized to repay short term borrowings that carried lower interest rates. The decline for the six month periods ended June 30, 2021 was a result of debt extinguishment charges of $17.3 million incurred in the first quarter of 2020 as the Company retired certain near-term senior unsecured notes Senior Notes to lengthen our average debt maturity and lower our financing costs.
•Income tax expense increased by $6.7 million for the six months ended June 30, 2021, as compared to the corresponding period in the prior year due to improved performance at the TRS Segment due to strong results in the current period as well as the impact of temporary closures related to COVID-19 in the prior year.Hollywood Casino Baton Rouge.
•Net income increaseddecreased by $25.9 million and $56.2$5.5 million for the three and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding periods in the prior year, primarily due to the variances explained above.
Critical Accounting Estimates
We make certain judgments and use certain estimates and assumptions when applying accounting principles in the preparation of our consolidated financial statements. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We have identified the accounting for leases, allowance for credit losses, income taxes, and real estate investments as critical accounting estimates, as they are the most important to our financial statement presentation and require difficult, subjective and complex judgments.
We believe the current assumptions and other considerations used to estimate amounts reflected in our condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations and, in certain situations, could have a material adverse effect on our consolidated financial condition.
For further information on our critical accounting estimates, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to our audited consolidated financial statements included in our most recent Annual Report. There has been no material change to these estimates for the three and six months ended June 30, 2021.March 31, 2022.
Results of Operations
The following are the most important factors and trends that contribute or may contribute to our operating performance:
•As discussed previously, the impact of the COVID-19 outbreak resultedWe have announced or closed numerous transactions in the nationwide closures of all casino operations throughout the United States in mid-March 2020 that extended in many jurisdictions wherepast two years and expect to continue to grow our properties were located through the summer of 2020. The majority of our leases have components of rent that are based on a percentage of the net revenues generatedportfolio by the properties in the applicable leases as well as escalation clauses based on the applicable leases' adjusted revenuespursuing opportunities to rent ratios. Our tenants have reopened theiracquire additional gaming facilities and generated strong operating performance. On May 1, 2021, full escalators were achieved on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Park Lease that increased annualized rent by $6.1 million. We anticipate that the Penn Master Lease adjusted revenue to rent ratio at November 1, 2021 will result in a full escalation resulting in a $5.6 million increaselease to annualized rent. We believe results at our tenants' operations since they have reopened are benefiting from significant levels of pent up demand, federal stimulus and reduced competitive entertainment offerings.gaming operators under prudent terms.
•The fact that several wholly-owned subsidiaries of Penn lease a substantial number of our properties, pursuant to two master leases and twothree single property leases and account for a significant portion of our revenue.
•The risks related to economic conditions, including uncertainty related to COVID-19, recent high inflation levels (that have been negatively impacted by the armed conflict between Russia and Ukraine) 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 certain 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 Internal Revenue Service and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof,
including any changes proposed and implemented by the newcurrent administration, with or without retroactive application, could materially and adversely affect GLPI and its investors.
The consolidated results of operations for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 are summarized below:
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| | | (in thousands) | | (in thousands) |
| | Total revenues | Total revenues | $ | 317,761 | | | $ | 261,968 | | | $ | 619,304 | | | $ | 545,450 | | Total revenues | $ | 314,966 | | | $ | 301,543 | | |
| | Total operating expenses | Total operating expenses | 105,637 | | | 81,252 | | | 207,079 | | | 178,384 | | Total operating expenses | 115,170 | | | 101,442 | | |
| Income from operations | Income from operations | 212,124 | | | 180,716 | | | 412,225 | | | 367,066 | | Income from operations | 199,796 | | | 200,101 | | |
| Total other expenses | Total other expenses | (70,359) | | | (69,206) | | | (140,648) | | | (158,343) | | Total other expenses | (77,900) | | | (70,289) | | |
| Income before income taxes | Income before income taxes | 141,765 | | | 111,510 | | | 271,577 | | | 208,723 | | Income before income taxes | 121,896 | | | 129,812 | | |
| Income tax expense (benefit) | 3,549 | | | (840) | | | 6,177 | | | (521) | | |
| Income tax expense | | Income tax expense | 204 | | | 2,628 | | |
| Net income | Net income | $ | 138,216 | | | $ | 112,350 | | | $ | 265,400 | | | $ | 209,244 | | Net income | $ | 121,692 | | | $ | 127,184 | | |
| Net income attributable to noncontrolling interest in the Operating Partnership | | Net income attributable to noncontrolling interest in the Operating Partnership | (2,424) | | | — | | |
| Net income attributable to common shareholders | | Net income attributable to common shareholders | $ | 119,268 | | | $ | 127,184 | | |
Certain information regarding our results of operations by segment for the three and six months ended June 30, 2021 and 2020 is summarized below: | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | Total Revenues | | Income from Operations |
| | (in thousands) |
| GLP Capital | $ | 274,102 | | | $ | 251,989 | | | $ | 197,945 | | | $ | 182,198 | |
| TRS Properties | 43,659 | | | 9,979 | | | 14,179 | | | (1,482) | |
| Total | $ | 317,761 | | | $ | 261,968 | | | $ | 212,124 | | | $ | 180,716 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| 2021 | | 2020 | | 2021 | | 2020 |
| Total Revenues | Income from Operations |
| (in thousands) |
| GLP Capital | $ | 537,944 | | | $ | 508,712 | | | $ | 388,116 | | | $ | 365,382 | |
| TRS Properties | 81,360 | | | 36,738 | | | 24,109 | | | 1,684 | |
| Total | $ | 619,304 | | | $ | 545,450 | | | $ | 412,225 | | | $ | 367,066 | |
FFO, AFFO and Adjusted EBITDA
Funds From Operations ("FFO"), Adjusted Funds From Operations ("AFFO") and Adjusted EBITDA are non-U.S. generally accepted accounting principles ("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(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, accretion on Investment in leases, financing receivables, non-cash adjustments to financing lease liabilities, other depreciation, the amortization of land rights, straight-line rent adjustments, and(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, taxes onnet, income tax expense, depreciation, gains(gains) or losses from dispositions of property, (gains) or losses on sales of property,operations, net of tax, stock based compensation expense, straight-line rent adjustments, the amortization of land rights, andaccretion on Investment in leases, financing receivables, non-cash adjustments to financing lease liabilities, losses on debt extinguishment.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 three and six months ended June 30,March 31, 2022 and 2021 and 2020 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
| | (in thousands) |
| Net income | | $ | 138,216 | | | $ | 112,350 | | | $ | 265,400 | | | $ | 209,244 | |
| Losses (gains) from disposition of properties | | 93 | | | (8) | | | 93 | | | (7) | |
| Real estate depreciation | | 56,783 | | | 54,551 | | | 113,172 | | | 108,830 | |
| Funds from operations | | $ | 195,092 | | | $ | 166,893 | | | $ | 378,665 | | | $ | 318,067 | |
| Straight-line rent adjustments | | (828) | | | 1,678 | | | (1,656) | | | 10,322 | |
| | | | | | | | |
| Other depreciation | | 1,367 | | | 2,839 | | | 3,679 | | | 5,123 | |
| Amortization of land rights | | 3,006 | | | 3,020 | | | 5,849 | | | 6,040 | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | 2,470 | | | 2,593 | | | 4,940 | | | 5,363 | |
| Stock based compensation | | 3,612 | | | 4,064 | | | 9,400 | | | 8,299 | |
| Losses on debt extinguishment | | — | | | 5 | | | — | | | 17,334 | |
| | | | | | | | |
| | | | | | | | |
| Capital maintenance expenditures | | (914) | | | (495) | | | (1,352) | | | (1,141) | |
| Adjusted funds from operations | | $ | 203,805 | | | $ | 180,597 | | | $ | 399,525 | | | $ | 369,407 | |
| Interest, net | | 70,359 | | | 69,201 | | | 140,648 | | | 141,009 | |
| Income tax expense (benefit) | | 3,549 | | | (840) | | | 6,177 | | | (521) | |
| Capital maintenance expenditures | | 914 | | | 495 | | | 1,352 | | | 1,141 | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | (2,470) | | | (2,593) | | | (4,940) | | | (5,363) | |
| Adjusted EBITDA | | $ | 276,157 | | | $ | 246,860 | | | $ | 542,762 | | | $ | 505,673 | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | | 2022 | | 2021 | | | | |
| | (in thousands) |
| Net income | | $ | 121,692 | | | $ | 127,184 | | | | | |
| (Gains) or losses from dispositions of property | | (51) | | | — | | | | | |
| Real estate depreciation | | 58,659 | | | 56,389 | | | | | |
| Funds from operations | | $ | 180,300 | | | $ | 183,573 | | | | | |
| Straight-line rent adjustments | | (1,543) | | | (828) | | | | | |
| | | | | | | | |
| Other depreciation | | 470 | | | 2,312 | | | | | |
| Provision for credit losses, net | | 26,656 | | | — | | | | | |
| Amortization of land rights | | 5,990 | | | 2,843 | | | | | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | 2,771 | | | 2,470 | | | | | |
| Accretion on investment in leases, financing receivables | | (3,725) | | | — | | | | | |
| Non-cash adjustment to financing lease liabilities | | 124 | | | — | | | | | |
| Stock based compensation | | 7,600 | | | 5,788 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Capital maintenance expenditures | | (15) | | | (438) | | | | | |
| Adjusted funds from operations | | $ | 218,628 | | | $ | 195,720 | | | | | |
| Interest, net | | 77,230 | | | 70,289 | | | | | |
| Income tax expense | | 204 | | | 2,628 | | | | | |
| Capital maintenance expenditures | | 15 | | | 438 | | | | | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | (2,771) | | | (2,470) | | | | | |
| Adjusted EBITDA | | $ | 293,306 | | | $ | 266,605 | | | | | |
The reconciliation of each segment’s net income per GAAP to FFO, AFFO, and Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | GLP Capital | | TRS Properties |
| | Three Months Ended
June 30, | | Three Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | (in thousands) |
| Net income | | $ | 131,841 | | | $ | 117,268 | | | $ | 6,375 | | | $ | (4,918) | |
| Losses (gains) from dispositions of properties | | — | | | — | | | 93 | | | (8) | |
| Real estate depreciation | | 56,783 | | | 54,551 | | | — | | | — | |
| Funds from operations | | $ | 188,624 | | | $ | 171,819 | | | $ | 6,468 | | | $ | (4,926) | |
| Straight-line rent adjustments | | (828) | | | 1,678 | | | — | | | — | |
| | | | | | | | |
| Other depreciation | | 468 | | | 498 | | | 899 | | | 2,341 | |
| Amortization of land rights | | 3,006 | | | 3,020 | | | — | | | — | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | 2,470 | | | 2,593 | | | — | | | — | |
| Stock based compensation | | 3,612 | | | 4,064 | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Losses on debt extinguishment | | — | | | 5 | | | — | | | — | |
| | | | | | | | |
| Capital maintenance expenditures | | (44) | | | (56) | | | (870) | | | (439) | |
| Adjusted funds from operations | | $ | 197,308 | | | $ | 183,621 | | | $ | 6,497 | | | $ | (3,024) | |
Interest, net (1) | | 65,900 | | | 64,743 | | | 4,459 | | | 4,458 | |
| | | | | | | | |
| Income tax expense (benefit) | | 204 | | | 182 | | | 3,345 | | | (1,022) | |
| Capital maintenance expenditures | | 44 | | | 56 | | | 870 | | | 439 | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | (2,470) | | | (2,593) | | | — | | | — | |
| Adjusted EBITDA | | $ | 260,986 | | | $ | 246,009 | | | $ | 15,171 | | | $ | 851 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | GLP Capital | | TRS Properties |
| | Six Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (in thousands) |
| Net income | | $ | 255,889 | | | $ | 213,789 | | | $ | 9,511 | | | $ | (4,545) | |
| Losses (gains) from dispositions of properties | | — | | | — | | | 93 | | | (7) | |
| Real estate depreciation | | 113,172 | | | 108,830 | | | — | | | — | |
| Funds from operations | | $ | 369,061 | | | $ | 322,619 | | | $ | 9,604 | | | $ | (4,552) | |
| Straight-line rent adjustments | | (1,656) | | | 10,322 | | | — | | | — | |
| | | | | | | | |
| Other depreciation | | 940 | | | 995 | | | 2,739 | | | 4,128 | |
| Amortization of land rights | | 5,849 | | | 6,040 | | | — | | | — | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | 4,940 | | | 5,363 | | | — | | | — | |
| Stock based compensation | | 9,400 | | | 8,299 | | | — | | | — | |
| | | | | | | | |
| Losses on debt extinguishment | | — | | | 17,334 | | | — | | | — | |
| Capital maintenance expenditures | | (65) | | | (144) | | | (1,287) | | | (997) | |
| Adjusted funds from operations | | $ | 388,469 | | | $ | 370,828 | | | 11,056 | | | (1,421) | |
Interest, net (1) | | 131,731 | | | 133,950 | | | 8,917 | | | 7,059 | |
| | | | | | | | |
| Income tax expense (benefit) | | 496 | | | 309 | | | 5,681 | | | (830) | |
| Capital maintenance expenditures | | 65 | | | 144 | | | 1,287 | | | 997 | |
| Amortization of debt issuance costs, bond premiums and original issuance discounts | | (4,940) | | | (5,363) | | | — | | | — | |
| Adjusted EBITDA | | $ | 515,821 | | | $ | 499,868 | | | $ | 26,941 | | | $ | 5,805 | |
(1)Interest expense, net for the GLP Capital segment is net of intercompany interest eliminations of $4.5 million and $8.9 million for the three and six months ended June 30, 2021 compared to $4.5 million and $7.1 million for the corresponding periods in the prior year.
Net income for our GLP Capital segment was $131.8 million for the three months ended June 30, 2021 and $117.3 million for the three months ended June 30, 2020. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segmentBaton Rouge operations. These declines were $188.6 million, $197.3 million and $261.0 million for the three months ended June 30, 2021, respectively. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $171.8 million, $183.6 million and $246.0 million for the three months ended June 30, 2020, respectively. The increase in net income for our GLP Capital segment for the three months ended June 30, 2021 of $14.6 million, was primarily drivenpartially offset by higher income from real estate of $22.1 million partially offset by higher land rights and ground lease expense of $2.4 million, increased general and administrative expenses of $1.8 million, higher depreciation expense of $2.2 million and higher net interest expense of $1.2 million, all of which were previously discussed.
Net income for our GLP Capital segment was $255.9 million for the six months ended June 30, 2021 and $213.8 million for the six months ended June 30, 2020. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $369.1 million, $388.5 million and $515.8 million for the six months ended June 30, 2021, respectively. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $322.6 million, $370.8 million and $499.9 million for the six months ended June 30, 2020, respectively. The increase in net income for our GLP Capital segment for the six months ended June 30, 2021 of $42.1 million, was primarily driven by higher income from real estate of $29.2$51.1 million and lower net interest expense of $2.2 million partially offset by higher land rights and ground lease expense of $1.1 million, increased general and administrative expenses of $1.1 million, and higher depreciation expense of $4.3 million due to our recent acquisitions. Additionally, the results for the six months ended June 30, 2020 included a debt extinguishment charge of $17.3 million related to the redemption of certain Senior Notes in the first quarter of 2020.income tax expense.
The increasedecrease in FFO in our GLP Capital segment for the three and six months ended June 30, 2021, as comparedis due to the corresponding periods in the prior year, was driven by the explanationsitems described above, including an add-back forexcluding gains from dispositions of property and real estate depreciation expense.depreciation. The increase in AFFO for our GLP Capital segment for the three and six months ended June 30, 2021, as comparedis due to the corresponding periods in the prior year was primarily driven by the changesitems described above, less the
adjustments mentioned in the table above, primarily straight-line rent adjustments andthe add back of the provision for credit losses, on debt extinguishment.net. Adjusted EBITDA for our GLP Capital segment for the three and six months ended June 30, 2021,also increased as compared to the corresponding period in the prior year also increased, driven by the explanations above, as well as the adjustments mentioned in the table above, primarily related to interest expense.
Net income, FFO, AFFO and Adjusted EBITDA for our TRS Properties segment each increased from the corresponding periods in the prior year primarily due to the impact of COVID-19 on the prior year, which resulted in both properties being forced to close in mid-March 2020. 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. Additionally, the performance of our TRS Properties has exceeded the corresponding periods in the prior years as spend per visit has increased coupled with reductions in marketing and payroll costs on various amenities that have been curtailed in light of the capacity restrictions. We also believe results have benefited since being reopened from pent up demand, federal stimulus efforts and reduced competition from other entertainment offerings.
Revenues
Revenues for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
| Rental income | | $ | 274,102 | | | $ | 245,749 | | | $ | 28,353 | | | 11.5 | % |
| | | | | | | | |
| Interest income from real estate | | — | | | 6,240 | | | (6,240) | | | N/A |
| | | | | | | | |
| Total income from real estate | | 274,102 | | | 251,989 | | | 22,113 | | | 8.8 | % |
| Gaming, food, beverage and other | | 43,659 | | | 9,979 | | | 33,680 | | | 337.5 | % |
| Total revenues | | $ | 317,761 | | | $ | 261,968 | | | $ | 55,793 | | | 21.3 | % |
| | | Six Months Ended June 30, | | Percentage | | | Three Months Ended March 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance | | 2022 | | 2021 | | Variance | | Variance |
| Rental income | Rental income | $ | 537,944 | | | $ | 495,156 | | | $ | 42,788 | | | 8.6 | % | Rental income | | $ | 287,777 | | | $ | 263,842 | | | $ | 23,935 | | | 9.1 | % |
| | Interest income from real estate | Interest income from real estate | — | | | 13,556 | | | (13,556) | | | N/A | Interest income from real estate | | 27,189 | | | — | | | 27,189 | | | N/A |
| | Total income from real estate | Total income from real estate | 537,944 | | | 508,712 | | | 29,232 | | | 5.7 | % | Total income from real estate | | 314,966 | | | 263,842 | | | 51,124 | | | 19.4 | % |
| Gaming, food, beverage and other | Gaming, food, beverage and other | 81,360 | | | 36,738 | | | 44,622 | | | 121.5 | % | Gaming, food, beverage and other | | — | | | 37,701 | | | (37,701) | | | (100.0) | % |
| Total revenues | Total revenues | 619,304 | | | 545,450 | | | 73,854 | | | 13.5 | % | Total revenues | | $ | 314,966 | | | $ | 301,543 | | | $ | 13,423 | | | 4.5 | % |
Total income from real estate
For the three months ended March 31, 2022 and six months ended June 30, 2021, and 2020, total income from real estate was $274.1 million and $537.9$315.0 million compared to $252.0 million and $508.7$263.8 million for the corresponding periodsperiod in the prior year. 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 condensed consolidated statementstatements 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. These amounts increased by $2.0$4.6 million and $0.6 million infor the three months and six months ended June 30, 2021March 31, 2022 compared to the corresponding periodsperiod in the prior year due to COVID-19 closures in the prior year. Partially offsetting this increase was lower ground lease expense due to the exchange agreement with Caesars in the fourth quarter of 2020, which led to the exchangeaddition of the Tropicana Evansville property,Bally's Master Lease, the Maryland Live! Lease and Pennsylvania Live! Master Lease which contained a ground lease,properties with Waterloo and Bettendorf, which did not contain ground leases.
Total income from real estate increased $22.1$51.1 million, or 8.8%19.4%, for the three months ended June 30, 2021 and $29.2 million or 5.7%, for the six months ended June 30, 2021,March 31, 2022 as compared to the corresponding periodsperiod in the prior year. This was primarily from favorable straight line rent adjustments of $2.5 million and $12.0 millionResults for the three months ended March 31, 2022 benefited from the additions of the Maryland Live! Lease, the Pennsylvania Live! Master Lease, the Casino Queen Master Lease, the Bally's Master Lease, and sixthe Perryville Lease, which in the aggregate increased cash rental income by $38.9 million. The three months ended June 30,March 31, 2022 benefited from full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Park Lease effective May 1, 2021, in accordance with ASC 842, and higher percentage rent on ourthe Penn Master Lease of $11.1effective November 1, 2021 which increased building base rents by $2.9 million and $14.3 million for the three months and six months ended June 30, 2021 due to strong results at Hollywood Casino Columbus
and Hollywood Casino Toledo in the current year coupled with the negative impact from the temporary closures from COVID-19 in the prior year. Additionally, our Morgantown Lease, which became effective on October 1, 2020, added $0.75 million and $1.5 million in rent during the three months and six months ended June 30, 2021 and our Bally's Master Lease became effective on June 3, 2021 which added $3.1 million of rent for the three months and six months ended June 30, 2021.March 31, 2022. The Company also realized escalationsrecognized accretion of $3.7 million on its Amended Pinnacle Master Lease, Boyd Master LeaseInvestments in leases, financing receivables, and Belterra Park Lease which increased rental income by $1.0 million for the three months and six months ended June 30, 2021. Partially offsetting these favorable variances were lower percentage rents of $1.1 million and $3.2 million for the three months and six months ended June 30, 2021 on our Amended Pinnacle Master Lease, Boyd Master Lease and Meadows Lease as these leases reset in 2020 and will not reset again until 2022. Additionally, we had lower cash rental incomestraight-line rent adjustments of $0.7 million and $1.3had higher ground rent income of $4.6 million for the three months and six months ended June 30, 2021 from the Amended and Restated Caesars Master Lease that became effective in July 2020. Finally, the Company had increases of $3.4 million and $1.2 million in rent from the Casino Queen Lease for the three months and six months ended June 30, 2021 due to timing of receipts of rental payments that were deferred because of COVID-19 which forced the closure of their operations. The Company has a rent deferral agreement with Casino Queen in which $2.1 million of rent was deferred due to the property's temporary closure in the first quarter of 2021. GLPI anticipates this amount will be collected at the closing of the HCBR transaction later this year.as discussed above.
Details of the Company's income from real estate for the three and six months ended June 30, 2021March 31, 2022 was as follows (in thousands): | | Three Months Ended June 30, 2021 | Building base rent | Land base rent | Percentage rent | Total cash rental income | Straight-line rent adjustments | Ground rent in revenue | Other rental revenue | Total rental income | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | Building base rent | Land base rent | Percentage rent | Total cash income | Straight-line rent adjustments | Ground rent in revenue | Accretion on financing leases | Other rental revenue | Total income from real estate |
| Penn Master Lease | Penn Master Lease | $ | 69,851 | | $ | 23,492 | | $ | 26,387 | | $ | 119,730 | | $ | 2,232 | | $ | 891 | | $ | 12 | | $ | 122,865 | | Penn Master Lease | $ | 71,249 | | $ | 23,492 | | $ | 23,637 | | $ | 118,378 | | $ | 2,232 | | $ | 678 | | $ | — | | $ | — | | $ | 121,288 | |
| Amended Pinnacle Master Lease | Amended Pinnacle Master Lease | 57,558 | | 17,814 | | 6,694 | | 82,066 | | (4,837) | | 1,804 | | — | | 79,033 | | Amended Pinnacle Master Lease | 57,936 | | 17,814 | | 6,695 | | 82,445 | | (4,837) | | 1,872 | | — | | — | | 79,480 | |
| Penn - Meadows Lease | 3,952 | | — | | 2,262 | | 6,214 | | 572 | | — | | 63 | | 6,849 | | |
| Penn Morgantown | — | | 750 | | — | | 750 | | — | | — | | — | | 750 | | |
| Penn Meadows Lease | | Penn Meadows Lease | 3,953 | | — | | 2,261 | | 6,214 | | 572 | | — | | — | | 134 | | 6,920 | |
| Penn Morgantown Lease | | Penn Morgantown Lease | — | | 762 | | — | | 762 | | — | | — | | — | | — | | 762 | |
| Penn Perryville Lease | | Penn Perryville Lease | 1,457 | | 486 | | — | | 1,943 | | 60 | | — | | — | | — | | 2,003 | |
| Caesars Master Lease | Caesars Master Lease | 15,628 | | 5,932 | | — | | 21,560 | | 2,590 | | 403 | | — | | 24,553 | | Caesars Master Lease | 15,629 | | 5,932 | | — | | 21,561 | | 2,589 | | 378 | | — | | — | | 24,528 | |
| Lumiere Place Lease | Lumiere Place Lease | 5,701 | | — | | — | | 5,701 | | — | | — | | — | | 5,701 | | Lumiere Place Lease | 5,772 | | — | | — | | 5,772 | | 544 | | — | | — | | — | | 6,316 | |
| BYD Master Lease | 19,162 | | 2,947 | | 2,462 | | 24,571 | | 574 | | 401 | | — | | 25,546 | | |
| BYD Belterra Lease | 678 | | 473 | | 455 | | 1,606 | | (303) | | — | | — | | 1,303 | | |
| Boyd Master Lease | | Boyd Master Lease | 19,289 | | 2,946 | | 2,461 | | 24,696 | | 574 | | 432 | | — | | — | | 25,702 | |
| Boyd Belterra Lease | | Boyd Belterra Lease | 682 | | 473 | | 454 | | 1,609 | | (303) | | — | | — | | — | | 1,306 | |
| Bally's Master Lease | Bally's Master Lease | 3,111 | | — | | — | | 3,111 | | — | | 760 | | — | | 3,871 | | Bally's Master Lease | 10,000 | | — | | — | | 10,000 | | — | | 2,178 | | — | | — | | 12,178 | |
| Casino Queen Lease | 2,276 | | — | | 1,355 | | 3,631 | | $ | — | | — | | — | | 3,631 | | |
| Maryland Live! Lease | | Maryland Live! Lease | 18,750 | | — | | — | | 18,750 | | — | | 2,094 | | 3,059 | | — | | 23,903 | |
| Pennsylvania Live! Master Lease | | Pennsylvania Live! Master Lease | 4,167 | | — | | — | | 4,167 | | — | | 106 | | 666 | | — | | 4,939 | |
| Casino Queen Master Lease | | Casino Queen Master Lease | 5,529 | | — | | — | | 5,529 | | 112 | | — | | — | | — | | 5,641 | |
| Total | Total | $ | 177,917 | | $ | 51,408 | | $ | 39,615 | | $ | 268,940 | | $ | 828 | | $ | 4,259 | | $ | 75 | | $ | 274,102 | | Total | $ | 214,413 | | $ | 51,905 | | $ | 35,508 | | $ | 301,826 | | $ | 1,543 | | $ | 7,738 | | $ | 3,725 | | $ | 134 | | $ | 314,966 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | Building base rent | Land base rent | Percentage rent | Total cash rental income | Straight-line rent adjustments | Ground rent in revenue | Other rental revenue | Total rental income |
| Penn Master Lease | $ | 139,703 | | $ | 46,984 | | $ | 49,954 | | $ | 236,641 | | $ | 4,463 | | $ | 1,593 | | $ | 12 | | $ | 242,709 | |
| Amended Pinnacle Master Lease | 114,358 | | 35,628 | | 13,389 | | 163,375 | | (9,673) | | 3,437 | | — | | 157,139 | |
| Penn - Meadows Lease | 7,905 | | — | | 4,523 | | 12,428 | | 1,144 | | — | | 113 | | 13,685 | |
| Penn Morgantown | — | | $ | 1,500 | | $ | — | | 1,500 | | — | | — | | — | | 1,500 | |
| Caesars Master Lease | 31,257 | | 11,864 | | — | | 43,121 | | 5,179 | | 805 | | — | | 49,105 | |
| Lumiere Place Lease | 11,402 | | $ | — | | $ | — | | 11,402 | | — | | — | | — | | 11,402 | |
| BYD Master Lease | 38,073 | | 5,893 | | 4,923 | | 48,889 | | 1,148 | | 775 | | — | | 50,812 | |
| BYD Belterra Lease | 1,346 | | 947 | | 909 | | 3,202 | | (605) | | — | | — | | 2,597 | |
| Bally's Master Lease | 3,111 | | $ | — | | $ | — | | 3,111 | | — | | 760 | | — | | 3,871 | |
| Casino Queen Lease | 3,211 | | $ | — | | 1,913 | | 5,124 | | $ | — | | — | | — | | 5,124 | |
| Total | $ | 350,366 | | $ | 102,816 | | $ | 75,611 | | $ | 528,793 | | $ | 1,656 | | $ | 7,370 | | $ | 125 | | $ | 537,944 | |
Gaming, food, beverage and other revenue
Gaming, food, beverage and other revenue for our TRS Properties segment increaseddecreased by $33.7 million and $44.6$37.7 million, for the three months and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding periods in the prior years. These properties were closed in mid-March 2020years due to COVID-19.the sale of the operations of Hollywood Casino Perryville and 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 period in the prior years as spend per visit has increased due to various factors such as pent up demand, government stimulus efforts and reduced consumer discretionary entertainment options due to COVID-19.2021.
Operating expenses
Operating expenses for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 were as follows (in thousands):
| | | Three Months Ended June 30, | | Percentage | | Three Months Ended March 31, | | Percentage | |
| | 2021 | | 2020 | Variance | | Variance | | 2022 | | 2021 | Variance | | Variance | |
| Gaming, food, beverage and other | Gaming, food, beverage and other | 22,382 | | | 4,858 | | $ | 17,524 | | | 360.7 | % | Gaming, food, beverage and other | $ | — | | | $ | 19,926 | | $ | (19,926) | | | (100.0) | % | |
| | Land rights and ground lease expense | Land rights and ground lease expense | 8,191 | | | 5,781 | | 2,410 | | | 41.7 | % | Land rights and ground lease expense | 13,704 | | | 6,733 | | 6,971 | | | 103.5 | % | |
| General and administrative | General and administrative | 16,821 | | | 13,231 | | 3,590 | | | 27.1 | % | General and administrative | 15,732 | | | 16,082 | | (350) | | | (2.2) | % | |
| (Gains) losses from dispositions of property | 93 | | | (8) | | 101 | | | (1,262.5) | % | |
| (Gains) and losses from dispositions of property | | (Gains) and losses from dispositions of property | (51) | | | — | | (51) | | | NA | |
| Depreciation | Depreciation | 58,150 | | | 57,390 | | 760 | | | 1.3 | % | Depreciation | 59,129 | | | 58,701 | | 428 | | | 0.7 | % | |
| | Provision for credit losses | | Provision for credit losses | 26,656 | | | — | | 26,656 | | | NA | |
| Total operating expenses | Total operating expenses | $ | 105,637 | | | $ | 81,252 | | $ | 24,385 | | | 30.0 | % | Total operating expenses | $ | 115,170 | | | $ | 101,442 | | $ | 13,728 | | | 13.5 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
| Gaming, food, beverage and other | | $ | 42,308 | | | $ | 21,361 | | | $ | 20,947 | | | 98.1 | % |
| | | | | | | | |
| Land rights and ground lease expense | | 14,924 | | | 13,859 | | | 1,065 | | | 7.7 | % |
| General and administrative | | 32,903 | | | 29,218 | | | 3,685 | | | 12.6 | % |
| (Gains) losses from dispositions of property | | 93 | | | (7) | | | 100 | | | (1,428.6) | % |
| Depreciation | | 116,851 | | | 113,953 | | | 2,898 | | | 2.5 | % |
| | | | | | | | |
| Total operating expenses | | $ | 207,079 | | | 178,384 | | | $ | 28,695 | | | 16.1 | % |
| | | | | | | | |
| | | | | | | | |
Gaming, food, beverage and other
Gaming, food, beverage and other expenses increaseddecreased by $17.5 million and $20.9$19.9 million for the three months and six months ended June 30, 2021,March 31, 2022 as compared to the corresponding periods in the prior year. Thisyear was primarily due to the properties being closed in mid-March 2020 due to COVID-19.sale of the operations of Hollywood Casino Perryville and 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.during 2021.
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 $2.4 million and $1.1$7.0 million for the three months and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding periodsperiod in the prior year. This was primarilyThe increase is the result of higher rent expense due to COVID-19 casino closures in the prior year, partially offset byacquisition of the exchange agreement with Caesarsreal estate of Maryland Live! Hotel & Casino and Pittsburgh Live! Casino which swapped outboth have ground leases as well as higher land right amortization due to the acquisition of Tropicana Evansville property containingon June 3, 2021 and a ground lease with Waterloo and Bettendorf, which did not contain ground leases.$2.7 million accelerated write-off due to a partial donation of leased land.
General and Administrative Expense
General and administrative expenses include items such as compensation costs (including stock based compensation), professional services and costs associated with development activities. General and administrative expenses increaseddecreased by $3.6 million and $3.7$0.4 million for the three months and six months ended June 30, 2021,March 31, 2022 as compared to the corresponding periodsperiod in the prior year,year. The reason for the decline for the three months ended March 31, 2022 was primarily due to the sale of the operations of Hollywood Casino Perryville on July 1, 2021 and Hollywood Casino Baton Rouge on December 17, 2021 which lowered general and administrative expenses by $6.0 million, which was partially offset by increased costs of $5.6 million primarily attributable to higher bonus expense in the current yearand stock based compensation charges due to improved financial performance and higher costs at our TRS Properties due to COVID-19 closures invaluations on the prior year.Company's equity awards.
Depreciation
Depreciation expense increased by $0.8 million and $2.9$0.4 million for the three months and six months ended June 30, 2021March 31, 2022 as compared to the corresponding periodsperiod in the prior year, primarilyyear. The Company had higher real estate depreciation of $2.3 million due to the Company's acquisitions over the past year.year, partially offset by a $1.8 million decline in other depreciation due to the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge and the impact of classifying the building value of Tropicana Las Vegas in assets held for sale in the second quarter of 2021.
Provision for credit losses
Provision for credit losses totaled $26.7 million for the three months ended March 31, 2022. As described in Note 4, the Company follows ASC 326 “Credit Losses”, which requires that the Company measure and record current expected credit losses (“CECL”), the scope of which includes our Investments in leases - financing receivables.
During the three months ended March 31, 2022, the Company recorded an initial CECL reserve of $32.3 million on its Pennsylvania Live! Master Lease and the Company received an updated earnings forecast from its tenant on the Maryland Live! Casino & Hotel operations for 2022. This resulted in an improved rent coverage ratio in its CECL reserve calculation for the Maryland Live! Lease, which led to a $5.6 million reduction in the CECL reserve need at March 31, 2022. Future changes in economic probability factors and earnings assumptions at the underlying facilities may result in non-cash provisions or recoveries in future periods that could materially impact our results of operations. The reason for the higher allowance for credit losses as a percentage of the outstanding investment in leases for the Pennsylvania Live! Master Lease compared to the Maryland Live! Lease is primarily due to the significantly higher expected rent coverage ratio on the Maryland Live! Lease compared to the Pennsylvania Live! Master Lease among other factors such as a changing economic forecast.
Other income (expenses)
Other income (expenses) for the three and six months ended June 30,March 31, 2022 and 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance |
| Interest expense | | $ | (70,413) | | | $ | (69,474) | | | $ | (939) | | | 1.4 | % |
| Interest income | | 54 | | | 273 | | | (219) | | | (80.2) | % |
| Losses on debt extinguishment | | — | | | (5) | | | 5 | | | N/A |
| Total other expenses | | $ | (70,359) | | | $ | (69,206) | | | $ | (1,153) | | | 1.7 | % |
| | | Six Months Ended June 30, | | Percentage | | | Three Months Ended March 31, | | | | Percentage |
| | 2021 | | 2020 | | Variance | | Variance | | 2022 | | 2021 | | Variance | | Variance |
| Interest expense | Interest expense | $ | (140,826) | | | $ | (141,478) | | | $ | 652 | | | (0.5) | % | Interest expense | | $ | (77,922) | | | $ | (70,413) | | | $ | (7,509) | | | 10.7 | % |
| Interest income | Interest income | 178 | | | 469 | | | (291) | | | (62.0) | % | Interest income | | 22 | | | 124 | | | (102) | | | (82.3) | % |
| Losses on debt extinguishment | — | | | (17,334) | | | 17,334 | | | N/A | |
| | Total other expenses | Total other expenses | $ | (140,648) | | | $ | (158,343) | | | $ | 17,695 | | $ | 158,343 | | (11.2) | % | Total other expenses | | $ | (77,900) | | | $ | (70,289) | | | $ | (7,611) | | | 10.8 | % |
Interest expense
Interest expense increased by $0.9 million and declined by $0.7$7.5 million for the three months and six months ended June 30, 2021,March 31, 2022, as compared to the corresponding periodsperiod in the prior year. Results forThe increase was due to the three months and six months ended June 30, 2021 benefited from reductions in outstanding obligations underissuance of additional unsecured senior notes that partially funded our senior unsecured credit facility, as amended (the "Amended Credit Facility"). Both periods were impacted by the timing of our Senior Note issuances in the prior year and revolver drawdown in the first quarter of 2020 related to COVID-19.recent acquisitions. See Note 8 for further details.
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 a loss on the early extinguishment of debt related to this retirement of $17.3 million, primarily for call premium charges and debt issuance write-offs.
Taxes
During the three months and six months ended June 30, 2021,March 31, 2022, income tax expense was approximately $3.5 million and $6.2$0.2 million compared with andto income tax benefitexpense of $0.8 million and $0.5$2.6 million for the three months and six months ended June 30, 2020, respectively.March 31, 2021. The reason for the increasedecrease was due to improved performance at our TRS Segment.the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge in 2021.
Net income attributable to noncontrolling interest in the Operating Partnership
As partial consideration for the Cordish transactions related to the Maryland Live! Lease and Pennsylvania Live! Master Lease, the Company's operating partnership issued OP Units to affiliates of Cordish. The OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. The operating partnership is a variable interest entity ("VIE") in which the Company is the primary beneficiary because it has the power to direct the activities of the VIE that most significantly impact the partnership's economic performance and has the obligation to absorb losses of the VIE that could be potentially significant to the VIE and the right to receive benefits from the VIE that could be significant to the VIE. Therefore, the Company consolidates the accounts of the operating partnership, and reflects the third party ownership in this entity as a noncontrolling interest in the Condensed Consolidated Balance Sheets and allocates the proportion of net income to the noncontrolling interests on the Condensed Consolidated Statements of Income.
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 $402.6$233.2 million and $229.7$205.2 million during the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The increase in net cash provided by operating activities of $172.9$28.0 million for the sixthree months ended June 30, 2021,March 31, 2022, as compared to the corresponding period in the prior year, was primarily comprised of an increase in cash receipts from customers of $192.4$4.1 million a decrease in interest payments of $1.1 million and a decreasealong with decreases in cash paid to employees of $5.4$3.0 million, partially offset by an increase in cash paid for taxes of $7.5 million and an increase in cash paid for operating expenses of $18.2$19.4 million and cash paid for interest of $1.5 million. The increase in cash receipts collected from our customers for the sixthree months ended June 30, 2021,March 31, 2022, as compared to the corresponding period in the prior year, was primarily due tobenefited from the higher percentage rent receivedadditions of the Maryland Live! Lease, the Pennsylvania Live! Master Lease, the Casino Queen Master Lease, the Bally's Master Lease, and the Perryville Lease and full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease, the Belterra Park Lease and the Penn Master lease due to strong results atLease less the impact from the sale of the operations of Hollywood Casino ColumbusPerryville and Hollywood Casino Toledo properties, the Bally's and Morgantown acquisitions, along with strong re-openings of our TRS Properties,Baton Rouge which were forced to close in mid- March 2020 duealso led to the impact of COVID-19. These properties reopened in May 2020 and June 2020 as previously discussed. The reductiondecline in cash paid to employees was primarily due to lower bonus payouts and salaries and wages at our GLP Capital segment for the six months ended June 30, 2021. The increase in taxes paid was due to the strong results at the TRS Properties.operating expenses.
Investing activities used cash of $489.8$131.4 million and $1.1$1.0 million during the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. Net cash used in investing activities during the sixthree months ended June 30, 2021March 31, 2022 consisted primarily of $487.4$129.0 million for the acquisition of the real estate assets contained within the Pennsylvania Live! Master Lease which was accounted for as an Investment in the Bally's transactionlease, financing receivables and capital expenditures of $2.5$2.4 million. Net cash used in investing activities for the sixthree months ended June 30, 2020March 31, 2021 consisted of capital expenditures of $1.1$1.0 million.
Financing activities used cash of $248.2$670.3 million and $181.4$161.4 million during the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. Net cash used in financing activities during the sixthree months ended June 30, 2021March 31, 2022 was driven primarily by dividend payments of $308.6$230.4 million, noncontrolling interest distributions of $5.1 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $11.9 million and the repayment of long term debt of $422.9 million relating to the acquisition of the real estate assets contained within the Pennsylvania Live! Master Lease. Cash used in financing activities during the three months ended March 31, 2021 was driven primarily by dividend payments of $151.5 million, and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $9.8 million partially offset by $70.2 million in net proceeds received from the Company's continuous equity offering under which the Company may sell up to an aggregate of $600 million of its common stock from time to time through a sales agent in "at the market" offerings. Cash used in financing activities during the six months ended June 30, 2020 was driven by $1,868.7 million of proceeds from the issuance of long-term debt, partially offset by repayments of long-term debt of $1,835.8 million, dividend payments of $176.7 million, $15.7 million of premium and related costs paid on the retirement of certain Senior Notes, and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $12.6 million. During the three months ended March 31, 2020, the Company fully drew down on its revolving credit facility to increase its liquidity due to the COVID-19 outbreak which resulted in the shut-down of all of our tenants' properties. Additionally, as described in Note 13 in the Condensed Consolidated Financial Statements, the second quarter 2020 dividends were paid partially in cash and in the Company's shares.
Capital Expenditures
Capital expenditures are accounted for as either capital project expenditures 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 sixthree months ended June 30,March 31, 2022 and 2021, and 2020, the TRS Propertieswe spent approximately $2.5$2.4 million and $1.1$1.0 million, respectively, for capital expenditures. The majority of the capital maintenance expenditures were for slot machines and slot machine equipment. Under the triple-net lease structure, our tenants are responsible for capital maintenance expenditures at our leased properties. However, during 2021, $1.1 million was incurred on capital project expenditures related to a landside development project at Hollywood Casino Baton Rouge.
Debt
Senior Unsecured Credit Facility
Prior to June 25, 2020, theThe Company's senior unsecured credit facility consisted(the "Amended Credit Facility") consists of a $1,175 million revolving credit facility (the "Revolver") with a maturity date of May 21, 2023, and a $449$424 million Term Loan A-1 facility with a maturity date of April 28, 2021.
A-2 facility. The Company fully drew down on its Revolver in the first quarter of 2020 to increase its liquidity position and repay certain Senior Notes. On June 25, 2020, the Company entered into 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 closed on an offering of $500 million of 4.00% unsecured senior notes due in January 2031 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.A-2 facility mature on May 21, 2023.
At June 30, 2021,March 31, 2022, the Amended Credit Facility had a gross outstanding balance of $424.0 million, consisting of the Term Loan A-2 facility. Additionally, at June 30, 2021,March 31, 2022, 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 as of June 30, 2021.March 31, 2022.
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, thatwhich 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 June 30, 2021,March 31, 2022, 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 June 30, 2021,March 31, 2022, 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 June 30, 2021,March 31, 2022, the Company was in compliance with all required financial covenants under the Amended Credit Facility.
Senior Unsecured Notes
In the first quarter of 2020,At March 31, 2022, the Company redeemed all $215.2had $6,175.0 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. The Company recorded 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.(the "Senior Notes").
45The 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.
At June 30, 2021, the Company had $5,375.0 million of outstanding Senior Notes. Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
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 Securities and Exchange Commission 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 June 30, 2021,March 31, 2022, the Company was in compliance with all required financial covenants under its Senior Notes.
GLPI guarantees the Senior Notes that were co-issued by its subsidiaries, GLP Capital and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries through dividends or loans or to transfer assets from such subsidiaries, except as provided by applicable law. None of GLPI's other subsidiaries guarantee the Senior Notes.
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| Summarized financial information for Subsidiary Issuers and Parent Guarantor |
| As of June 30, 2021 | | As of December 31, 2020 |
| Real estate investments, net | $ | 3,202,109 | | | $ | 2,720,767 | |
| | | |
| Right-of-use assets and land rights, net | 222,805 | | | 121,866 | |
| Cash and cash equivalents | 140,629 | | | 480,066 | |
| Long term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts | 5,759,561 | | | 5,754,689 | |
| Accrued interest | 70,598 | | | 72,285 | |
| Lease liabilities | 93,501 | | | 58,654 | |
| Deferred rental revenue | 256,249 | | | 265,891 | |
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| For the six months ended June 30, 2021 | | For the year ended December 31, 2020 |
| Revenues | $ | 310,719 | | | $ | 580,428 | |
| Income from operations | 222,919 | | | 446,708 | |
| Interest expense | (140,826) | | | (282,142) | |
| Net income | 81,774 | | | 146,323 | |
The financial information presented above is that of the subsidiary issuers and parent guarantor and the financial information of non-issuer subsidiaries has been excluded. The financial information of subsidiary issuers and the parent guarantor has been presented on a combined basis; however, the only asset on the parent guarantor balance sheet is its investment in subsidiaries which is not included in the presentation above in accordance with the disclosure requirements.
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. Such distributions generally can be made with cash and/or a combination of cash and Company common stock if certain requirements are met. 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. To the extent any of the Company's taxable income was not previously distributed, the Company will make a dividend declaration pursuant to Section 858(a)(1) of the Code, allowing the Company to treat certain dividends that are to be distributed after the close of a taxable year as having been paid during the taxable year.
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 during late 2021 through mid-2023. The discontinuance of LIBOR would affect our interest expense and earnings. The borrowings under our Amended Credit Facility will be subject to the expected LIBOR transition. LIBOR is currently expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”). We are currently monitoring the transition and cannot be certain whether SOFR will become the standard rate for our variable rate debt.
Outlook
Based on our current level of operations and anticipated earnings, we believe that cash generated from operations and cash on hand, together with amounts available under our Amended Credit Facility, will be adequate to meet our anticipated debt service requirements, 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 "at the market" offering program relating to our common stock), 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" in the Company's Annual Report on Form 10-K for a discussion of the risk related to our capital structure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We face market risk exposure in the form of interest rate risk. These market risks arise from our debt obligations. We have no international operations. Our exposure to foreign currency fluctuations is not significant to our financial condition or results of operations.
GLPI’s primary market risk exposure is interest rate risk with respect to its indebtedness of $5,799.8$6,599.7 million at June 30, 2021.March 31, 2022. Furthermore, $5,375.0$6,175.0 million of our obligations at June 30, 2021March 31, 2022 are the Senior Notes that have fixed interest rates with maturity dates ranging from approximately twoone and one-half years to nine and one-halfthree-quarter 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. However, the provisions of the Code applicable to REITs limit GLPI’s ability to hedge its assets and liabilities.
The table below provides information at June 30, 2021March 31, 2022 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 are based on implied forward LIBOR rates at June 30, 2021.March 31, 2022.
| | | | 07/01/21- 12/31/21 | | 1/01/22- 12/31/22 | | 1/01/23- 12/31/23 | | 1/01/24 12/31/24 | | 1/01/25- 12/31/25 | | Thereafter | | Total | | Fair Value at 6/30/2021 | | 04/01/22- 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 3/31/2022 |
| | | (in thousands) | | (in thousands) |
| Long-term debt: | Long-term debt: | | | | | | | | | | | | | | | | Long-term debt: | | | | | | | | | | | | | | | |
| Fixed rate | Fixed rate | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 3,625,000 | | | $ | 5,375,000 | | | $ | 6,053,415 | | Fixed rate | $ | — | | | $ | 500,000 | | | $ | 400,000 | | | $ | 850,000 | | | $ | 975,000 | | | $ | 3,450,000 | | | $ | 6,175,000 | | | $ | 6,186,270 | |
| Average interest rate | Average interest rate | | 5.38% | | 3.35% | | 5.25% | | 4.88% | | | | | Average interest rate | | 5.38% | | 3.35% | | 5.25% | | 5.38% | | 4.36% | | | | |
| | Variable rate | Variable rate | $ | — | | | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | | Variable rate | $ | — | | | $ | 424,019 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 424,019 | | | $ | 424,019 | |
Average interest rate (1) | Average interest rate (1) | | 2.62% | | | | | Average interest rate (1) | | 4.71% | | | | | | |
(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 discussion under the heading "Liquidity and Capital Resources" in this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
The Company’s management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of June 30, 2021,March 31, 2022, which is the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2021March 31, 2022 to ensure that information required to be disclosed by the Company in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information in response to this Item is incorporated by reference to the information set forth in "Note 10:11: Commitments and Contingencies" in the Notes to the condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, "Item 1A. Risk Factors," of our
Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report are not the only risks we face.
Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially
adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business,
financial condition, and/or results of operations could be negatively affected. There have been no material changes in our risk factors from those previously disclosed in our Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not repurchase any shares of common stock or sell any unregistered securities during the three months ended June 30, 2021.March 31, 2022.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS | | | | | | | | |
| Exhibit | | Description of Exhibit |
| 10.1 | | Form of Director Restricted Stock Award under the Gaming and Leisure Properties, Inc. Second Amended and Restated 2013 Long-Term Incentive Compensation Plan for Awards Issued after January 1, 2022. (incorporated by reference to Exhibit 10.33 to the Company's current report on Form 10-K filed on February 24, 2022). |
| 10.2 | | Form of Restricted Stock Performance Award NNN under the Gaming and Leisure Properties, Inc. Second Amended and Restated 2013 Long-Term Incentive Compensation Plan for Awards issued in 2022. (incorporated by reference to Exhibit 10.38 to the Company's current report on Form 10-K filed on February 24, 2022). |
| 22.1 * | | |
| 31.1* | | |
| 32.1** | | |
| 101 | | The following financial information from Gaming and Leisure Properties, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to the Condensed Consolidated Financial Statements. |
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| 104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL and contained in Exhibit 101. |
* Filed or furnished, as applicable, herewith
** Furnished herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | GAMING AND LEISURE PROPERTIES, INC. |
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JulyApril 29, 20212022 | By: | /s/ PETER M. CARLINO |
| | | Peter M. Carlino |
| | | Chairman of the Board and Chief Executive Officer |
| | (Principal Executive Officer and Principal Financial Officer) |