GAMING AND LEISURE PROPERTIES, INC. 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 inPennsylvania onFebruary 13, 2013 , as a wholly-owned subsidiary of PENN. OnNovember 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 theTRS Properties and then spun-off GLPI to holders of PENN's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on itsU.S. federal income tax return for its taxable year that began onJanuary 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 ofGLP Holdings, Inc. ,Louisiana Casino Cruises, Inc. (d/b/aHollywood Casino Baton Rouge ) andPenn Cecil Maryland, Inc. (d/b/aHollywood Casino Perryville ) as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. In addition, during 2020, the Company andTropicana LV, LLC , a wholly owned subsidiary of the Company which holds the real estate ofTropicana Las Vegas , elected to treatTropicana LV, LLC as a "taxable REIT subsidiary". Further, as partial consideration for the transactions with The Cordish Companies ("Cordish") described below,GLP Capital, L.P. , the operating partnership of GLPI ("GLP Capital ") issued 7,366,683 newly-issued operating partnership units ("OP Units") to affiliates of Cordish. 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,GLP Capital became treated as a regarded partnership for income tax purposes, with GLPI being deemed to contribute substantially all of the assets and liabilities ofGLP Capital 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 electedGLP Financing II, Inc. to be treated as a TRS effectiveDecember 23, 2021 . 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 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 ofHollywood Casino Perryville andHollywood Casino Baton Rouge ,GLP Holdings, Inc. was merged intoGLP Capital . 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 ofSeptember 30, 2022 , GLPI's portfolio consisted of interests in 57 gaming and related facilities, the real property associated with 34 gaming and related facilities operated by PENN, the real property associated with 7 gaming and related facilities operated byCaesars Entertainment Corporation ("Caesars"), the real property associated with 4 gaming and related facilities operated by Boyd Gaming Corporation ("Boyd"), the real property associated with 7 gaming and related facilities operated byBally's Corporation ("Bally's ), the real property associated with 2 gaming and related facilities operated byCasino Queen Holding Company Inc. ("Casino Queen ") 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 27.8 million square feet. As ofSeptember 30, 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
The PENN Master Lease is a triple-net operating lease, the term of which expiresOctober 31, 2033 , with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions. See Note 11 for a discussion regarding such renewal options. Additionally, see Note 17 for a discussion related to the creation of a new master lease with PENN.
Amended Pinnacle
InApril 2016 , the Company acquired substantially all of the real estate assets ofPinnacle 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 onApril 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 "PinnacleMaster Lease "). OnOctober 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, datedDecember 17, 2017 (the "PENN-Pinnacle Merger"). Concurrent with the PENN-Pinnacle Merger, the Company amended the 39 -------------------------------------------------------------------------------- Table of Contents PinnacleMaster Lease to allow for the sale of the operating assets ofAmeristar Casino Hotel Kansas City ,Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended PinnacleMaster 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 PinnacleMaster Lease . The Boyd Master Lease has an initial term of 10 years (from the originalApril 2016 commencement date of the PinnacleMaster Lease and expiringApril 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 ofPlainridge Park Casino ("Plainridge Park") from PENN for$250.0 million , exclusive of transaction fees and taxes and added this property to the Amended PinnacleMaster Lease . The Amended PinnacleMaster 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 ofBelterra Park Gaming & Entertainment ("Belterra Park") whereby the Company loaned Boyd$57.7 million (the "Belterra Park Loan"). InMay 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 ofHollywood Casino at the Meadows are leased to PENN pursuant to single property triple-net lease (the "Meadows Lease"). The Meadows Lease commenced onSeptember 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. As described in Note 17, it is anticipated that the Meadows Lease will terminate onJanuary 1, 2023 and the real estate associated with the property will be part of a new master lease with PENN.
Amended and Restated Caesars
OnOctober 1, 2018 , the Company closed its previously announced transaction to acquire certain real property assets fromTropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement datedApril 15, 2018 betweenTropicana andGLP Capital , which was subsequently amended onOctober 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 ofTropicana 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 datedApril 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 "CaesarsMaster Lease "). OnJune 15, 2020 , the Company amended and restated the CaesarsMaster Lease (as amended, the "Amended and Restated CaesarsMaster 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 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 CaesarsMaster Lease with one or more of Caesars GamingScioto Downs , The Row inReno ,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 ofCapri 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 40 -------------------------------------------------------------------------------- Table of Contents 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 CaesarsMaster 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 CaesarsMaster Lease was subject to the review of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods which were received onJuly 23, 2020 . OnDecember 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 TropicanaEvansville , plus a cash payment of$5.7 million . 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
OnOctober 1, 2018 , the Company entered into a loan agreement with Caesars in connection with Caesars's acquisition of LumièrePlace 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% untilOctober 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. OnJune 24, 2020 , the Company received approval from theMissouri Gaming Commission to own the Lumière Place property in satisfaction of the CZR loan. OnSeptember 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 onOctober 31, 2033 , with four separate renewal options of five years each, exercisable at the tenant's option. The Lumière Place Lease's rent was adjusted onDecember 1, 2021 such that the annual escalator is now fixed at 1.25% for the second through fifth lease years, increasing to 1.75% for the sixth and seventh lease years and thereafter increasing by 2.0% for the remainder of the lease.
OnJune 3, 2021 , the Company completed its previously announced transaction pursuant to which a subsidiary ofBally'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 ofDover Downs Hotel & Casino fromBally'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. OnApril 1, 2022 , the Company completed the previously announced acquisition fromBally's of the land and real estate assets ofBally's threeBlack Hawk Casinos inBlack Hawk, Colorado andBally's Quad Cities Casino & Hotel inRock Island, Illinois for$150 million in total consideration. These properties were added to the existingBally's Master Lease . OnJune 28, 2022 , the Company announced that it entered into a binding term sheet withBally's to acquire the real property assets ofBally's Twin River Lincoln Casino Resort ("Lincoln") andBally's Tiverton Casino & Hotel ("Tiverton"), subject to customary regulatory approvals withLincoln also subject to lender consent. Pursuant to the terms of the transaction,Bally's would immediately lease back both properties and continue to own, control, and manage all the gaming operations of the facilities on an uninterrupted basis. Total consideration for the acquisition is$1.0 billion and GLPI intends to fund the transaction through a mix of debt, equity, and OP Units. Both properties are expected to be added to the existingBally's Master Lease with incremental rent of$76.3 million . If all third-party consents and approvals for the acquisition ofLincoln have not been received when such approvals for the acquisition of Tiverton andHard Rock Hotel &Casino Biloxi ("Biloxi") inMississippi have been received, then GLPI would instead acquire the real property assets ofBiloxi and Tiverton, for$635 million with total rent of$48.5 million . In that event, GLPI would also have the option, subject to receipt of required consents, to acquire the real property assets ofLincoln prior toDecember 31, 2024 for a purchase price of$771 million and additional rent of$58.8 million . We currently anticipate the initial closing will include the real property assets ofBiloxi and Tiverton. In connection with GLPI's commitment to consummate theBally's acquisitions, it also agreed to pre-fund, atBally's election, a deposit of up to$200.0 million , which was funded inSeptember 2022 and recorded in other assets on the Condensed Consolidated Balance Sheet. This amount will be credited or repaid to GLPI at the earlier of the first closing andDecember 31, 2023 , along with a$9.0 million transaction fee to be credited against the purchase price at such closing. 41
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Tropicana Las
OnApril 16, 2020 , the Company and certain of its subsidiaries closed on its previously announced transaction to acquire the real property associated with theTropicana 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. OnSeptember 26, 2022 ,Bally's acquired both GLPI's building asset and PENN's outstanding equity interests inTropicana Las Vegas Hotel and Casino, Inc. for an aggregate cash acquisition price, net of fees and expenses, of approximately$145 million , which resulted in a pre-tax gain of$67.4 million . GLPI retained ownership of the land and concurrently entered into a ground lease for an initial term of 50 years (with a maximum term of 99 years inclusive of tenant renewal options) with initial annual rent of$10.5 million . The ground lease is supported by aBally's corporate guarantee and cross-defaulted with theBally's Master Lease (the "Tropicana LasVegas Lease ").
Morgantown Lease
OnOctober 1, 2020 , the Company and PENN closed on their previously announced transaction whereby GLPI acquired the land under PENN's gaming facility under construction inMorgantown, 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 Consumer 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 Morgantown opened onDecember 22, 2021 .
OnNovember 25, 2020 , the Company entered into a definitive agreement to sell the operations ofHollywood Casino Baton Rouge toCasino Queen for$28.2 million (the "HCBR transaction"). This transaction closed onDecember 17, 2021 which resulted in a pre-tax gain of$6.8 million (loss of$7.7 million after tax) for the year endedDecember 31, 2021 . The Company retained ownership of all real estate assets atHollywood Casino Baton Rouge and simultaneously entered into a triple net master lease withCasino Queen , which includes theCasino Queen property inEast St. Louis that is currently leased by the Company toCasino Queen and theHollywood Casino Baton Rouge facility (the "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 four 5 year renewal options exercisable by the tenant. See Note 11 for a discussion regarding such renewal options. 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 withCasino Queen for other sale leaseback transactions up to$50 million untilDecember 2023 .
OnDecember 15, 2020 , the Company announced that PENN exercised its option to purchase from the Company the operations ofHollywood Casino Perryville , located inPerryville, Maryland , for$31.1 million . The transaction closed onJuly 1, 2021 and the real estate assets of theHollywood 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 (the "Perryville Lease"). As described in Note 17, it is anticipated that the Perryville Lease will terminate onJanuary 1, 2023 and the real estate associated with the property will be part of a new master lease with PENN.
OnDecember 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 42 -------------------------------------------------------------------------------- Table of Contents 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. OnDecember 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"). OnMarch 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 theCasino Queen Master Lease which is also a triple-net 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 Statements 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. Executive Summary Financial Highlights We reported total revenues and income from operations of$333.8 million and$317.6 million , respectively, for the three months endedSeptember 30, 2022 , compared to$298.7 million and$225.1 million , respectively, for the corresponding period in the prior year. For the nine months endedSeptember 30, 2022 , we reported total revenues and income from operations of$975.3 million and$754.5 million , respectively, compared to$918.0 million and$637.3 million , respectively, for the corresponding period in the prior year.
The major factors affecting our results for the three and nine months ended
•Total income from real estate increased by$50.6 million to$333.8 million for the three months endedSeptember 30, 2022 compared to$283.3 million for the corresponding period in the prior year. Results for the three months endedSeptember 30, 2022 benefited from the additions of the Maryland Live! Lease and Pennsylvania Live! Master Lease, theBally's Master Lease, and theCasino Queen Master Lease , which in the aggregate increased cash rental income by$35.6 million . The three months endedSeptember 30, 2022 also benefited by$3.0 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 effectiveMay 1, 2021 and the PENN Master Lease onNovember 1, 2021 . The Company also recognized accretion of$5.2 million on its Investment in leases, financing receivables and favorable straight-line rent adjustments of$2.2 million compared to the corresponding period in the prior year and had higher ground rent income of$3.2 million due primarily from the addition of theBally's Master Lease and the Maryland Live! Lease. Finally, the Company had higher percentage rent on the PENN Master Lease of$0.4 million due to higher revenues atHollywood Casino Columbus andHollywood Casino Toledo . •Total income from real estate increased by$154.1 million for the nine months endedSeptember 30, 2022 . Results for the nine months endedSeptember 30, 2022 benefited from the additions of the Maryland Live! Lease and Pennsylvania Live! Master Lease, theBally's Master Lease, the Perryville Lease and theCasino Queen Master Lease , which in the aggregate increased cash rental income by$119.5 million . The nine months endedSeptember 30, 2022 also benefited by$8.8 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 effectiveMay 1, 2021 and the PENN Master Lease onNovember 1, 2021 . The Company also recognized accretion of$14.1 million on its Investment in leases, financing receivables and had higher ground rent income of$11.8 million due primarily from the addition of theBally's Master Lease and the Maryland Live! Lease for the nine months endedSeptember 30, 2022 . 43 -------------------------------------------------------------------------------- Table of Contents Finally, the Company had lower favorable straight-line rent adjustments of$1.0 million compared to the corresponding period in the prior year. •Gaming, food, beverage and other revenue decreased by$15.5 million and$96.8 million for the three and nine months endedSeptember 30, 2022 , as compared to the corresponding period in the prior year due to the sale of the operations of theHollywood Casino Perryville andHollywood Casino Baton Rouge in 2021. •Total operating expenses decreased by$57.4 million for the three months endedSeptember 30, 2022 as compared to the corresponding period in the prior year. Gains from dispositions of property increased$52.6 million as compared to the corresponding period in the prior year due to the sale of the Tropicana Las Vegas building toBally's that closed onSeptember 26, 2022 which resulted in a pre-tax gain of$67.4 million . Gains from dispositions of property for the three months endedSeptember 30, 2021 totaled$14.8 million due primarily from the sale of theHollywood Casino Perryville operations to PENN which closed onJuly 1, 2021 . Gaming, food, beverage and other expense decreased$5.8 million as compared to the corresponding period in the prior year due to the prior year sales of the operations ofHollywood Casino Perryville and Hollywood Casino Baton Rouge. General and administrative expenses decreased$1.0 million as compared to the corresponding period in the prior year due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge , partially offset by higher acquisition expenses. Partially offsetting these benefits was higher land rights and ground lease expense of$2.3 million as compared to the corresponding period in the prior year due to the acquisition of the real estate ofMaryland Live ! Hotel & Casino and Pittsburgh Live! Casino which both have ground leases as well as higher land right amortization due to the acquisition of Tropicana Evansville onJune 3, 2021 . •Total operating expenses decreased by$59.9 million for the nine months endedSeptember 30, 2022 as compared to the corresponding period in the prior year. Gains from dispositions of property increased$52.8 million as compared to the corresponding period in the prior year due to the sale of the Tropicana Las Vegas building asset toBally's that closed onSeptember 26, 2022 which resulted in a pre-tax gain of$67.4 million . Gains from dispositions of property for the nine months endedSeptember 30, 2021 totaled$14.8 million due primarily from the sale of theHollywood Casino Perryville operations to PENN which closed onJuly 1, 2021 . Gaming, food, beverage and other expense decreased$48.1 million as compared to the corresponding period in the prior year due to the prior year sales of the operations ofHollywood Casino Perryville and Hollywood Casino Baton Rouge. General and administrative expenses decreased$6.0 million as compared to the corresponding period in the prior year due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge which lowered general and administrative expenses by$15.3 million . This was partially offset by higher acquisition expenses, bonus expenses, insurance costs as well as increased stock based compensation charges. The nine months endedSeptember 30, 2022 included provision for credit losses of$28.9 million associated with our Investment in leases, financing receivables as well as impairment losses on land of$3.3 million . In addition, we incurred higher land rights and ground lease expense of$12.8 million compared to the corresponding period in the prior year due to the acquisition of the real estate ofMaryland Live ! Hotel & Casino and Pittsburgh Live! Casino, which both have ground leases as well as higher land right amortization due to the acquisition of TropicanaEvansville onJune 3, 2021 and a$2.7 million accelerated write-off due to a partial donation of leased land that occurred in the first quarter of 2022, and higher depreciation expense of$1.9 million as compared to the corresponding period in the prior year due to our recent acquisitions partially offset by the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge •Other expenses increased by$5.7 million and$23.3 million for the three and nine months endedSeptember 30, 2022 , due to higher interest expense associated with the increased borrowings to fund our recent acquisitions and to a lesser extent a debt extinguishment charge of$2.2 million . •Income tax expense increased by$9.6 million and$4.6 million for the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior year due to the sale of Tropicana Las Vegas building toBally's . Income tax expense for the prior year was primarily due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge . •Net income increased by$77.2 million and$89.2 million for the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior year, primarily due to the variances explained above. 44 -------------------------------------------------------------------------------- Table of Contents 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, investment in leases, financing receivables, net, 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 nine months ended
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Results of Operations
The following are the most important factors and trends that contribute or may contribute to our operating performance:
•We have announced or closed numerous transactions in the past two years and expect to continue to grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms. •Several wholly-owned subsidiaries of PENN lease a substantial number of our properties pursuant to two master leases and three 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 betweenRussia andUkraine ) 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 ofU.S. federal income taxation are constantly under review by legislators, the Internal Revenue Service and theU.S. Department of the Treasury . Changes to the tax laws or interpretations thereof, including any changes proposed and implemented by the current administration, with or without retroactive application, could materially and adversely affect GLPI and its investors.
The consolidated results of operations for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands)
Total revenues $ 333,818 $ 298,712 $ 975,297 $ 918,016
Total operating expenses 16,252 73,613 220,838 280,692
Income from operations 317,566 225,099 754,459 637,324
Total other expenses (76,086) (70,426) (234,330) (211,074)
Income before income taxes 241,480 154,673 520,129 426,250
Income tax expense 15,261 5,614 16,431 11,791
Net income $ 226,219 $ 149,059 $ 503,698 $ 414,459
Net income attributable to non-controlling
interest in the Operating Partnership (6,265) - (13,162) -
Net income attributable to common shareholders
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)
or losses from dispositions of property, net of tax and real estate
depreciation. We define AFFO as FFO excluding, as applicable to the particular
period, stock based compensation expense; the amortization of debt issuance
costs, bond premiums and original issuance discounts; other depreciation;
amortization of land
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rights; accretion on investment in leases, financing receivables; non-cash
adjustments to financing lease liabilities; impairment charges; straight-line
rent adjustments; (gains) or losses on sales of operations, net of tax; losses
on debt extinguishment; and provision for credit losses, net, reduced by
maintenance capital expenditures. Finally, we define Adjusted EBITDA as net
income excluding, as applicable to the particular period, interest, net; income
tax expense; real estate depreciation; other depreciation; (gains) or losses
from dispositions of property, net of tax; (gains) or losses on sales of
operations, net of tax; stock based compensation expense; straight-line rent
adjustments; amortization of land rights; accretion on Investment in leases,
financing receivables; non-cash adjustments to financing lease liabilities;
impairment charges; losses on debt extinguishment; and provision for credit
losses, net.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These
non-GAAP financial measures: (i) do not represent cash flows from operations as
defined by GAAP; (ii) should not be considered as an alternative to net income
as a measure of operating performance or to cash flows from operating, investing
and financing activities; and (iii) are not alternatives to cash flows as a
measure of liquidity. In addition, these measures should not be viewed as an
indication of our ability to fund our cash needs, including to make cash
distributions to our shareholders, to fund capital improvements, or to make
interest payments on our indebtedness. Investors are also cautioned that FFO,
AFFO and Adjusted EBITDA, as presented, may not be comparable to similarly
titled measures reported by other real estate companies, including REITs, due to
the fact that not all real estate companies use the same definitions. Our
presentation of these measures does not replace the presentation of our
financial results in accordance with GAAP.
The reconciliation of the Company's net income per GAAP to FFO, AFFO, and
Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021
is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands)
Net income $ 226,219 $ 149,059 $ 503,698 $ 414,459
(Gains) or losses from dispositions of property,
net of tax (52,793) 824 (52,844) 917
Real estate depreciation 59,416 59,205 177,569 172,377
Funds from operations $ 232,842 $ 209,088 $ 628,423 $ 587,753
Straight-line rent adjustments (3,045) (888) (1,522) (2,544)
Other depreciation 471 977 1,411 4,656
(Benefit) provision for credit losses, net (19) - 28,859 -
Amortization of land rights 3,290 3,322 12,570 9,171
Amortization of debt issuance costs, bond premiums and original issuance discounts
2,348 2,470 7,598 7,410
Accretion on investment in leases, financing
receivables (5,238) - (14,103) -
Non-cash adjustment to financing lease liabilities 121 - 360 -
Stock based compensation 4,336 3,786 16,244 13,186
Gain on sale of operations, net of tax of $4.3
million - (11,290) - (11,290)
Losses on debt extinguishment - - 2,189 -
Impairment charge on land - - 3,298 -
Capital maintenance expenditures (66) (303) (102) (1,655)
Adjusted funds from operations $ 235,040 $ 207,162 $ 685,225 $ 606,687
Interest, net 75,413 70,426 230,133 211,074
Income tax expense 624 1,265 1,794 7,442
Capital maintenance expenditures 66 303 102 1,655
Amortization of debt issuance costs, bond premiums and original issuance discounts
(2,348) (2,470) (7,598) (7,410)
Adjusted EBITDA $ 308,795 $ 276,686 $ 909,656 $ 819,448
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Net income, FFO, AFFO and Adjusted EBITDA were$226.2 million ,$232.8 million ,$235.0 million , and$308.8 million for the three months endedSeptember 30, 2022 . This compares to net income, FFO, AFFO and Adjusted EBITDA of$149.1 million ,$209.1 million ,$207.2 million and$276.7 million for the corresponding period in the prior year. The increase in net income was primarily attributable to higher total revenues of$35.1 million and lower operating expenses of$57.4 million as compared to the corresponding period in the prior year. These benefits were partially offset by higher interest expense of$6.1 million to partially fund our recent acquisitions and higher income tax expense of$9.6 million related to the sale of the Tropicana Las Vegas building toBally's as compared to the corresponding period in the prior year. Net income, FFO, AFFO and Adjusted EBITDA were$503.7 million ,$628.4 million ,$685.2 million , and$909.7 million for the nine months endedSeptember 30, 2022 . This compares to net income, FFO, AFFO and Adjusted EBITDA of$414.5 million ,$587.8 million ,$606.7 million and$819.4 million for the corresponding period in the prior year. The increase in net income was primarily attributable to higher total revenue of$57.3 million and lower operating expenses of$59.9 million as compared to the corresponding period in the prior year. These benefits were partially offset by higher interest expense of$21.5 million to partially fund our recent acquisitions and higher income tax expense of$4.6 million related to the sale of the Tropicana Las Vegas building toBally's as compared to the corresponding period in the prior year. The increases in FFO for the three and nine months endedSeptember 30, 2022 were due to the items described above, excluding gains from dispositions of property and real estate depreciation. The increases in AFFO and Adjusted EBITDA were due to the items described above, less the adjustments mentioned in the tables above. Adjusted EBITDA also increased as compared to the prior year driven by the explanations above, as well as the adjustments mentioned in the tables above. Revenues Revenues for the three and nine months endedSeptember 30, 2022 and 2021 were as follows (in thousands): Three Months Ended September 30, Percentage 2022 2021 Variance Variance Rental income$ 296,779 $ 283,253 $ 13,526 4.8 % Interest income from real estate 37,039 - 37,039 N/A Total income from real estate 333,818 283,253 50,565 17.9 % Gaming, food, beverage and other - 15,459 (15,459) (100.0) % Total revenues$ 333,818 $ 298,712 $ 35,106 11.8 % Nine Months Ended September 30, Percentage 2022 2021 Variance Variance Rental income$ 874,130 $ 821,197 $ 52,933 6.4 % Interest income from real estate 101,167 - 101,167 N/A Total income from real estate 975,297 821,197 154,100 18.8 % Gaming, food, beverage and other - 96,819 (96,819) (100.0) % Total revenues$ 975,297 $ 918,016 $ 57,281 6.2 %
Total income from real estate
For the three and nine months endedSeptember 30, 2022 and 2021, total income from real estate was$333.8 million and$975.3 million compared to$283.3 million and$821.2 million for the corresponding periods 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 statements 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. 48 -------------------------------------------------------------------------------- Table of Contents Total income from real estate increased$50.6 million , or 17.9%, for the three months endedSeptember 30, 2022 and$154.1 million or 18.8% for the nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year. Results for the three and nine months endedSeptember 30, 2022 benefited from the additions of the Maryland Live! Lease, the Pennsylvania Live! Master Lease, theCasino Queen Master Lease , and theBally's Master Lease, which in the aggregate increased cash rental income by$35.6 million and$119.5 million for the three and nine months endedSeptember 30, 2022 . The three and nine months endedSeptember 30, 2022 , benefited from full escalations being incurred on the Amended Pinnacle Master Lease, the Boyd Master Lease and the Belterra Park Lease effectiveMay 1, 2021 , and the PENN Master Lease effectiveNovember 1, 2021 which increased building base rents by$3.0 million and$8.8 million for the three and nine months endedSeptember 30, 2022 , respectively. The Company also recognized accretion of$5.2 million and$14.1 million on its Investments in leases, financing receivables, for the three and nine months endedSeptember 30, 2022 , respectively, and favorable straight-line rent adjustments of$2.2 million and unfavorable adjustments of$1.0 million compared to the corresponding periods in the prior year. Additionally, the Company had higher ground rent income of$3.2 million and$11.8 million as discussed above for the three and nine months endedSeptember 30, 2022 due to the addition of theBally's Master Lease, the Maryland Live! Lease and the Pennsylvania Live! Master Lease which contained properties with ground leases. 49 -------------------------------------------------------------------------------- Table of Contents Details of the Company's income from real estate for the three and nine months endedSeptember 30, 2022 was as follows (in thousands) Total income Three Months Ended September 30, Building base Land base Total cash Straight-line rent Ground rent Accretion on Other rental from real 2022 rent rent Percentage rent income adjustments in revenue financing leases revenue estate PENN Master Lease$ 71,249 $ 23,493 $ 24,750$ 119,492 $ (3,394)$ 598 $ - $ -$ 116,696 Amended Pinnacle Master Lease 59,095 17,814 7,164 84,073 1,858 2,085 - - 88,016 PENN Meadows Lease 3,953 - 2,261 6,214 573 - - 162 6,949 PENN Morgantown Lease - 761 - 761 - - - - 761 PENN Perryville Lease 1,478 486 - 1,964 38 - - - 2,002 Caesars Master Lease 15,629 5,932 - 21,561 2,589 378 - - 24,528 Lumiere Place Lease 5,772 - - 5,772 543 - - - 6,315 Boyd Master Lease 19,675 2,946 2,566 25,187 574 432 - - 26,193 Boyd Belterra Lease 695 473 472 1,640 152 - - - 1,792 Bally's Master Lease 13,338 - - 13,338 - 2,545 - - 15,883 Maryland Live! Lease 18,750 - - 18,750 - 2,110 3,169 - 24,029 Pennsylvania Live! Master Lease 12,500 - - 12,500 - 298 2,069 - 14,867 Casino Queen Master Lease 5,529 - - 5,529 112 - - - 5,641 Tropicana Las Vegas Lease - 146 - 146 - - - - 146 Total$ 227,663 $ 52,051 $ 37,213$ 316,927 $ 3,045$ 8,446 $ 5,238 $ 162 $ 333,818 Accretion on Total income Nine Months EndedSeptember 30 , Building base
Percentage Total cash Straight-line rent Ground rent financing Other rental from real 2022
rent Land base rent rent income adjustments in revenue leases revenue estate PENN Master Lease
$ 213,746 $ 70,477 $
73,489
- $ 351,329
Amended Pinnacle Master Lease 175,740 53,442 20,866 250,048 (3,352) 5,969 - - 252,665
PENN - Meadows Lease 11,858 - 6,784 18,642 1,717 - - 406 20,765
PENN Morgantown Lease - 2,285 - 2,285 - - - - 2,285
PENN Perryville Lease 4,392 1,457 - 5,849 158 - - - 6,007
Caesars Master Lease 46,886 17,796 - 64,682 7,768 1,134 - - 73,584
Lumiere Place Lease 17,317 - - 17,317 1,631 - - - 18,948
Boyd Master Lease 58,510 8,839 7,558 74,907 1,722 1,297 - - 77,926
Boyd Belterra Lease 2,068 1,420 1,393 4,881 (151) - - - 4,730
Bally's Master Lease 36,338 - - 36,338 - 7,066 - - 43,404
Maryland Live! Lease 56,250 - - 56,250 - 6,366 9,342 - 71,958
Pennsylvania Live! Master Lease 29,167 - - 29,167 - 699 4,761 - 34,627
Casino Queen Master Lease 16,588 - - 16,588 $ 335 - - - 16,923
Tropicana Las Vegas Lease - 146 - 146 - - - - 146
Total $ 668,860 $ 155,862 $ 110,090 $ 934,812 $ 1,522 $ 24,454 $ 14,103 $ 406 $ 975,297
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 statements of income as the
Company has concluded that as the lessee it is the primary obligor under the
ground leases. The Company subleases these ground leases back to its tenants,
who are responsible for payment directly to the landlord.
The Company recognizes earnings on Investment in leases, financing receivables,
based on the effective yield method using the discount rate implicit in the
leases. The amounts in the table above labeled accretion on financing leases
represent earnings recognized in excess of cash received during the period.
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Gaming, food, beverage and other revenue
Gaming, food, beverage and other revenue decreased by$15.5 million and$96.8 million , for the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior years due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge in 2021.
Operating expenses
Operating expenses for the three and nine months ended
Three Months Ended September 30, Percentage
2022 2021 Variance Variance
Gaming, food, beverage and other $ - $ 5,766 $ (5,766) (100.0) %
Land rights and ground lease expense 11,754 9,414 2,340 24.9 %
General and administrative 12,060 13,066 (1,006) (7.7) %
(Gains) and losses from dispositions (67,430) (14,815) (52,615) 355.1 %
Depreciation 59,887 60,182 (295) (0.5) %
Provision for credit losses (19) - (19) N/A
Total operating expenses $ 16,252 $ 73,613 $ (57,361) (77.9) %
Nine Months Ended September 30, Percentage
2022 2021 Variance Variance
Gaming, food, beverage and other $ - $ 48,074 $ (48,074) (100.0) %
Land rights and ground lease expense 37,178 24,338 12,840 52.8 %
General and administrative 40,004 45,969 (5,965) (13.0) %
(Gains) losses from dispositions (67,481) (14,722) (52,759) 358.4 %
Depreciation 178,980 177,033 1,947 1.1 %
Impairment charge on land 3,298 - 3,298 N/A
Provision for credit losses 28,859 - 28,859 N/A
Total operating expenses $ 220,838 280,692 $ (59,854) (21.3) %
Gaming, food, beverage and other
Gaming, food, beverage and other expenses decreased by$5.8 million and$48.1 million for the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge 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$2.3 million and$12.8 million for the three and nine months endedSeptember 30, 2022 , as compared to the corresponding periods in the prior year. The increase is the result of higher rent expense due to the acquisition of the real estate ofMaryland Live ! Hotel & Casino and Pittsburgh Live! Casino which both have ground leases as well as higher land right amortization due to the acquisition of Tropicana Evansville onJune 3, 2021 and a$2.7 million accelerated write-off due to a partial donation of leased land which occurred during the three month period endedMarch 31, 2022 . 51 -------------------------------------------------------------------------------- Table of Contents 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 decreased by$1.0 million and$6.0 million for the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year. The reason for the decline for the three and nine months endedSeptember 30, 2022 was primarily due to the sale of the operations ofHollywood Casino Perryville onJuly 1, 2021 andHollywood Casino Baton Rouge onDecember 17, 2021 which lowered general and administrative expenses by$3.2 million and$15.3 million for the three and nine month periods endedSeptember 30, 2022 , which was partially offset by higher bonus expense and stock based compensation charges due to improved performance and higher valuations on the Company's equity awards as well as transaction related costs that did not qualify for capitalization.
Gains from dispositions
The three and nine months endedSeptember 30, 2022 , included a pre-tax gain of$67.4 million on the sale of the Tropicana Las Vegas building toBally's . See Note 6 for further information related to this transaction. The three and nine months endedSeptember 30, 2021 included a pre-tax gain of$15.6 million associated with the sale of the operations ofHollywood Casino Perryville which occurred onJuly 1, 2021 . Impairment charge on land As discussed in Note 6, during the three months endedJune 30, 2022 , the Company entered into an agreement to sell excess land and incurred a loss of$3.3 million for the nine months endedSeptember 30, 2022 , as the proceeds received in the third quarter of 2022 were less than the carrying value of the asset.
Depreciation
Depreciation expense decreased by$0.3 million and increased by$1.9 million for the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year. The Company had higher real estate depreciation of$0.2 million and$5.2 million in the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year due to the Company's acquisitions over the past year, partially offset by decreases of$0.5 million and$3.2 million in other depreciation in the three and nine months endedSeptember 30, 2022 as compared to the corresponding periods in the prior year due to the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge and the impact of classifying the building value ofTropicana Las Vegas in assets held for sale in the second quarter of 2021.
Provision for credit losses
Provision for credit losses totaled$28.9 million for the nine months endedSeptember 30, 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 nine months endedSeptember 30, 2022 , the Company recorded provisions of$32.9 million on the Investment in leases for the Pennsylvania Live! Master Lease and the majority of this provision was recorded in the first quarter of 2022 when the lease was originated. For the nine months endedSeptember 30, 2022 , the Company recorded a reduction of$4.0 million to its Investment in lease reserves for the Maryland Live! Lease as 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 the Maryland Live! Lease reserve atSeptember 30, 2022 compared to its balance atDecember 31, 2021 . 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 rent coverage ratio on the Maryland Live! Lease compared to the Pennsylvania Live! Master Lease. 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. 52 -------------------------------------------------------------------------------- Table of Contents Other income (expenses)
Other income (expenses) for the three and nine months ended
Three Months Ended September 30, Percentage
2022 2021 Variance Variance
Interest expense $ (76,574) $ (70,432) $ (6,142) 8.7 %
Interest income 488 6 482 8,033.3 %
Total other expenses $ (76,086) $ (70,426) $ (5,660) 8.0 %
Nine Months Ended September 30, Percentage
2022 2021 Variance Variance
Interest expense $ (232,753) $ (211,258) $ (21,495) 10.2 %
Interest income 612 184 428 232.6 %
Losses on debt extinguishment (2,189) - (2,189) N/A
Total other expenses $ (234,330) $ (211,074) $ (23,256) 11.0 %
Interest expense
Interest expense increased by $6.1 million and $21.5 million for the three and
nine months ended September 30, 2022 , as compared to the corresponding periods
in the prior year. The increase was due to the issuance of additional unsecured
senior notes that partially funded our recent acquisitions. See Note 8 for
further details.
Losses on debt extinguishment
As further described in Note 8, the Company increased its borrowing capacity byGLP Capital entering into a new Credit Agreement during the nine months endedSeptember 30, 2022 , which resulted in a$2.2 million debt extinguishment charge.
Taxes
During the three and nine months endedSeptember 30, 2022 , income tax expense was$15.3 million and$16.4 million compared to income tax expense of$5.6 million and$11.8 million for the corresponding periods in the prior year. The reason for the increase was due to the gain on the sale of the building atTropicana Las Vegas in 2022 compared to the taxes incurred on the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge in 2021.
Net income attributable to noncontrolling interest in the
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. 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.
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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$699.5 million and$616.0 million during the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in net cash provided by operating activities of$83.5 million for the nine months endedSeptember 30, 2022 , as compared to the corresponding period in the prior year, was primarily comprised of an increase in cash receipts from customers of$32.1 million along with decreases in cash paid to employees of$11.7 million , cash paid for operating expenses of$46.2 million , and cash paid for taxes of$6.8 million , partially offset by an increase in cash paid for interest of$13.6 million . The increase in cash receipts collected from our customers for the nine months endedSeptember 30, 2022 , as compared to the corresponding period in the prior year, was due to the additions of the Maryland Live! Lease, the Pennsylvania Live! Master Lease, theCasino Queen Master Lease , theBally'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 less the impact from the sale of the operations ofHollywood Casino Perryville andHollywood Casino Baton Rouge which also led to the decline in cash paid for operating expenses. Investing activities used cash of$347.0 million and$457.8 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Net cash used in investing activities during the nine months endedSeptember 30, 2022 consisted primarily of$479.2 million for the acquisition of the real estate assets contained within the Pennsylvania Live! Master Lease which was accounted for as an Investment in lease, financing receivables, a$200 million deposit payment for our recently announced transaction withBally's and the acquisition of the real estate assets ofBally's Black Hawk, CO andRock Island, IL properties which were added to theBally's Master Lease, and capital expenditures of$16.5 million , partially offset by the proceeds of$145.2 million from the sale of the Company's building atTropicana Las Vegas and the sale of excess land for$3.5 million . The net cash used in investing activities for the nine months endedSeptember 30, 2021 consisted primarily of$487.5 million for the acquisition of the real estate assets contained in theBally's Master Lease consisting of the Dover Downs and Tropicana Evansville properties, and capital expenditures of$3.3 million , partially offset by the proceeds of$30.1 million from the sale of the operations atHollywood Casino Perryville . Financing activities used cash of$1,018.1 million and$225.0 million during the nine months endedSeptember 30, 2022 and 2021, respectively. Net cash used in financing activities during the nine months endedSeptember 30, 2022 was driven by dividend payments of$586.9 million , non-controlling interest distributions of$15.5 million , 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$1,271.0 million partially offset by the proceeds from the issuance of long term debt, net of costs, of$412.1 million and common stock, net of costs, in the amount$455.1 million . Cash used in financing activities during the nine months endedSeptember 30, 2021 was driven primarily by dividend payments of$468.2 million , and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of$9.8 million , partially offset by proceeds of$253.1 million from the issuance of common stock.
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 nine months endedSeptember 30, 2022 and 2021, we spent approximately$16.5 million and$3.3 million , respectively, for capital expenditures. The majority of the capital expenditures were related to a land side development project atHollywood Casino Baton Rouge .
Debt
Term Loan Credit Agreement
OnSeptember 2, 2022 ,GLP Capital , entered into a term loan credit agreement (the "Term Loan Credit Agreement") withWells Fargo Bank, National Association , as administrative agent ("Term Loan Agent"), and the other agents and lenders 54 -------------------------------------------------------------------------------- Table of Contents party thereto from time to time, providing for a$600 million delayed draw credit facility with a maturity date ofSeptember 2, 2027 (the "Term Loan Credit Facility"). The Term Loan Credit Facility is guaranteed by GLPI. The availability of loans under the Term Loan Credit Facility is subject to customary conditions, including pro forma compliance with financial covenants, and the receipt by Term Loan Agent of a conditional guarantee of the Term Loan Credit Facility byBally's on a secondary basis, subject to enforcement of all remedies againstGLP Capital , GLPI and all sources other thanBally's . The loans under the Term Loan Credit Facility may be used solely to finance a portion of the purchase price of the acquisition of one or more specified properties ofBally's in one or a series of related transactions (the "Acquisition") and to pay fees, costs and expenses incurred in connection therewith. Subject to customary conditions, including pro forma compliance with financial covenants,GLP Capital can obtain additional term loan commitments and incur incremental term loans under the Term Loan Credit Agreement, so long as the aggregate principal amount of all term loans outstanding under the Term Loan Credit Facility does not exceed$1.2 billion plus up to$60 million of transaction fees and costs incurred in connection with the Acquisition. There is currently no commitment in respect of such incremental loans and commitments.
Interest Rate and Fees
The interest rates per annum applicable to loans under the Term Loan Credit Facility are, atGLP Capital's option, equal to either a SOFR-based rate or a base rate plus an applicable margin, which ranges from 0.85% to 1.7% per annum for SOFR loans and 0.0% to 0.7% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Term Loan Credit Facility. The current applicable margin is 1.30% for SOFR loans and 0.30% for base rate loans. In addition,GLP Capital will pay a commitment fee on the unused commitments under the Term Loan Credit Facility at a rate that ranges from 0.125% to 0.3% per annum, depending on the credit ratings assigned to the Credit Facility from time to time. The current commitment fee rate is 0.25%.
Amortization and Prepayments
The Term Loan Credit Facility is not subject to interim amortization.GLP Capital is required to prepay outstanding term loans with 100% of the net cash proceeds from the issuance of other debt that is unconditionally guaranteed by GLPI and conditionally guaranteed byBally's ("Alternative Acquisition Debt") that is received by GLPI,GLP Capital or any of their subsidiaries after the funding date of the Term Loan Facility (other than any incremental term loans under the Term Loan Credit Agreement and loans under the Bridge Revolving Facility (as defined below)) except to the extent such net cash proceeds are applied to repaying outstanding loans under the Bridge Revolving Facility.GLP Capital is not otherwise required to repay any loans under the Term Loan Credit Facility prior to maturity.GLP Capital may prepay all or any portion of the loans under the Term Loan Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders and may reborrow loans that it has repaid. Unused commitments under the Term Loan Credit Facility automatically terminate onAugust 31, 2023 .
Certain Covenants and Events of Default
The Term Loan Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries, includingGLP Capital , to grant liens on their assets, incur indebtedness, sell assets, engage in acquisitions, mergers or consolidations, or pay certain dividends and make other restricted payments. The financial covenants include the following, which are measured quarterly on a trailing four-quarter basis: (i) maximum total debt to total asset value ratio, (ii) maximum senior secured debt to total asset value ratio, (iii) maximum ratio of certain recourse debt to unencumbered asset value, and (iv) minimum fixed charge coverage ratio. GLPI is required to maintain its status as a REIT and is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status. 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 Term Loan Credit Facility also contains certain customary affirmative covenants and events of default. The occurrence and continuance of an event of default, which includes, among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants, will enable the lenders to accelerate the loans and terminate the commitments thereunder.
Senior Unsecured Credit Agreement
The Company, throughGLP Capital , historically had access to a senior unsecured credit facility (the "Amended Credit Facility") consisting of a$1,175 million revolving credit facility and a$424 million Term Loan A-2 facility. The Amended Credit Facility was scheduled to mature onMay 21, 2023 . OnMay 13, 2022 ,GLP Capital terminated its Amended Credit 55 -------------------------------------------------------------------------------- Table of Contents Facility and entered into a credit agreement (the "Credit Agreement") providing for a$1.75 billion revolving credit facility (the "Initial Revolving Facility") maturing inMay 2026 , plus two six-month extensions atGLP Capital's option.GLP Capital was the primary obligor under the Amended Credit Facility, which was guaranteed byGLPI andGLP Capital was the primary obligor under the Credit Agreement, which is guaranteed by GLPI. The Company recorded a debt extinguishment loss of$2.2 million in connection with this transaction. OnSeptember 2, 2022 ,GLP Capital entered into Amendment No. 1 (the "Amendment") to the Credit Agreement amongGLP Capital ,Wells Fargo Bank, National Association , as administrative agent ("Agent"), and the several banks and other financial institutions or entities party thereto. Pursuant to the Credit Agreement, as amended by the Amendment,GLP Capital has the right, at any time untilDecember 31, 2024 , to elect to re-allocate up to$700 million in existing revolving commitments under the Credit Agreement to a new revolving credit facility (the "Bridge Revolving Facility" and, collectively with the Initial Revolving Facility, the "Revolver"). Loans under the Bridge Revolving Facility are subject to 1% amortization per annum. Amounts repaid under the Bridge Revolving Facility cannot be reborrowed and the corresponding commitments are automatically re-allocated to the existing revolving facility under the Credit Agreement.GLP Capital is required to prepay the loans under the Bridge Revolving Facility with 100% of the net cash proceeds from the issuance of Alternative Acquisition Debt that is received by GLPI,GLP Capital or any of their subsidiaries (other than any term loans under the Term Loan Credit Agreement and any loans under the Bridge Revolving Facility). Any outstanding commitments under the Bridge Revolving Facility that have not been borrowed byDecember 31, 2024 are automatically re-allocated to the existing revolving facility under the Credit Agreement.GLP Capital's ability to borrow under the Bridge Revolving Facility is subject to certain conditions including pro forma compliance withGLP Capital's financial covenants, as well as the receipt by Agent of a conditional guarantee of the loans under the Bridge Revolving Facility byBally's on a secondary basis, subject to enforcement of all remedies againstGLP Capital , GLPI and all sources other thanBally's . Loans under the Bridge Revolving Facility will not be treated pro rata with loans under the existing revolving credit facility. AtSeptember 30, 2022 , no amounts were outstanding under the Credit Agreement. Additionally, atSeptember 30, 2022 , the Company was contingently obligated under letters of credit issued pursuant to the Credit Agreement with face amounts aggregating approximately$0.4 million , resulting in$1,749.6 million of available borrowing capacity under the Credit Agreement as ofSeptember 30, 2022 . The interest rates payable on the loans borrowed under the Revolver are, atGLP Capital's option, equal to either a Secured Overnight Financing Rate ("SOFR") based rate or a base rate plus an applicable margin, which ranges from 0.725% to 1.40% per annum for SOFR loans and 0.0% to 0.4% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Credit Agreement. The current applicable margin is 1.05% for SOFR loans and 0.05% for base rate loans. Notwithstanding the foregoing, in no event shall the base rate be less than 1.00%. In addition,GLP Capital will pay a facility fee on the commitments under the revolving facility, regardless of usage, at a rate that ranges from 0.125% to 0.30% per annum, depending on the credit rating assigned to the Credit Agreement from time to time. The current facility fee rate is 0.25%. The Credit Agreement is not subject to interim amortization except as set forth above with respect to the Bridge Revolving Facility.GLP Capital is not required to repay any loans under the Credit Agreement prior to maturity except with respect to the Bridge Revolving Facility.GLP Capital may prepay all or any portion of the loans under the Credit Agreement prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders and may reborrow loans that it has repaid. The Credit Agreement 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, engage in acquisitions, mergers or consolidations, or pay certain dividends and make other restricted payments. The financial covenants include the following, which are measured quarterly on a trailing four-quarter basis: (i) maximum total debt to total asset value ratio, (ii) maximum senior secured debt to total asset value ratio, (iii) maximum ratio of certain recourse debt to unencumbered asset value, and (iv) a minimum fixed charge coverage ratio. GLPI is required to maintain its status as a REIT and is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status. GLPI is also permitted to make other dividends and distributions, subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Agreement also contains certain customary affirmative covenants and events of default. The occurrence and continuance of an event of default, which includes, among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants, will enable the lenders to accelerate the loans and terminate the commitments thereunder.
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Senior Unsecured Notes
At September 30, 2022 , the Company had $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.
The Senior Notes were issued by GLP Capital and GLP Financing II, Inc. (the
"Issuers"), two wholly-owned subsidiaries of GLPI, both of which are
consolidated by GLPI, and are guaranteed on a senior unsecured basis by GLPI
which such guarantees are full and unconditional. The Senior Notes are the
Issuers' senior unsecured obligations and rank pari passu in right of payment
with all of the Issuers' senior indebtedness, including the Credit Agreement,
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.
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.
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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 thatU.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 toU.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 underU.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. 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 Credit Agreement of$1.75 billion , will be adequate to meet our anticipated debt service requirements, capital expenditures, working capital needs and dividend requirements. 57 -------------------------------------------------------------------------------- Table of Contents As described in Note 16 and Note 17, the Company has several pending acquisitions and potential funding requirements which the Company intends to fund through a mix of debt, equity and OP Units. OnJuly 1, 2022 , the Company raised approximately$350.8 million of equity proceeds and during the third quarter of 2022 the Company sold 2.0 million shares of its common stock under 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 (the "ATM Program") which raised net proceeds of$104.4 million . As ofSeptember 30, 2022 , the Company had$157.0 million remaining for issuance under the ATM Program. Additionally, the Company also entered into the Term Loan Credit Agreement for up to$600 million in funding. InAugust 2022 , the Company entered into a forward sale agreement (the "August 2022 Forward Sale Agreement"), for up to$105 million that will require settlement byAugust 19, 2023 . No amounts have been or will be recorded on the Company's balance sheet with respect to theAugust 2022 Forward Sale Agreement until settlement. TheAugust 2022 Forward Sale Agreement requires the Company to, at its election prior toAugust 19, 2023 , to physically settle the transactions by issuing shares of its common stock to the forward counterparty in exchange for net proceeds at the then applicable forward sale price specified by theAugust 2022 Forward Sale Agreement. The forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor and will decrease by other specified fixed amounts. If the Company had physically settled the shares under theAugust 2022 Forward Sale Agreement as ofSeptember 30, 2022 , 1,284,556 shares would have been issued and approximately$64.8 million in net cash proceeds would have been received by the Company. We expect the majority of our future growth to come from acquisitions of gaming and other properties to lease to third parties. If we consummate significant acquisitions in the future, our cash requirements may increase significantly and we would likely need to raise additional proceeds through a combination of either common equity (including under our ATM Program), issuance of additional operating partnership units, and/or debt offerings. 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 the year endedDecember 31, 2021 , for a discussion of the risk related to our capital structure. 58
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