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Gaming & Leisure Properties, Inc. - Quarter Report: 2019 June (Form 10-Q)

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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, 2019
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 & 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
 
August 7, 2019
Common Stock, par value $.01 per share
 
214,682,856



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Forward-looking statements in this document are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Gaming and Leisure Properties, Inc. ("GLPI") and its subsidiaries (collectively, the "Company") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning the Company’s business strategy, plans, goals and objectives.
 
Forward-looking statements in this document include, but are not limited to, statements regarding our ability to grow our portfolio of gaming facilities and to secure additional avenues of growth beyond the gaming industry. 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 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 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 satisfaction of the mortgage loan made to Eldorado Resorts, Inc. ("Eldorado") by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company;

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

the access to debt and equity capital markets, including for acquisitions or refinancings due to maturities;

adverse changes in our credit rating;

fluctuating interest rates;

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. 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;

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

changes in accounting standards;

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

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

additional factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 on Form 10-K for the year ended December 31, 2018 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 on Form 10-K for the year ended December 31, 2018 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.


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


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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in thousands, except share data)
 
 
June 30,
2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
7,210,028

 
$
7,331,460

Property and equipment, used in operations, net
97,219

 
100,884

Mortgage loans receivable
303,684

 
303,684

Right-of-use assets and land rights, net
862,927

 
673,207

Cash and cash equivalents
24,739

 
25,783

Prepaid expenses
2,943

 
30,967

Goodwill
16,067

 
16,067

Other intangible assets
9,577

 
9,577

Loan receivable

 
13,000

Deferred tax assets
5,721

 
5,178

Other assets
30,959

 
67,486

Total assets
$
8,563,864

 
$
8,577,293

 
 
 
 
Liabilities
 
 
 
Accounts payable
$
171

 
$
2,511

Accrued expenses
6,778

 
30,297

Accrued interest
53,340

 
45,261

Accrued salaries and wages
8,120

 
17,010

Gaming, property, and other taxes
966

 
42,879

Lease liabilities
202,098

 

Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
5,796,990

 
5,853,497

Deferred rental revenue
311,198

 
293,911

Deferred tax liabilities
233

 
261

Other liabilities
25,283

 
26,059

Total liabilities
6,405,177

 
6,311,686

 
 
 
 
Shareholders’ equity
 
 
 
 
 
 
 
Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2019 and December 31, 2018)

 

Common stock ($.01 par value, 500,000,000 shares authorized, 214,673,135 and 214,211,932 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)
2,147

 
2,142

Additional paid-in capital
3,951,949

 
3,952,503

Accumulated deficit
(1,795,409
)
 
(1,689,038
)
Total shareholders’ equity
2,158,687

 
2,265,607

Total liabilities and shareholders’ equity
$
8,563,864

 
$
8,577,293

 
See accompanying notes to the condensed consolidated financial statements.

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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenues
 

 
 

 
 

 
 

Rental income
$
248,563

 
$
169,865

 
$
496,241

 
$
339,270

Income from direct financing lease

 
26,984

 

 
45,605

Interest income from mortgaged real estate
7,201

 

 
14,394

 

Real estate taxes paid by tenants

 
21,483

 

 
42,761

Total income from real estate
255,764

 
218,332

 
510,635

 
427,636

Gaming, food, beverage and other
33,249

 
35,889

 
66,242

 
70,635

Total revenues
289,013

 
254,221

 
576,877

 
498,271

 
 
 
 
 
 
 
 
Operating expenses
 

 
 

 
 

 
 

Gaming, food, beverage and other
19,168

 
20,407

 
38,190

 
40,065

Real estate taxes

 
21,800

 

 
43,395

Land rights and ground lease expense
15,229

 
6,444

 
24,478

 
12,976

General and administrative
15,984

 
24,806

 
33,224

 
41,266

Depreciation
67,865

 
27,523

 
126,443

 
55,477

Loan impairment charges

 

 
13,000

 

Total operating expenses
118,246

 
100,980

 
235,335

 
193,179

Income from operations
170,767

 
153,241

 
341,542

 
305,092

 
 
 
 
 
 
 
 
Other income (expenses)
 

 
 

 
 

 
 

Interest expense
(76,523
)
 
(57,055
)
 
(153,251
)
 
(111,123
)
Interest income
248

 
891

 
337

 
1,372

  Losses on debt extinguishment

 
(3,473
)
 

 
(3,473
)
Total other expenses
(76,275
)
 
(59,637
)
 
(152,914
)
 
(113,224
)
 
 
 
 
 
 
 
 
Income before income taxes
94,492

 
93,604

 
188,628

 
191,868

Income tax expense
1,459

 
1,606

 
2,585

 
3,098

Net income
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic earnings per common share
$
0.43

 
$
0.43

 
$
0.87

 
$
0.88

Diluted earnings per common share
$
0.43

 
$
0.43

 
$
0.86

 
$
0.88

 
See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders’ Equity
(in thousands, except share data)
(unaudited)
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2018
214,211,932

 
$
2,142

 
$
3,952,503

 
$
(1,689,038
)
 
$
2,265,607

Stock option activity
26,799

 

 
592

 

 
592

Restricted stock activity
406,769

 
4

 
(5,327
)
 

 
(5,323
)
Dividends paid ($0.68 per common share)

 

 

 
(146,202
)
 
(146,202
)
Net income

 

 

 
93,010

 
93,010

Balance, March 31, 2019
214,645,500

 
$
2,146

 
$
3,947,768

 
$
(1,742,230
)
 
$
2,207,684

Restricted stock activity
27,635

 
1

 
4,181

 

 
4,182

Dividends paid ($0.68 per common share)

 

 

 
(146,212
)
 
(146,212
)
Net income

 

 

 
93,033

 
93,033

Balance, June 30, 2019
214,673,135

 
$
2,147

 
$
3,951,949

 
$
(1,795,409
)
 
$
2,158,687

 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Total
Shareholders’
Equity
 
Shares
 
Amount
 
 
 
Balance, December 31, 2017
212,717,549

 
$
2,127

 
$
3,933,829

 
$
(1,477,709
)
 
$
2,458,247

Stock option activity
297,605

 
3

 
5,241

 

 
5,244

Restricted stock activity
483,095

 
5

 
(8,293
)
 

 
(8,288
)
Dividends paid ($0.63 per common share)

 

 

 
(134,717
)
 
(134,717
)
Adoption of new revenue standard

 

 

 
(410
)
 
(410
)
Net income

 

 

 
96,772

 
96,772

Balance, March 31, 2018
213,498,249

 
$
2,135

 
$
3,930,777

 
$
(1,516,064
)
 
$
2,416,848

Stock option activity
236,240

 
2

 
4,125

 

 
4,127

Restricted stock activity
3,450

 

 
615

 

 
615

Dividends paid ($0.63 per common share)

 

 

 
(134,820
)
 
(134,820
)
Net income

 

 

 
91,998

 
91,998

Balance, June 30, 2018
213,737,939

 
$
2,137

 
$
3,935,517

 
$
(1,558,886
)
 
$
2,378,768


See accompanying notes to the condensed consolidated financial statements.


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Gaming and Leisure Properties, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended June 30,
 
2019
 
2018
 
 
 
 
 
Operating activities
 
 

 
 

Net income
 
$
186,043

 
$
188,770

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

 
 

Depreciation and amortization
 
138,939

 
60,932

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
5,790

 
6,296

Losses on dispositions of property
 
13

 
225

Deferred income taxes
 
(466
)
 
(117
)
Stock-based compensation
 
8,508

 
4,603

Straight-line rent adjustments
 
17,287

 
33,233

Losses on debt extinguishment
 

 
3,473

Loan impairment charges
 
13,000

 

 
 
 
 
 
(Increase), decrease
 
 

 
 

Prepaid expenses and other assets
 
(2,312
)
 
(1,123
)
Increase, (decrease)
 
 

 
 

Accounts payable
 
(2,340
)
 
(254
)
Accrued expenses
 
1,305

 
157

Accrued interest
 
8,079

 
2,367

Accrued salaries and wages
 
(8,890
)
 
6,607

Gaming, property and other taxes
 
(98
)
 
(119
)
Other liabilities
 
(777
)
 
572

Net cash provided by operating activities
 
364,081

 
305,622

Investing activities
 
 

 
 

Capital project expenditures
 

 
(14
)
Capital maintenance expenditures
 
(1,547
)
 
(1,984
)
Proceeds from sale of property and equipment
 
190

 
227

Collections of principal payments on investment in direct financing lease
 

 
29,239

Net cash (used in) provided by investing activities
 
(1,357
)
 
27,468

Financing activities
 
 

 
 

Dividends paid
 
(292,414
)
 
(269,537
)
Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options
 
(9,057
)
 
(2,905
)
Proceeds from issuance of long-term debt
 
155,000

 
1,000,000

Financing costs
 
(236
)
 
(19,745
)
Repayments of long-term debt
 
(217,061
)
 
(923,601
)
Premium and related costs paid on tender of senior unsecured notes
 

 
(1,884
)
Net cash used in financing activities
 
(363,768
)
 
(217,672
)
Net (decrease) increase in cash and cash equivalents
 
(1,044
)
 
115,418

Cash and cash equivalents at beginning of period
 
25,783

 
29,054

Cash and cash equivalents at end of period
 
$
24,739

 
$
144,472

 
See Note 16 to the condensed consolidated financial statements for supplemental cash flow information and noncash investing and financing activities.

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Gaming and Leisure Properties, Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
 
1.              Business and Operations
 
Gaming and Leisure Properties, Inc. ("GLPI") is a self-administered and self-managed Pennsylvania real estate investment trust ("REIT"). GLPI (together with its subsidiaries, the "Company") was incorporated on February 13, 2013, as a wholly-owned subsidiary of Penn National Gaming, Inc. ("Penn"). On November 1, 2013, Penn contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville, which are referred to as the "TRS Properties," and then spun-off GLPI to holders of Penn's common and preferred stock in a tax-free distribution (the "Spin-Off"). The Company elected on its United States ("U.S.") federal income tax return for its taxable year 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.

As a result of the Spin-Off, GLPI owns substantially all of Penn’s former real property assets (as of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under a unitary master lease, a triple-net operating lease with an initial term of 15 years (expiring October 31, 2028) with no purchase option, followed by four 5-year renewal options (exercisable by Penn) on the same terms and conditions (the "Penn Master Lease"), and GLPI also owns and operates the TRS Properties through an indirect wholly-owned subsidiary, GLP Holdings, Inc. In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease with an initial term of 10 years (expiring April 30, 2026) with no purchase option, followed by five 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed its previously announced transactions with Penn, Pinnacle and Boyd Gaming Corporation ("Boyd") to accommodate Penn's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between Penn and Pinnacle, dated December 17, 2017 (the "Penn-Pinnacle Merger"). Concurrent with the Penn-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by five 5-year renewal options (exercisable by Boyd) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from Penn for $250.0 million, exclusive of transaction fees and taxes and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by Penn at the consummation of the Penn-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park"), whereby the Company loaned Boyd $57.7 million.

In addition to the acquisition of Plainridge Park described above, on October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. (“Tropicana”) and certain of its affiliates pursuant to a Purchase and Sale Agreement (the “Real Estate Purchase Agreement”) dated April 15, 2018 between Tropicana and GLP Capital L.P., the operating partnership of  GLPI (“GLP Capital”), which was subsequently amended on October 1, 2018 (as amended, the “Amended Real Estate Purchase Agreement”). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the “GLP Assets”) from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. ("Eldorado") acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Eldorado and a wholly-owned subsidiary of Eldorado (the "Tropicana Merger Agreement") and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option followed by four successive 5-year renewal periods (exercisable by Eldorado) on the same terms and conditions (the “Eldorado Master Lease”). Additionally, on October 1, 2018 the Company made a mortgage loan to Eldorado in the amount of $246.0 million in connection with Eldorado’s acquisition of Lumière Place Casino and Hotel ("Lumière Place") (and together with the Tropicana Acquisition the "Tropicana Transactions").


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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, 2019, GLPI’s portfolio consisted of interests in 46 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 6 gaming and related facilities operated by Eldorado (including one mortgaged facility), the real property associated with 4 gaming and related facilities operated by Boyd (including one mortgaged facility) and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 16 states and were 100% occupied at June 30, 2019. GLPI expects to continue growing its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.

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.

In conjunction with the adoption of ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), on January 1, 2019, the Company recorded right-of-use assets on the condensed consolidated balance sheet to represent the Company's rights to use the underlying leased assets for the term of the lease. As this asset related, in part, to the same leases which resulted in the below market lease asset the Company described as land rights, net on the December 31, 2018 condensed consolidated balance sheet, this line item has been re-named to right-of-use assets and land rights, net as the assets are required to be reported in the aggregate subsequent to the adoption of ASU 2016-02. Furthermore, under ASU 2016-02, the Company is no longer required to gross-up its financial statements for the real estate taxes paid directly by its tenants to third-parties.

The condensed consolidated financial statements include the accounts of GLPI and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses for the reporting periods. Actual results could differ from those estimates.

Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (our "Annual Report") should be read in conjunction with these condensed consolidated financial statements. The December 31, 2018 financial information has been derived from the Company’s audited consolidated financial statements.

3.    New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02. This ASU primarily provides new guidance for lessees on the accounting treatment of operating leases. Under the new guidance, lessees are required to recognize assets and liabilities arising from operating leases on the balance sheet. ASU 2016-02 also aligns lessor accounting with the revenue recognition guidance in Topic 606 of the Accounting Standards Codification. Generally speaking, ASU 2016-02 more significantly impacted the accounting for leases in which GLPI is the lessee by requiring the Company to record a right-of-use asset and lease liability on its condensed consolidated balance sheet for these leases. The Company's accounting treatment of its triple-net tenant leases, which are the primary source of revenues to the Company, were not significantly impacted by the adoption of ASU 2016-02, other than to eliminate the real estate tax gross-up discussed below.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11") which permits companies to apply the transition provisions of ASU 2016-02 at its effective date (i.e. comparative financial statements are not required). Furthermore, in December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow Scope Improvements for Lessors ("ASU 2018-20"). ASU 2018-20 clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02, the Company no longer grosses-up its financial statements for real estate taxes paid directly to third-parties by its tenants. The Company notes, however, that ground leases for which the tenant pays the landlord directly on the

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Company's behalf are still required to be grossed-up within its condensed consolidated financial statements upon the adoption of ASU 2016-02, as these are not considered lessor costs. On January 1, 2019, the Company adopted ASU 2016-02 using the new transition option available under ASU 2018-11 and recorded right-of-use assets and related lease liabilities of $203 million on its condensed consolidated balance sheet to represent its rights to underlying assets and its future lease obligations. Also in connection with the adoption of ASC 842 - Leases ("ASC 842"), the land rights recorded on balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets are now required to be reported in aggregate with the Company's operating lease right-of-use assets, reflected as right-of-use assets and land rights, net on the condensed consolidated balance sheet. Furthermore, the Company elected the package of practical expedients, which among other things, did not require the Company to reassess the lease classification of its existing leases and the practical expedient related to land easements, which allowed the Company to bypass the reassessment of existing or expired land easements for the existence of a lease under ASC 842. See Note 7 for further disclosures related to the adoption of ASU 2016-02.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (a consensus of the FASB Emerging Issues Task Force) ("ASU 2018-15"). This ASU clarifies that entities should follow the guidance for capitalizing implementation costs incurred to develop or obtain internal-use software to account for implementation costs of cloud computing arrangements that are service contracts. ASU 2018-15 does not change the accounting for the service component of a cloud computing arrangement. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company does not expect the adoption of ASU 2018-15 to have a significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). This ASU simplifies an entity's goodwill impairment test by eliminating Step 2 from the test. The new guidance also amends the definition of impairment to a condition that exists when the carrying amount of goodwill exceeds its fair value. By eliminating Step 2 from the test, entities are no longer required to determine the implied fair value of goodwill by computing the fair value (at impairment testing date) of all assets and liabilities in a manner similar to that required in conjunction with business combinations. Upon the adoption of ASU 2017-04, an impairment charge is simply recorded as the difference between carrying value and fair value, when carrying value exceeds fair value. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company expects the adoption of ASU 2017-04 to simplify the analysis required under the goodwill impairment test.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument ("ASU 2016-13"). This ASU introduces a new model for estimating credit losses for certain types of financial instruments, including mortgage and other loans receivable, amongst other financial instruments.  ASU 2016-13 sets forth an "expected credit loss" impairment model to replace the current "incurred loss" method of recognizing credit losses, which is intended to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company does not expect the adoption of ASU 2016-13 to have a significant impact on its consolidated financial statements.

4.              Real Estate Investments
 
Real estate investments, net, represents investments in 42 rental properties and the corporate headquarters building and is summarized as follows:
 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Land and improvements
$
2,552,285

 
$
2,552,475

Building and improvements
5,749,212

 
5,762,071

Total real estate investments
8,301,497

 
8,314,546

Less accumulated depreciation
(1,091,469
)
 
(983,086
)
Real estate investments, net
$
7,210,028

 
$
7,331,460




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On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $10.3 million of depreciation expense related to the building at this property and bringing the net book value of this building to zero at June 30, 2019.

5.              Property and Equipment Used in Operations
 
Property and equipment used in operations, net, consists of the following and primarily represents the assets utilized in the TRS Properties: 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Land and improvements
$
30,463

 
$
30,431

Building and improvements
116,779

 
116,776

Furniture, fixtures, and equipment
118,159

 
117,247

Construction in progress
527

 
284

Total property and equipment
265,928

 
264,738

Less accumulated depreciation
(168,709
)
 
(163,854
)
Property and equipment, net
$
97,219

 
$
100,884



6. Receivables

Mortgage Loans Receivable

At June 30, 2019, the Company has financial interests in two casino properties through secured mortgage loans to the respective casino owner-operators. On October 1, 2018, Eldorado purchased the real estate assets of Lumière Place from Tropicana for a cash purchase price of $246.0 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of a $246.0 million secured mortgage loan on Lumière Place (the "Lumière Loan"). The Lumière Loan bears interest at a rate equal to (i) 9.09% until the one-year anniversary of the closing, and (ii) 9.27% until its maturity. Until the one-year anniversary of the closing, the Lumière Loan is secured by a first mortgage lien on Lumière Place. On the one-year anniversary of the Lumière Loan, the mortgage evidenced by a deed of trust on the Lumière Place property will terminate and the loan will continue unsecured until its final maturity on the two-year anniversary of the closing. The parties anticipate that the Lumière Loan will be fully repaid on or prior to maturity by way of substitution of one or more additional Eldorado properties acceptable to Eldorado and the Company, which will be transferred to the Company and added to the Eldorado Master Lease.

On October 15, 2018, Boyd purchased the real estate assets of Belterra Park from Pinnacle for a cash purchase price of $57.7 million, exclusive of transaction fees. Financing for the transaction was provided by the Company in the form of $57.7 million secured mortgage loan on Belterra Park (the "Belterra Park Loan"). The Belterra Park Loan bears interest at an initial rate equal to 11.11% and matures in connection with the expiration of the Boyd Master Lease (as may be extended at the tenant's option to April 30, 2051). At June 30, 2019, the interest rate on the Belterra Park Loan had increased to 11.20%.

Loan Receivable

In January 2014, the Company completed the asset acquisition of the real property associated with the Casino Queen in East St. Louis, Illinois.  GLPI leases the property back to Casino Queen on a triple-net basis on terms similar to those in the Company's existing master leases. The lease has an initial term of 15 years and the tenant has an option to renew it at the same terms and conditions for four successive five-year periods (the "Casino Queen Lease").

Simultaneously with the Casino Queen acquisition, GLPI provided Casino Queen with a $43.0 million, five-year term loan at 7% interest, pre-payable at any time, which, together with the sale proceeds, completely refinanced and retired all of Casino Queen’s outstanding long-term debt obligations. On March 13, 2017, the outstanding principal and interest on this loan was repaid in full and GLPI simultaneously provided a new unsecured $13.0 million, 5.5-year term loan to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance their acquisition of Lady Luck Casino in Marquette, Iowa. The new loan bears an interest rate of 15% and is pre-payable at any time.

The Company evaluates loans for impairment when it is probable that it will not be able to collect all amounts due according to contractual terms. All amounts due under the contractual terms means that both contractual interest payments and

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contractual principal payments of a loan will be collected as scheduled in the loan agreement. Indicators of impairment may include delinquent payments, a decline in the credit worthiness of a debtor, or a decline in the underlying property/tenant’s performance. The Company measures loan impairment based upon the present value of expected future cash flows discounted at the loan’s original effective interest rate. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. If an impairment occurs, the Company will reduce the carrying value of the loan and record a corresponding charge to net income.
On June 12, 2018, the Company received a Notice of Event of Default under the senior credit agreement of CQ Holding Company from the secured lender under such agreement, which reported a covenant default under their senior secured agreement. Under the terms of that agreement, when an event of default occurs, CQ Holding Company is prohibited from making cash payments to unsecured lenders such as GLPI. Therefore, beginning in June 2018 and through June 30, 2019, the interest due from CQ Holding Company under the Company's unsecured loan was paid in kind in the aggregate amount of $2.6 million. In addition to the covenant violation noted above under its senior credit agreement, CQ Holding Company also had a payment default under the senior credit agreement. Furthermore, the Company notified Casino Queen of Events of Default under the Company's unsecured loan with CQ Holding Company, related to financial covenant violations during the year ended December 31, 2018.
At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place. Despite the payment and covenant defaults noted above, at that time, full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.
During the first quarter of 2019, the operating results of Casino Queen continued to decline, resulting in the anticipated acquirer withdrawing from the sales process. Subsequent offers for the operating assets of Casino Queen have declined substantially and proceeds from the sale are not expected to generate enough cash to repay all of Casino Queen’s creditors. Thus, because the Company does not expect Casino Queen to be able to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the six months ended June 30, 2019 to reflect the write-off of the Casino Queen loan.
At June 30, 2019, all lease payments due from Casino Queen remain current, however, Casino Queen was in violation of the rent coverage ratio required under its lease with the Company and the Company has provided notice to Casino Queen and its secured lenders of such default.

7. Lease Assets and Lease Liabilities

Lease Assets
The Company determines whether a contract is or contains a lease at its inception. A lease is defined as the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right-of-use assets and lease liabilities are recorded on the Company's condensed consolidated balance sheet at the lease commencement date for operating leases in which the Company acts as lessee. Right-of-use assets represent the Company's rights to use underlying assets for the term of the lease and lease liabilities represent the Company's future obligations under the lease agreement. Right-of-use assets and lease liabilities are recognized at the lease commencement date based upon the estimated present value of the lease payments. As the rate implicit in the Company's leases cannot readily be determined, the Company utilizes its estimated incremental borrowing rate to determine the present value of its lease payments. Consideration is also given to the Company's recent debt issuances, as well as publicly available data for instruments with similar characteristics when determining the incremental borrowing rates of the Company's leases.
The Company includes options to extend the lease in its lease term, when it is reasonably certain that the Company will exercise those renewal options. In the instance of the Company's ground leases associated with leased properties, the Company has included all available renewal options in the lease term, as it intends to renew these leases indefinitely. The Company accounts for the lease and nonlease components of these triple-net tenant leases as a single lease component. Leases with a term of 12 months or less are not recorded on the Company's condensed consolidated balance sheet.
Right-of-use assets and land rights are monitored for potential impairment in much the same way as the Company's real estate assets, using the impairment model in ASC 360 - Property, Plant and Equipment. If the Company determines the carrying amount of a right-of-use asset or land right is not recoverable, it would recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value, calculated in accordance with GAAP.

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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. Details of the Company's significant ground leases can be found in the Form 10-K for the year ended December 31, 2018. For certain of these ground leases, the Company subleases the underlying assets to its tenants who 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 sheet to represent its rights to use the underlying leased assets and its future lease obligations, respectively, including for those ground leases paid directly by our tenants. Because the right-of-use asset relates, in part, to the same leases which resulted in the land right assets the Company recorded on its condensed consolidated balance sheet in conjunction with the Company's assumption of below market leases at the time it acquired the related land and building assets, the Company is required to report the right-of-use assets and land rights in the aggregate on the condensed consolidated balance sheet.

Land rights, net represent the Company's rights to land subject to long-term ground leases. The Company obtained ground lease rights through the acquisition of several of its rental properties and immediately subleased the land to its tenants. These land rights represent the below market value of the related ground leases. The Company assessed the acquired ground leases to determine if the lease terms were favorable or unfavorable, given market conditions at the acquisition date. Because the market rents to be received under the Company's triple-net tenant leases were greater than the rents to be paid under the acquired ground leases, the Company concluded that the ground leases were below market and were therefore required to be recorded as a definite lived asset (land rights) on its books.

Components of the Company's right-of use assets and land rights, net are detailed below (in thousands):
 
June 30, 2019
Right-of use assets - operating leases
$
202,215

Land rights, net
660,712

Right-of-use assets and land rights, net
$
862,927



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,
2019
 
December 31,
2018
 
(in thousands)
Land rights
$
694,077

 
$
700,997

Less accumulated amortization
(33,365
)
 
(27,790
)
Land rights, net
$
660,712

 
$
673,207



On June 30, 2019, the Resorts Casino Tunica property was closed by the Company's tenant, resulting in the acceleration of $6.3 million of land right amortization expense related to the ground lease at this property and bringing the net book value of this land right to zero at June 30, 2019.

As of June 30, 2019, estimated future amortization expense related to the Company’s land rights by fiscal year is as follows (in thousands):

Year ending December 31,
 
2019 (remainder of year)
$
6,040

2020
12,081

2021
12,081

2022
12,081

2023
12,081

Thereafter
606,348

Total
$
660,712



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Lease Liabilities

At June 30, 2019, maturities of the Company's operating lease liabilities were as follows (in thousands):

Year ending December 31,
 
2019 (remainder of year)
$
7,800

2020
15,282

2021
15,133

2022
15,026

2023
15,005

Thereafter
685,974

Total lease payments
$
754,220

Less: interest
(552,122
)
Present value of lease liabilities
$
202,098



As a result of transitioning from the guidance in ASC 840 to ASC 842, the Company's annual minimum lease payments did not change.

Lease Expense

Operating lease costs represent the entire amount of expense recognized for operating leases that are recorded on the condensed consolidated balance sheet. Variable lease costs are not included in the measurement of the lease liability and include both lease payments tied to a property's performance and changes in an index such as the CPI that are not determinable at lease commencement, while short-term lease costs are costs for those operating leases with a term of 12 months or less.

The components of lease expense were as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
(in thousands)
Operating lease cost
$
3,920

 
$
7,813

Variable lease cost
2,068

 
4,504

Short-term lease cost
273

 
511

Amortization of land right assets
9,406

 
12,496

Total lease cost
$
15,667

 
$
25,324



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 are recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income, while a small portion of operating lease costs is also recorded in both gaming, food, beverage and other expense and general and administrative expense in the condensed consolidated statements of income. Amortization expense related to the land right intangibles totaled $2.7 million and $5.5 million for the three and six months ended June 30, 2018, respectively, while other lease costs totaled $4.2 million and $8.5 million, respectively for the same periods.

Supplemental Disclosures Related to Leases

Supplemental balance sheet information related to the Company's operating leases was as follows:
 
June 30, 2019
Weighted average remaining lease term - operating leases
51.39 years
Weighted average discount rate - operating leases
6.7%




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Supplemental cash flow information related to the Company's operating leases was as follows:
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
 
(in thousands)
Cash paid for amounts included in the measurement of leases liabilities:
 
 
 
  Operating cash flows from operating leases (1)
$
555

 
$
1,111

 
 
 
 
Right-of-use assets obtained in exchange for new lease obligations:
 
 
 
   Operating leases
$
287

 
$
287


(1) The Company's cash paid for operating leases is significantly less than the lease cost for the same period due to the majority of the Company's ground lease rent being paid directly to the landlords by the Company's tenants. Although GLPI expends no cash related to these leases, they are required to be grossed up in the Company's financial statements under ASC 842.

8.              Long-term Debt
 
Long-term debt is as follows: 
 
June 30,
2019
 
December 31,
2018
 
(in thousands)
Unsecured $1,175 million revolver
$
340,000

 
$
402,000

Unsecured term loan A-1
525,000

 
525,000

$1,000 million 4.875% senior unsecured notes due November 2020
1,000,000

 
1,000,000

$400 million 4.375% senior unsecured notes due April 2021
400,000

 
400,000

$500 million 5.375% senior unsecured notes due November 2023
500,000

 
500,000

$850 million 5.25% senior unsecured notes due June 2025
850,000

 
850,000

$975 million 5.375% senior unsecured notes due April 2026
975,000

 
975,000

$500 million 5.75% senior unsecured notes due June 2028
500,000

 
500,000

$750 million 5.30% senior unsecured notes due January 2029
750,000

 
750,000

Finance lease liability
1,052

 
1,112

Total long-term debt
5,841,052

 
5,903,112

Less: unamortized debt issuance costs, bond premiums and original issuance discounts
(44,062
)
 
(49,615
)
Total long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
$
5,796,990

 
$
5,853,497



The following is a schedule of future minimum repayments of long-term debt as of June 30, 2019 (in thousands): 
Within one year
$
126

2-3 years
1,925,271

4-5 years
840,298

Over 5 years
3,075,357

Total minimum payments
$
5,841,052


 
Senior Unsecured Credit Facility

The Company's senior unsecured credit facility (the "Credit Facility") consists of a $1,175 million revolving credit facility and a $525 million Term Loan A-1 facility. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021.

At June 30, 2019, the Credit Facility had a gross outstanding balance of $865 million, consisting of the $525 million Term Loan A-1 facility and $340 million of borrowings under the revolving credit facility. Additionally, at June 30, 2019, the Company was contingently obligated under letters of credit issued pursuant to the Credit Facility with face amounts

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aggregating approximately $0.4 million, resulting in $834.6 million of available borrowing capacity under the revolving credit facility as of June 30, 2019.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At June 30, 2019, the Company was in compliance with all required financial covenants under the Credit Facility.

Senior Unsecured Notes

 At June 30, 2019, the Company had $4,975 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, 2019, the Company was in compliance with all required financial covenants under its Senior Notes.

Finance Lease Liability

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

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.






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Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.

Cash and Cash Equivalents
 
The fair value of the Company’s cash and cash equivalents approximates the carrying value of the Company’s cash and cash equivalents, due to the short maturity of the cash equivalents.

Deferred Compensation Plan Assets

The Company's deferred compensation plan assets consist of open-ended mutual funds and as such the fair value measurement of the assets is considered a Level 1 measurement as defined under ASC 820. Deferred compensation plan assets are included within other assets on the condensed consolidated balance sheets.

Mortgage Loans Receivable

The fair value of the mortgage loans receivable approximates the carrying value of the Company's mortgage loans receivable, as collection on the outstanding loan balances is reasonably assured. The fair value measurement of the mortgage loans receivable is considered a Level 3 measurement as defined under ASC 820.

Long-term Debt
 
The fair value of the Senior Notes and senior unsecured credit facility is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial assets:
 

 
 

 
 

 
 

Cash and cash equivalents
24,739

 
24,739

 
25,783

 
25,783

Deferred compensation plan assets
26,896

 
26,896

 
22,709

 
22,709

Mortgage loans receivable
303,684

 
303,684

 
303,684

 
303,684

Financial liabilities:
 

 
 

 
 

 
 

Long-term debt:
 

 
 

 
 

 
 

Senior unsecured credit facility
865,000

 
859,750

 
927,000

 
909,308

Senior unsecured notes
4,975,000

 
5,316,563

 
4,975,000

 
4,958,455



Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition. Assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2019 are categorized in the table below based upon the lowest level of significant input to the valuation. There were no assets measured at fair value on a nonrecurring basis during the six months ended June 30, 2018 or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2019 and 2018. 
 
Level 1
 
Level 2
 
Level 3
 
Total Impairment Charges Recorded during the Six Months Ended June 30, 2019
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Loan receivable

 

 

 
13,000

Total assets measured at fair value on a nonrecurring basis
$

 
$

 
$

 
$
13,000



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Loan Receivable

During the first quarter of 2019, the Company recorded an impairment charge of $13.0 million related to the write-off of the principal due to the Company under its unsecured loan to CQ Holding Company. The Company no longer expects the proceeds from the sale of the operating assets of Casino Queen to generate enough cash to repay all of Casino Queen's creditors, including the Company. Thus, because the Company does not expect Casino Queen to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the six months ended June 30, 2019 to reflect the write-off of the Casino Queen loan. See Note 6 for further details surrounding the Casino Queen loan.

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 or results of operations. Further, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. 

11. Revenue Recognition

As of June 30, 2019, 20 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, 5 of the Company's real estate investment properties were leased to a subsidiary of Eldorado under the Eldorado Master Lease and 3 of the Company's real estate investment properties were leased to a subsidiary of Boyd under the Boyd Master Lease. Additionally, the Meadows real estate assets are leased to Penn under a single property triple-net lease and the Casino Queen real estate assets are leased back to the operator under an additional single property triple-net lease.

The obligations under the Penn and Amended Pinnacle Master Leases are guaranteed by Penn and, with respect to each lease, by Penn's subsidiaries that occupy and operate the facilities covered by such lease. As a result, the tenant’s obligations under each of the Penn Master Lease and Amended Pinnacle Master Lease are jointly and severally guaranteed by Penn as the ultimate parent company and by each of its subsidiaries benefiting from the applicable lease. Similarly, the obligations under the Eldorado Master Lease are jointly and severally guaranteed by Eldorado and by most of Eldorado's subsidiaries that occupy and operate the facilities leased under the Eldorado Master Lease. The obligations under the Boyd Master Leases are jointly and severally guaranteed by Boyd's subsidiaries that occupy and operate the facilities leased under the Boyd Master Lease.
The Company recognizes rental revenue from tenants, including rental abatements, lease incentives and contractually fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectability is reasonably assured. Additionally, percentage rent that is fixed and determinable at the lease inception date is recorded on a straight-line basis over the lease term, resulting in the recognition of deferred rental revenue on the Company’s condensed consolidated balance sheets. Deferred rental revenue is amortized to rental revenue on a straight-line basis over the remainder of the lease term. The lease term includes the initial non-cancelable lease term and any reasonably assured renewable periods. Contingent rental income that is not fixed and determinable at lease inception is recognized only when the lessee achieves the specified target. Recognition of rental income commences when control of the facility has been transferred to the tenant.

The Company’s triple-net tenant leases all contain a fixed component, a portion of which is subject to an annual escalator (typically 2%) if certain rent coverage ratio thresholds are met and a component that is based on the performance of the facilities subject to such lease, which is adjusted, subject to certain floors, every 2 to 5 years to an amount equal to 4% of the average annual net revenues of all facilities under the related tenant lease during the preceding 2 to 5 years ("percentage rent"). The Penn Master Lease also provides for a component that is based on the performance of two Ohio facilities, which is adjusted, subject to certain floors monthly by an amount equal to 20% of the net revenues of Hollywood Casino Columbus and Hollywood Casino Toledo (together, the "Ohio Properties") during the preceding month. Furthermore, the Company's master

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leases provide for a floor on the percentage rent described above, should the Company's tenants acquire or commence operating a competing facility within a restricted area (typically 60 miles from a property under the existing master lease with such tenant). These clauses provide landlord protections by basing the percentage rent floor for any affected facility on the net revenues of such facility for the calendar year immediately preceding the year in which the competing facility is acquired or first operated by the tenant.

In 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.

Additionally, in accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the condensed consolidated statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.

The Company determined, based on facts and circumstances prevailing at the time of each lease's inception, that neither Penn nor Casino Queen could continue as a going concern without the property(ies) that are leased to them under the respective master lease agreement (in the instance of Penn) and single property lease (in the instance of Casino Queen) with the Company. At lease inception, all of Casino Queen's revenues and substantially all of Penn's revenues were generated from operations in connection with the leased properties. There are also various legal restrictions in the jurisdictions in which Penn, and Casino Queen operate that limit the availability and location of gaming facilities, which makes relocation or replacement of the leased gaming facilities restrictive and potentially impracticable or unavailable. Moreover, under the terms of the master lease, Penn 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 lease 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 Penn Master Lease and the Casino Queen Lease is 35 years, equal to the initial 15-year term plus all four of the 5-year renewal options.

On October 15, 2018, in conjunction with the Penn-Pinnacle Merger, the Pinnacle Master Lease was amended by a fourth amendment to such lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd. As a result of this amendment, the Company reassessed the lease's classification and determined the new lease agreement qualified for operating lease treatment under ASC 840. Therefore, subsequent to the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety. Because the properties under the Amended Pinnacle Master Lease, do not represent a meaningful portion of Penn's business at the time Penn assumed the lease, the Company has concluded that the lease term of the Amended Pinnacle Master Lease is 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease), equal to the initial 10-year term only.

Subsequent to purchasing the majority of Pinnacle's real estate assets and leasing them back to Pinnacle, the Company entered into a separate triple-net lease with Pinnacle to lease the Meadows real estate assets to Pinnacle. Because this lease involved only a single property within Pinnacle's portfolio, GLPI concluded it was not reasonably assured at lease inception that Pinnacle would elect to exercise all lease renewal options. Therefore, the Company concluded that the lease term of the Meadows Lease is 10 years, equal to the initial 10-year term only. In conjunction with the Penn-Pinnacle Merger, Penn assumed the Meadows Lease. 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 Eldorado or Boyd would elect to exercise all lease renewal options under their respective master leases. The properties under each master lease do not represent a meaningful portion of either tenant's business at lease inception; therefore the Company has concluded that the lease term of the Eldorado Master Lease is 15 years and the lease term of the Boyd Master Lease is 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease), equal to the initial terms of such master leases only.





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Details of the Company's rental income for the three and six months ended June 30, 2019 was as follows (in thousands):
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Building base rent (1)
$
164,270

 
$
327,607

Land base rent
47,543

 
94,984

Percentage rent
40,062

 
79,838

Total cash rental income
$
251,875

 
$
502,429

Straight-line rent adjustments
(8,643
)
 
(17,287
)
Ground rent in revenue
5,188

 
10,751

Other rental revenue
143

 
348

Total rental income
$
248,563

 
$
496,241



(1) Building base rent is subject to the annual rent escalators described above.
The Company may periodically loan funds to casino owner-operators pursuant to secured mortgage loans for the purchase of gaming related properties. Interest income related to mortgage loans receivable is recorded as revenue from mortgaged real estate within the Company's condensed consolidated statements of income in the period earned. At June 30, 2019, the Company had financial interests in two casino properties, Belterra Park and Lumière Place, pursuant to the secured mortgage loans made by the Company to the respective casino owner-operators, Boyd and Eldorado.
Gaming revenue generated by the TRS Properties mainly consists of revenue from slot machines, and to a lesser extent, table game and poker revenue. Gaming revenue from slot machines is the aggregate net difference between gaming wins and losses with liabilities recognized for funds deposited by customers before gaming play occurs, for "ticket-in, ticket-out" coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increases. Table game gaming revenue is the aggregate of table drop adjusted for the change in aggregate table chip inventory. Table drop is the total dollar amount of the currency, coins, chips, tokens, outstanding counter checks (markers), and front money that are removed from the live gaming tables. Additionally, food and beverage revenue is recognized as services are performed.

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 defers a portion of the revenue received from customers (who participate in the points-based loyalty programs) at the time of play and attributed to the awarded points until a later period when the points are redeemed or forfeited.

For the TRS Properties, the Company is subject to gaming taxes based on gross gaming revenues in the jurisdictions in which it operates. The Company recognizes gaming tax expense based on the statutorily required percentage of revenue that is required to be paid to state and local jurisdictions in the states where wagering occurs. The Company records gaming taxes at the Company’s estimated effective gaming tax rate for the year, considering estimated taxable gaming revenue and the applicable rates. Such estimates are adjusted each interim period. If gaming tax rates change during the year, such changes are applied prospectively in the determination of gaming tax expense in future interim periods.  For the three and six months ended June 30, 2019, these expenses, which are recorded within gaming, food, beverage and other expense in the condensed consolidated statements of income, totaled $14.2 million and $28.2 million, respectively, as compared to $15.1 million and $29.3 million for the three and six months ended June 30, 2018, respectively.

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. In accordance with ASC 260, the Company includes all performance-based restricted shares that would have vested based upon the Company’s performance at quarter-end in the

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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, 2019 and 2018
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Determination of shares:
 

 
 

 
 

 
 

Weighted-average common shares outstanding
214,664

 
213,579

 
214,645

 
213,442

Assumed conversion of dilutive employee stock-based awards

 
262

 

 
325

Assumed conversion of restricted stock awards
103

 
62

 
80

 
50

Assumed conversion of performance-based restricted stock awards
838

 
658

 
795

 
689

Diluted weighted-average common shares outstanding
215,605

 
214,561

 
215,520

 
214,506



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, 2019 and 2018
        
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands, except per share and share data)
Calculation of basic EPS:
 

 
 

 
 

 
 

Net income
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

Less: Net income allocated to participating securities
(146
)
 
(129
)
 
(291
)
 
(265
)
Net income attributable to common shareholders
$
92,887

 
$
91,869

 
$
185,752

 
$
188,505

Weighted-average common shares outstanding
214,664

 
213,579

 
214,645

 
213,442

Basic EPS
$
0.43

 
$
0.43

 
$
0.87

 
$
0.88

 
 
 
 
 
 
 
 
Calculation of diluted EPS:
 

 
 

 
 

 
 

Net income
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

Diluted weighted-average common shares outstanding
215,605

 
214,561

 
215,520

 
214,506

Diluted EPS
$
0.43

 
$
0.43

 
$
0.86

 
$
0.88

 
 
 
 
 
 
 
 
Antidilutive securities excluded from the computation of diluted earnings per share (in shares)

 
169,324

 
1,397

 
195,529


















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13.              Shareholders' Equity

Dividends

The following table lists the dividends declared and paid by the Company during the six months ended June 30, 2019 and 2018:
Declaration Date
 
Shareholder Record Date
 
Securities Class
 
Dividend Per Share
 
Period Covered
 
Distribution Date
 
Dividend Amount
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
2019
 
 
 
 
 
 
 
 
 
 
 
 
February 20, 2019
 
March 8, 2019
 
Common Stock
 
$
0.68

 
First Quarter 2019
 
March 22, 2019
 
$
145,954

May 28, 2019
 
June 14, 2019
 
Common Stock
 
$
0.68

 
Second Quarter 2019
 
June 28, 2019
 
$
145,985

 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
February 1, 2018
 
March 9, 2018
 
Common Stock
 
$
0.63

 
First Quarter 2018
 
March 23, 2018
 
$
134,490

April 24, 2018
 
June 15, 2018
 
Common Stock
 
$
0.63

 
Second Quarter 2018
 
June 29, 2018
 
$
134,631



In addition, for both the three and six months ended June 30, 2019 and 2018, dividend payments were made to GLPI restricted stock award holders in the amount of $0.2 million and $0.4 million, respectively.

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, 2019, there was $8.5 million of total unrecognized compensation cost for restricted stock awards that will be recognized over the grants' remaining weighted average vesting period of 1.77 years. For the three and six months ended June 30, 2019, the Company recognized $2.1 million and $4.1 million, respectively, of compensation expense associated with these awards, compared to $1.0 million and $2.4 million, for the three and six months ended June 30, 2018, respectively.

The following table contains information on restricted stock award activity for the six months ended June 30, 2019:
 
Number of Award
Shares
Outstanding at December 31, 2018
299,642

Granted
317,290

Released
(280,386
)
Canceled

Outstanding at June 30, 2019
336,546


 
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, 2019, there was $13.2 million of total unrecognized compensation cost, which will be recognized over the performance-based restricted stock awards' remaining weighted average vesting period of 1.98 years.  For the three and six months ended June 30, 2019, the Company recognized $2.1 million and $4.4 million, respectively, of compensation

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expense associated with these awards, compared to a reversal of $0.4 million of expense and the recognition of $2.2 million of expense for the three and six months ended June 30, 2018, respectively.

The following table contains information on performance-based restricted stock award activity for the six months ended June 30, 2019:
 
Number of  Performance-Based Award Shares
Outstanding at December 31, 2018
1,342,000

Granted
512,000

Released
(447,334
)
Canceled 
(23,332
)
Outstanding at June 30, 2019
1,383,334



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 two reportable segments, GLP Capital, L.P. (a wholly-owned subsidiary of GLPI through which GLPI owns substantially all of its assets) ("GLP Capital") and the TRS Properties. The GLP Capital reportable segment consists of the leased real property and represents the majority of the Company’s business. The TRS Properties reportable segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge.

The following tables present certain information with respect to the Company’s segments.
 
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
(in thousands)
 
GLP Capital (1)
 
TRS Properties
 
Total
 
GLP Capital (1)
 
TRS Properties
 
Total
Total revenues
 
$
255,764

 
$
33,249

 
$
289,013

 
218,332

 
35,889

 
254,221

Income from operations
 
164,068

 
6,699

 
170,767

 
146,133

 
7,108

 
153,241

Interest expense
 
73,921

 
2,602

 
76,523

 
54,453

 
2,602

 
57,055

Income before income taxes
 
90,394

 
4,098

 
94,492

 
89,098

 
4,506

 
93,604

Income tax expense
 
197

 
1,262

 
1,459

 
228

 
1,378

 
1,606

Net income
 
90,197

 
2,836

 
93,033

 
88,870

 
3,128

 
91,998

Depreciation
 
66,067

 
1,798

 
67,865

 
25,172

 
2,351

 
27,523

Capital project expenditures
 

 

 

 
14

 

 
14

Capital maintenance expenditures
 
2

 
1,015

 
1,017

 
3

 
1,159

 
1,162

 
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
(in thousands)
 
GLP Capital (1)
 
TRS Properties
 
Total
 
GLP Capital (1)
 
TRS Properties
 
Total
Total revenues
 
$
510,635

 
$
66,242

 
$
576,877

 
$
427,636

 
$
70,635

 
$
498,271

Income from operations
 
328,937

 
12,605

 
341,542

 
291,007

 
14,085

 
305,092

Interest expense
 
148,048

 
5,203

 
153,251

 
105,920

 
5,203

 
111,123

Income before income taxes
 
181,225

 
7,403

 
188,628

 
182,985

 
8,883

 
191,868

Income tax expense
 
265

 
2,320

 
2,585

 
399

 
2,699

 
3,098

Net income
 
180,960

 
5,083

 
186,043

 
182,586

 
6,184

 
188,770

Depreciation
 
122,242

 
4,201

 
126,443

 
50,787

 
4,690

 
55,477

Capital project expenditures
 

 

 

 
14

 

 
14

Capital maintenance expenditures
 
4

 
1,543

 
1,547

 
51

 
1,933

 
1,984

 

(1)              Interest expense is net of intercompany interest eliminations of $2.6 million and $5.2 million for both the three and six months ended June 30, 2019 and 2018, respectively.






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16.       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,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Cash paid for income taxes, net of refunds received
$
2,684

 
$
2,650

 
$
2,684

 
$
2,672

Cash paid for interest
118,481

 
93,861

 
139,331

 
102,410



Noncash Investing and Financing Activities

On January 1, 2019, in conjunction with its adoption of ASU 2016-02, the Company recorded right-of-use assets and related lease liabilities of $203 million on its condensed consolidated balance sheet to represent its rights to underlying assets and future lease obligations. The Company did not engage in any other noncash investing and financing activities during the six months ended June 30, 2019 and 2018.

17.       Supplementary Condensed Consolidating Financial Information of Parent Guarantor and Subsidiary Issuers
 
GLPI guarantees the Senior Notes issued by its subsidiaries, GLP Capital, L.P. and GLP Financing II, Inc. Each of the subsidiary issuers is 100% owned by GLPI. The guarantees of GLPI are full and unconditional. GLPI is not subject to any material or significant restrictions on its ability to obtain funds from its subsidiaries by dividend or loan or to transfer assets from such subsidiaries, except as provided by applicable law. None of GLPI's other subsidiaries guarantee the Senior Notes.
 
Summarized balance sheets as of June 30, 2019 and December 31, 2018 and statements of income and cash flows for the three and six months ended June 30, 2019 and 2018 for GLPI as the parent guarantor, for GLP Capital, L.P. and GLP Financing II, Inc. as the subsidiary issuers and the other subsidiary non-issuers is presented below.
 

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At June 30, 2019
Condensed Consolidating Balance Sheet
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
2,570,516

 
$
4,639,512

 
$

 
$
7,210,028

Property and equipment, used in operations, net
 

 
17,583

 
79,636

 

 
97,219

Mortgage loans receivable
 

 
246,000

 
57,684

 

 
303,684

Right-of-use assets and land rights, net
 

 
200,793

 
662,134

 

 
862,927

Cash and cash equivalents
 

 
3,229

 
21,510

 

 
24,739

Prepaid expenses
 

 
1,820

 
762

 
361

 
2,943

Goodwill
 

 

 
16,067

 

 
16,067

Other intangible assets
 

 

 
9,577

 

 
9,577

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
2,158,687

 
5,156,092

 
2,587,975

 
(9,902,754
)
 

Deferred tax assets
 

 

 
5,721

 

 
5,721

Other assets
 

 
28,834

 
2,125

 

 
30,959

Total assets
 
$
2,158,687

 
$
8,418,462

 
$
8,082,703

 
$
(10,095,988
)
 
$
8,563,864

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
119

 
$
52

 
$

 
$
171

Accrued expenses
 

 
1,016

 
5,762

 

 
6,778

Accrued interest
 

 
53,340

 

 

 
53,340

Accrued salaries and wages
 

 
6,187

 
1,933

 

 
8,120

Gaming, property, and other taxes
 

 
287

 
679

 

 
966

Income taxes
 

 
(73
)
 
(288
)
 
361

 

Lease liabilities
 

 
107,611

 
94,487

 

 
202,098

Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
 

 
5,796,990

 

 

 
5,796,990

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred rental revenue
 

 
270,511

 
40,687

 

 
311,198

Deferred tax liabilities
 

 

 
233

 


 
233

Other liabilities
 

 
23,787

 
1,496

 

 
25,283

Total liabilities
 

 
6,259,775

 
338,636

 
(193,234
)
 
6,405,177

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity (deficit)
 
 

 
 

 
 

 
 

 
 

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2019)
 

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 214,673,135 shares issued and outstanding at June 30, 2019)
 
2,147

 
2,147

 
2,147

 
(4,294
)
 
2,147

Additional paid-in capital
 
3,951,949

 
3,951,950

 
9,832,276

 
(13,784,226
)
 
3,951,949

Retained accumulated (deficit) earnings
 
(1,795,409
)
 
(1,795,410
)
 
(2,090,356
)
 
3,885,766

 
(1,795,409
)
Total shareholders’ equity (deficit)
 
2,158,687

 
2,158,687

 
7,744,067

 
(9,902,754
)
 
2,158,687

Total liabilities and shareholders’ equity (deficit)
 
$
2,158,687

 
$
8,418,462

 
$
8,082,703

 
$
(10,095,988
)
 
$
8,563,864


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Table of Contents

Three months ended June 30, 2019
Condensed Consolidating Statement of Income
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
138,135

 
$
110,428

 
$

 
$
248,563

Interest income from mortgaged real estate
 

 
5,590

 
1,611

 

 
7,201

Total income from real estate
 

 
143,725

 
112,039

 

 
255,764

Gaming, food, beverage and other
 

 

 
33,249

 

 
33,249

Total revenues
 

 
143,725

 
145,288

 

 
289,013

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming, food, beverage and other
 

 

 
19,168

 

 
19,168

Land rights and ground lease expense
 

 
10,770

 
4,459

 

 
15,229

General and administrative
 

 
10,335

 
5,649

 

 
15,984

Depreciation
 

 
38,911

 
28,954

 

 
67,865

Total operating expenses
 

 
60,016

 
58,230

 

 
118,246

Income from operations
 

 
83,709

 
87,058

 

 
170,767

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 

Interest expense
 

 
(76,523
)
 

 

 
(76,523
)
Interest income
 

 
248

 

 

 
248

Intercompany dividends and interest
 

 
128,514

 
4,999

 
(133,513
)
 

Total other income (expenses)
 

 
52,239

 
4,999

 
(133,513
)
 
(76,275
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
135,948

 
92,057

 
(133,513
)
 
94,492

Income tax expense
 

 
196

 
1,263

 

 
1,459

Net income (loss)
 
$

 
$
135,752

 
$
90,794

 
$
(133,513
)
 
$
93,033




26

Table of Contents

Six months ended June 30, 2019
Condensed Consolidating Statement of Income
 
Parent 
Guarantor
 
Subsidiary 
Issuers
 
Other 
Subsidiary 
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
276,388

 
$
219,853

 
$

 
$
496,241

Interest income from mortgage real estate
 

 
11,181

 
3,213

 

 
14,394

Total income from real estate
 

 
287,569

 
223,066

 

 
510,635

Gaming, food, beverage and other
 

 

 
66,242

 

 
66,242

Total revenues
 

 
287,569

 
289,308

 

 
576,877

Operating expenses
 
 

 
 

 
 

 
 

 
 

Gaming, food, beverage and other
 

 

 
38,190

 

 
38,190

Land rights and ground lease expense
 

 
15,494

 
8,984

 

 
24,478

General and administrative
 

 
21,847

 
11,377

 

 
33,224

Depreciation
 

 
67,698

 
58,745

 

 
126,443

Loan impairment charges
 

 

 
13,000

 

 
13,000

Total operating expenses
 

 
105,039

 
130,296

 

 
235,335

Income from operations
 

 
182,530

 
159,012

 

 
341,542

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 

Interest expense
 

 
(153,251
)
 

 

 
(153,251
)
Interest income
 

 
337

 

 

 
337

Intercompany dividends and interest
 

 
247,908

 
3,428

 
(251,336
)
 

Total other income (expenses)
 

 
94,994

 
3,428

 
(251,336
)
 
(152,914
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
277,524

 
162,440

 
(251,336
)
 
188,628

Income tax expense
 

 
265

 
2,320

 

 
2,585

Net income (loss)
 
$

 
$
277,259

 
$
160,120

 
$
(251,336
)
 
$
186,043


27

Table of Contents

Six months ended June 30, 2019
Condensed Consolidating Statement of Cash Flows
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating activities
 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
$

 
$
277,259

 
$
160,120

 
$
(251,336
)
 
$
186,043

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

 
 

 
 

 
 

 
 

Depreciation and amortization
 

 
75,572

 
63,367

 

 
138,939

Amortization of debt issuance costs, bond premiums and original issuance discounts
 

 
5,790

 

 

 
5,790

Losses on dispositions of property
 

 
7

 
6

 

 
13

Deferred income taxes
 

 

 
(466
)
 

 
(466
)
Stock-based compensation
 

 
8,508

 

 

 
8,508

Straight-line rent adjustments
 

 
1,326

 
15,961

 

 
17,287

Loan impairment charges
 

 

 
13,000

 

 
13,000

 
 
 
 
 
 
 
 
 
 
 
(Increase) decrease,
 
 

 
 

 
 

 
 

 
 
Prepaid expenses and other assets
 

 
(2,999
)
 
37

 
650

 
(2,312
)
Intercompany
 

 
(79
)
 
79

 

 

Increase (decrease),
 
 

 
 

 
 

 
 

 
 
Accounts payable
 

 
(2,350
)
 
10

 

 
(2,340
)
Accrued expenses
 

 
478

 
827

 

 
1,305

Accrued interest
 

 
8,079

 

 

 
8,079

Accrued salaries and wages
 

 
(8,441
)
 
(449
)
 

 
(8,890
)
Gaming, property and other taxes
 

 
(142
)
 
44

 

 
(98
)
Income taxes
 

 
(71
)
 
721

 
(650
)
 

Other liabilities
 

 
(749
)
 
(28
)
 

 
(777
)
Net cash provided by (used in) operating activities
 

 
362,188

 
253,229

 
(251,336
)
 
364,081

Investing activities
 
 

 
 

 
 

 
 

 
 

Capital maintenance expenditures
 

 
(4
)
 
(1,543
)
 

 
(1,547
)
Proceeds from sale of property and equipment
 

 
182

 
8

 

 
190

Net cash provided by (used in) investing activities
 

 
178

 
(1,535
)
 

 
(1,357
)
Financing activities
 
 

 
 

 
 

 
 

 
 

Dividends paid
 
(292,414
)
 

 

 

 
(292,414
)
Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options
 
(9,057
)
 

 

 

 
(9,057
)
Proceeds from issuance of long-term debt
 

 
155,000

 

 

 
155,000

Financing costs
 

 
(236
)
 

 

 
(236
)
Repayments of long-term debt
 

 
(217,061
)
 

 

 
(217,061
)
Intercompany financing
 
301,471

 
(301,472
)
 
(251,335
)
 
251,336

 

Net cash (used in) provided by financing activities
 

 
(363,769
)
 
(251,335
)
 
251,336

 
(363,768
)
Net (decrease) increase in cash and cash equivalents
 

 
(1,403
)
 
359

 

 
(1,044
)
Cash and cash equivalents at beginning of period
 

 
4,632

 
21,151

 

 
25,783

Cash and cash equivalents at end of period
 
$

 
$
3,229

 
$
21,510

 
$

 
$
24,739



28

Table of Contents

At December 31, 2018
Condensed Consolidating Balance Sheet
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Assets
 
 

 
 

 
 

 
 

 
 

Real estate investments, net
 
$

 
$
2,637,404

 
$
4,694,056

 
$

 
$
7,331,460

Land rights, net
 

 
100,938

 
572,269

 

 
673,207

Property and equipment, used in operations, net
 

 
18,577

 
82,307

 

 
100,884

Mortgage loans receivable
 

 
246,000

 
57,684

 

 
303,684

Cash and cash equivalents
 

 
4,632

 
21,151

 

 
25,783

Prepaid expenses
 

 
27,071

 
2,885

 
1,011

 
30,967

Goodwill
 

 

 
16,067

 

 
16,067

Other intangible assets
 

 

 
9,577

 

 
9,577

Loan receivable
 

 

 
13,000

 

 
13,000

Intercompany loan receivable
 

 
193,595

 

 
(193,595
)
 

Intercompany transactions and investment in subsidiaries
 
2,265,607

 
5,247,229

 
2,697,241

 
(10,210,077
)
 

Deferred tax assets
 

 

 
5,178

 

 
5,178

Other assets
 

 
47,378

 
20,108

 

 
67,486

Total assets
 
$
2,265,607

 
$
8,522,824

 
$
8,191,523

 
$
(10,402,661
)
 
$
8,577,293

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Accounts payable
 
$

 
$
2,469

 
$
42

 
$

 
$
2,511

Accrued expenses
 

 
23,587

 
6,710

 

 
30,297

Accrued interest
 

 
45,261

 

 

 
45,261

Accrued salaries and wages
 

 
14,628

 
2,382

 

 
17,010

Gaming, property, and other taxes
 

 
24,055

 
18,824

 

 
42,879

Income taxes
 

 
(2
)
 
(1,009
)
 
1,011

 

Long-term debt, net of unamortized debt issuance costs, bond premiums and original issuance discounts
 

 
5,853,497

 

 

 
5,853,497

Intercompany loan payable
 

 

 
193,595

 
(193,595
)
 

Deferred rental revenue
 

 
269,185

 
24,726

 

 
293,911

Deferred tax liabilities
 

 

 
261

 

 
261

Other liabilities
 

 
24,536

 
1,523

 

 
26,059

Total liabilities
 

 
6,257,216

 
247,054

 
(192,584
)
 
6,311,686

 
 
 
 
 
 
 
 
 
 
 
Shareholders’ equity (deficit)
 
 

 
 

 
 

 
 

 
 

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at December 31, 2018)
 

 

 

 

 

Common stock ($.01 par value, 500,000,000 shares authorized, 214,211,932 shares issued and outstanding at December 31, 2018)
 
2,142

 
2,142

 
2,142

 
(4,284
)
 
2,142

Additional paid-in capital
 
3,952,503

 
3,952,506

 
9,832,830

 
(13,785,336
)
 
3,952,503

Retained accumulated (deficit) earnings
 
(1,689,038
)
 
(1,689,040
)
 
(1,890,503
)
 
3,579,543

 
(1,689,038
)
Total shareholders’ equity (deficit)
 
2,265,607

 
2,265,608

 
7,944,469

 
(10,210,077
)
 
2,265,607

Total liabilities and shareholders’ equity (deficit)
 
$
2,265,607

 
$
8,522,824

 
$
8,191,523

 
$
(10,402,661
)
 
$
8,577,293


29

Table of Contents

Three months ended June 30, 2018
Condensed Consolidating Statement of Income
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-
Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
101,767

 
$
68,098

 
$

 
$
169,865

Income from direct financing lease
 

 

 
26,984

 

 
26,984

Real estate taxes paid by tenants
 

 
11,176

 
10,307

 

 
21,483

Total income from real estate
 

 
112,943

 
105,389

 

 
218,332

Gaming, food, beverage and other
 

 

 
35,889

 

 
35,889

Total revenues
 

 
112,943

 
141,278

 

 
254,221

Operating expenses
 
 

 
 

 
 

 
 

 
 
Gaming, food, beverage and other
 

 

 
20,407

 

 
20,407

Real estate taxes
 

 
11,195

 
10,605

 

 
21,800

Land rights and ground lease expense
 

 
1,929

 
4,515

 

 
6,444

General and administrative
 

 
19,016

 
5,790

 

 
24,806

Depreciation
 

 
23,190

 
4,333

 

 
27,523

Total operating expenses
 

 
55,330

 
45,650

 

 
100,980

Income from operations
 

 
57,613

 
95,628

 

 
153,241

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 
Interest expense
 

 
(57,055
)
 

 

 
(57,055
)
Interest income
 

 
404

 
487

 

 
891

Losses on debt extinguishment
 

 
(3,473
)
 

 

 
(3,473
)
Intercompany dividends and interest
 

 
109,988

 
4,898

 
(114,886
)
 

Total other income (expenses)
 

 
49,864

 
5,385

 
(114,886
)
 
(59,637
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
107,477

 
101,013

 
(114,886
)
 
93,604

Income tax expense
 

 
228

 
1,378

 

 
1,606

Net income (loss)
 
$

 
$
107,249

 
$
99,635

 
$
(114,886
)
 
$
91,998




30

Table of Contents

Six months ended June 30, 2018
Condensed Consolidating Statement of Income
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-
Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Revenues
 
 

 
 

 
 

 
 

 
 

Rental income
 
$

 
$
203,587

 
$
135,683

 
$

 
$
339,270

Income from direct financing lease
 

 

 
45,605

 

 
45,605

Real estate taxes paid by tenants
 

 
22,076

 
20,685

 

 
42,761

Total income from real estate
 

 
225,663

 
201,973

 

 
427,636

Gaming, food, beverage and other
 

 

 
70,635

 

 
70,635

Total revenues
 

 
225,663

 
272,608

 

 
498,271

Operating expenses
 
 

 
 

 
 

 
 

 
 
Gaming, food, beverage and other
 

 

 
40,065

 

 
40,065

Real estate taxes
 

 
22,114

 
21,281

 

 
43,395

Land rights and ground lease expense
 

 
3,948

 
9,028

 

 
12,976

General and administrative
 

 
29,937

 
11,329

 

 
41,266

Depreciation
 

 
46,791

 
8,686

 

 
55,477

Total operating expenses
 

 
102,790

 
90,389

 

 
193,179

Income from operations
 

 
122,873

 
182,219

 

 
305,092

 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 

 
 

 
 

 
 

 
 
Interest expense
 

 
(111,123
)
 

 

 
(111,123
)
Interest income
 

 
404

 
968

 

 
1,372

Losses on debt extinguishment
 

 
(3,473
)
 

 

 
(3,473
)
Intercompany dividends and interest
 

 
217,091

 
4,583

 
(221,674
)
 

Total other income (expenses)
 

 
102,899

 
5,551

 
(221,674
)
 
(113,224
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 

 
225,772

 
187,770

 
(221,674
)
 
191,868

Income tax expense
 

 
399

 
2,699

 

 
3,098

Net income (loss)
 
$

 
$
225,373

 
$
185,071

 
$
(221,674
)
 
$
188,770

























31

Table of Contents

Six months ended June 30, 2018
Condensed Consolidating Statement of Cash Flows
 
Parent
Guarantor
 
Subsidiary
Issuers
 
Other
Subsidiary
Non-Issuers
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating activities
 
 

 
 

 
 

 
 

 
 

Net income (loss)
 
$

 
$
225,373

 
$
185,071

 
$
(221,674
)
 
$
188,770

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

 
 

 
 

 
 

 
 

Depreciation and amortization
 

 
47,624

 
13,308

 

 
60,932

Amortization of debt issuance costs
 

 
6,296

 

 

 
6,296

Losses on dispositions of property
 

 
(9
)
 
234

 

 
225

Deferred income taxes
 

 

 
(117
)
 

 
(117
)
Stock-based compensation
 

 
4,603

 

 

 
4,603

Straight-line rent adjustments
 

 
28,655

 
4,578

 

 
33,233

Losses on debt extinguishment
 

 
3,473

 

 

 
3,473

 
 
 
 
 
 
 
 
 
 
 
(Increase) decrease,
 
 

 
 

 
 

 
 

 
 
Prepaid expenses and other assets
 

 
(2,146
)
 
(50
)
 
1,073

 
(1,123
)
     Intercompany
 

 
183

 
(183
)
 

 

(Decrease) increase,
 
0

 
0

 
 

 
0

 
 
Accounts payable
 

 
(450
)
 
196

 

 
(254
)
Accrued expenses
 

 
(39
)
 
196

 

 
157

Accrued interest
 

 
2,367

 

 

 
2,367

Accrued salaries and wages
 

 
7,544

 
(937
)
 

 
6,607

Gaming, property and other taxes
 

 
(190
)
 
71

 

 
(119
)
Income taxes
 

 
125

 
948

 
(1,073
)
 

Other liabilities
 

 
992

 
(420
)
 

 
572

Net cash provided by (used in) operating activities
 

 
324,401

 
202,895

 
(221,674
)
 
305,622

Investing activities
 
 

 
 

 
 

 
 

 
 

Capital project expenditures
 

 
(14
)
 

 

 
(14
)
Capital maintenance expenditures
 

 
(51
)
 
(1,933
)
 

 
(1,984
)
Proceeds from sale of property and equipment
 

 
210

 
17

 

 
227

Collection of principal payments on investment in direct financing lease
 

 

 
29,239

 

 
29,239

Net cash provided by investing activities
 

 
145

 
27,323

 

 
27,468

Financing activities
 
 

 
 

 
 

 
 

 
 

Dividends paid
 
(269,537
)
 

 

 

 
(269,537
)
  Taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of proceeds from exercise of options
 
(2,905
)
 

 

 

 
(2,905
)
Proceeds from issuance of long-term debt
 

 
1,000,000

 

 

 
1,000,000

Financing costs
 

 
(19,745
)
 

 

 
(19,745
)
Repayments of long-term debt
 

 
(923,601
)
 

 

 
(923,601
)
Premium and related costs paid on tender of senior unsecured notes
 

 
(1,884
)
 

 

 
(1,884
)
Intercompany financing
 
272,442

 
(272,444
)
 
(221,672
)
 
221,674

 

Net cash (used in) provided by financing activities
 

 
(217,674
)
 
(221,672
)
 
221,674

 
(217,672
)
Net increase in cash and cash equivalents
 

 
106,872

 
8,546

 

 
115,418

Cash and cash equivalents at beginning of period
 

 
6,734

 
22,320

 

 
29,054

Cash and cash equivalents at end of period
 
$

 
$
113,606

 
$
30,866

 
$

 
$
144,472




32

Table of Contents

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. GLPI 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 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 Company elected on its U.S. federal income tax return for its taxable year beginning on January 1, 2014 to be treated as a REIT and the Company, together with an 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) as a "taxable REIT subsidiary" effective on the first day of the first taxable year of GLPI as a REIT. As a result of the Spin-Off, GLPI owns substantially all of Penn's former real property assets (as of the Spin-Off) and leases back most of those assets to Penn for use by its subsidiaries, under the Penn Master Lease, and GLPI also owns and operates the TRS Properties through its indirect wholly-owned subsidiary, GLP Holdings, Inc. The assets and liabilities of GLPI were recorded at their respective historical carrying values at the time of the Spin-Off.
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a triple-net lease with an initial term of 10 years with no purchase option, followed by five 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions. 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. 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 and entered into a new unitary triple-net master lease agreement with Boyd 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 Boyd) on the same terms and conditions. The Company also purchased the real estate assets of 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, whereby the Company loaned Boyd $57.7 million.
In addition to the acquisition of Plainridge Park described above, on October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana and certain of its affiliates pursuant to the Real Estate Purchase Agreement dated April 15, 2018 between Tropicana and GLP Capital, which was subsequently amended on October 1, 2018. Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes. Concurrent with the Tropicana Acquisition, Eldorado acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Eldorado and a wholly-owned subsidiary of Eldorado 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 Eldorado) on the same terms and conditions. Additionally, on October 1, 2018 the Company made a mortgage loan to Eldorado in the amount of $246.0 million in connection with Eldorado’s acquisition of Lumière Place.

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, 2019, GLPI’s portfolio consisted of interests in 46 gaming and related facilities, including the TRS Properties, the real property associated with 33 gaming and related facilities operated by Penn, the real property associated with 6 gaming and related facilities operated by Eldorado (including one mortgaged facility), the real property associated with 4 gaming and related facilities operated by Boyd (including one mortgaged facility) and the real property associated with the Casino Queen in East St. Louis, Illinois.  These facilities are geographically diversified across 16 states and were 100% occupied at June 30, 2019. We expect to continue growing our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.



33

Table of Contents

As of June 30, 2019, the majority of our earnings are the result of the rental revenues we receive from our triple-net master leases with Penn, Boyd and Eldorado. Additionally, we have rental revenue from the Casino Queen property which is leased back to a third-party operator on a triple-net basis and the Meadows property which is leased to Penn under a single property 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 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 statement 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.
 
Segment Information
 
Consistent with how our Chief Operating Decision Maker reviews and assesses our financial performance, we have two reportable segments, GLP Capital and the TRS Properties. The GLP Capital reportable segment consists of the leased real property and represents the majority of our business. The TRS Properties reportable segment consists of Hollywood Casino Perryville and Hollywood Casino Baton Rouge.
 
Executive Summary
 
Financial Highlights
 
We reported total revenues and income from operations of $289.0 million and $170.8 million for the three months ended June 30, 2019, respectively, compared to $254.2 million and $153.2 million, respectively, for the corresponding period in the prior year. We reported total revenues and income from operations of $576.9 million and $341.5 million for the six months ended June 30, 2019, respectively, compared to $498.3 million and $305.1 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, 2019, as compared to the three and six months ended June 30, 2018, were as follows:
 
Total income from real estate was $255.8 million and $510.6 million for the three and six months ended June 30, 2019, respectively, and $218.3 million and $427.6 million for the three and six months ended June 30, 2018, respectively. Total income from real estate increased by $37.4 million and $83.0 million for the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in the prior year primarily due to the Tropicana Transactions, the Penn-Pinnacle Merger and the partial recognition of income previously deferred under the Penn Master Lease and Meadows Lease. These increases were partially offset by the elimination of the revenue gross-up for real estate taxes paid directly by our tenants under ASC 842 and the first percentage rent reset under the Penn Master Lease, which resulted in a rent decrease.

Revenues for our TRS Properties decreased by $2.6 million and $4.4 million for the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in the prior year, due to decreased revenues at both TRS Properties, resulting from the June 2018 smoking ban at all Baton Rouge casinos, as well as decreased admissions at Hollywood Casino Perryville.
 
Total operating expenses increased by $17.3 million and $42.2 million for the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in the prior year. The increase in operating expenses for the three months ended June 30, 2019 as compared to the prior year period was primarily driven by an increase in depreciation expense resulting from the addition of the Tropicana and Plainridge Park real estate assets to our real estate portfolio and the acceleration of depreciation related to the closure of the Resorts Casino Tunica property by our tenant, as well as the reclassification of the Pinnacle building assets to real estate investments on our balance sheet. As a result of the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its

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entirety and our investment in the direct financing lease was unwound. Also driving the increase was accelerated land right amortization expense also related to the Resorts Casino Tunica closure by our tenant. The closure of the Resorts Casino Tunica property by our tenant will not impact the rent collected from Penn under the Penn Master Lease, as our lease with Penn is cross-collateralized and does not allow for rent reductions for individual property closures. These increases were offset by a significant decrease in real estate tax expense, as we are no longer required to gross-up our financial statements for the real estate taxes paid directly by our tenants under ASC 842, as well as the absence of retirement costs in the current period. The increase in operating expenses for the six months ended June 30, 2019, as compared to the prior year period, was driven by the explanations above, in addition to a loan impairment charge of $13.0 million in the first quarter of 2019 related to the Company's unsecured loan to Casino Queen.

Other income and expenses increased by $16.6 million and $39.7 million for the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in the prior year primarily due to an increase in interest expense related to the debt refinancing in the second quarter of 2018 and debt issuances in the third quarter of 2018, the proceeds of which were utilized for the October 2018 closings of the Tropicana Transactions and the acquisition of Plainridge Park Casino, as well as, the funding of the Belterra Park Loan in connection with the Penn-Pinnacle Merger.

Net income increased by $1.0 million for the three months ended June 30, 2019 and decreased by $2.7 million, for the six months ended June 30, 2019, as compared to the corresponding periods in the prior year, primarily due to the variances explained above.

Segment Developments
 
The following are recent developments that have had or are likely to have an impact on us by segment:
 
GLP Capital

On October 15, 2018, Penn's acquisition of Pinnacle closed, and the Company completed its previously announced transactions with Penn, Pinnacle and Boyd. Concurrent with Penn's acquisition, 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 and entered into a new triple-net master lease agreement with Boyd for these properties on terms similar to the Company’s existing master leases. The Company also purchased the real estate assets of Plainridge Park Casino from Penn for $250.0 million, exclusive of transaction fees and taxes, and added this property to the Amended Pinnacle Master Lease. We also entered into a loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park, whereby we loaned Boyd $57.7 million, act as mortgagee and collect interest income from Boyd. Our initial annual real estate income will increase by $45.3 million as a result of these transactions.

On October 1, 2018, the Company purchased the real property assets of five properties from Tropicana for $964.0 million, exclusive of taxes and transaction fees. Concurrent with the acquisition of these properties, Eldorado purchased the operating assets of these Tropicana properties and Lumière Place and entered into a new triple-net master lease with the Company for the lease of the five Tropicana properties purchased by us for a 15-year initial term with no purchase option followed by four successive 5-year renewal periods (exercisable by Eldorado). Initial annual rent under the Eldorado Master Lease is $87.6 million. The Company also made a loan to Eldorado in the amount of $246.0 million in connection with Eldorado’s acquisition of Lumière Place, which will generate initial annual interest income of $22.4 million.

TRS Properties

During the second quarter of 2018, a smoking ban went into effect at all Baton Rouge, Louisiana casinos, which in combination with the general market deterioration in the Baton Rouge region has contributed to the poor performance of our Hollywood Casino Baton Rouge property.


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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 income taxes, real estate investments, leases and goodwill and other intangible assets 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 Annual Report on Form 10-K. There has been no material change to these estimates for the six months ended June 30, 2019.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Results of Operations
 
The following are the most important factors and trends that contribute or will contribute to our operating performance:

The fact that several wholly-owned subsidiaries of Penn lease a substantial number of our properties, pursuant to two master leases and a single property lease and account for a significant portion of our revenue.

The risks related to economic conditions and the effect of such conditions on consumer spending for leisure and gaming activities, which may negatively impact our gaming tenants and operators and the variable rent and annual rent escalators we receive from our tenants as outlined in the long-term triple-net leases with these tenants.
 
The fact that the rules and regulations of U.S. federal income taxation are constantly under review by legislators, the IRS and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect GLPI's investors or GLPI.


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The consolidated results of operations for the three and six months ended June 30, 2019 and 2018 are summarized below:
    
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Revenues
 

 
 

 
 

 
 

Rental income
$
248,563

 
$
169,865

 
$
496,241

 
$
339,270

Income from direct financing lease

 
26,984

 

 
45,605

Interest income from mortgaged real estate
7,201

 

 
14,394

 

Real estate taxes paid by tenants

 
21,483

 

 
42,761

Total income from real estate
255,764

 
218,332

 
510,635

 
427,636

Gaming, food, beverage and other
33,249

 
35,889

 
66,242

 
70,635

Total revenues
289,013

 
254,221

 
576,877

 
498,271

Operating expenses
 

 
 

 
 

 
 

Gaming, food, beverage and other
19,168

 
20,407

 
38,190

 
40,065

Real estate taxes

 
21,800

 

 
43,395

Land rights and ground lease expense
15,229

 
6,444

 
24,478

 
12,976

General and administrative
15,984

 
24,806

 
33,224

 
41,266

Depreciation
67,865

 
27,523

 
126,443

 
55,477

Loan impairment charges

 

 
13,000

 

Total operating expenses
118,246

 
100,980

 
235,335

 
193,179

Income from operations
$
170,767

 
$
153,241

 
$
341,542

 
$
305,092

 
Certain information regarding our results of operations by segment for the three and six months ended June 30, 2019 and 2018 is summarized below:
 
Three Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
Total Revenues
 
Income from Operations
 
(in thousands)
GLP Capital
$
255,764

 
$
218,332

 
$
164,068

 
$
146,133

TRS Properties
33,249

 
35,889

 
6,699

 
7,108

Total
$
289,013

 
$
254,221

 
$
170,767

 
$
153,241

 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
Total Revenues
 
Income from Operations
 
(in thousands)
GLP Capital
$
510,635

 
$
427,636

 
$
328,937

 
$
291,007

TRS Properties
66,242

 
70,635

 
12,605

 
14,085

Total
$
576,877

 
$
498,271

 
$
341,542

 
$
305,092


FFO, AFFO and Adjusted EBITDA
 
Funds From Operations ("FFO"), Adjusted Funds From Operations ("AFFO") and Adjusted EBITDA are non-GAAP financial measures used by the Company as performance measures for benchmarking against the Company’s peers and as internal measures of business operating performance, which is used as a bonus metric. The Company believes FFO, AFFO and Adjusted EBITDA provide a meaningful perspective of the underlying operating performance of the Company’s current business. This is especially true since these measures exclude real estate depreciation and we believe that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. In addition, in order for the Company to qualify as a REIT, it must distribute 90% of its REIT taxable income annually. The Company adjusts AFFO accordingly to provide our investors an estimate of the taxable income available for this distribution requirement.


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FFO, AFFO and Adjusted EBITDA are non-GAAP financial measures that are considered supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts defines FFO as net income (computed in accordance with GAAP), excluding (gains) or losses from sales of property and real estate depreciation. We define AFFO as FFO excluding stock based compensation expense, the amortization of debt issuance costs, bond premiums and original issuance discounts, other depreciation, the amortization of land rights, straight-line rent adjustments, direct financing lease adjustments, losses on debt extinguishment, retirement costs and goodwill and loan impairment charges, reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, taxes on income, depreciation, (gains) or losses from sales of property, stock based compensation expense, straight-line rent adjustments, direct financing lease adjustments, the amortization of land rights, losses on debt extinguishment, retirement costs and goodwill and loan impairment charges.

FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP financial measures: (i) do not represent cash flow 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 flow as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund all of our cash needs, including to make cash distributions to our shareholders, to fund capital improvements, or to make interest payments on our indebtedness. Investors are also cautioned that FFO, AFFO and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures reported by other real estate companies, including REITs due to the fact that not all real estate companies use the same definitions. Our presentation of these measures does not replace the presentation of our financial results in accordance with GAAP.

 The reconciliation of the Company’s net income per GAAP to FFO, AFFO, and Adjusted EBITDA for the three and six months ended June 30, 2019 and 2018 is as follows:
        
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net income
 
$
93,033

 
$
91,998

 
$
186,043

 
$
188,770

Losses from dispositions of property
 
6

 
225

 
13

 
225

Real estate depreciation
 
65,568

 
24,651

 
121,243

 
49,749

Funds from operations
 
$
158,607

 
$
116,874

 
$
307,299

 
$
238,744

Straight-line rent adjustments
 
8,643

 
16,616

 
17,287

 
33,233

Direct financing lease adjustments
 

 
11,030

 

 
29,239

Other depreciation
 
2,297

 
2,872

 
5,200

 
5,728

Amortization of land rights
 
9,406

 
2,728

 
12,496

 
5,455

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
2,899

 
3,039

 
5,790

 
6,296

Stock based compensation
 
4,183

 
616

 
8,508

 
4,603

Losses on debt extinguishment
 

 
3,473

 

 
3,473

Retirement costs
 

 
13,149

 

 
13,149

Loan impairment charges
 

 

 
13,000

 

Capital maintenance expenditures
 
(1,017
)
 
(1,162
)
 
(1,547
)
 
(1,984
)
Adjusted funds from operations
 
$
185,018

 
$
169,235

 
$
368,033

 
$
337,936

Interest, net
 
76,275

 
56,164

 
152,914

 
109,751

Income tax expense
 
1,459

 
1,606

 
2,585

 
3,098

Capital maintenance expenditures
 
1,017

 
1,162

 
1,547

 
1,984

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
(2,899
)
 
(3,039
)
 
(5,790
)
 
(6,296
)
Adjusted EBITDA
 
$
260,870

 
$
225,128

 
$
519,289

 
$
446,473








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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, 2019 and 2018 is as follows: 
 
 
GLP Capital
 
TRS Properties
Three Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net income
 
$
90,197

 
$
88,870

 
$
2,836

 
$
3,128

Losses (gains) from dispositions of property
 
1

 
(9
)
 
5

 
234

Real estate depreciation
 
65,568

 
24,651

 

 

Funds from operations
 
$
155,766

 
$
113,512

 
$
2,841

 
$
3,362

Straight-line rent adjustments
 
8,643

 
16,616

 

 

Direct financing lease adjustments
 

 
11,030

 

 

Other depreciation
 
499

 
521

 
1,798

 
2,351

Amortization of land rights
 
9,406

 
2,728

 

 

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
2,899

 
3,039

 

 

Stock based compensation
 
4,183

 
616

 

 

Losses on debt extinguishment
 

 
3,473

 

 

Retirement costs
 

 
13,149

 

 

Capital maintenance expenditures
 
(2
)
 
(3
)
 
(1,015
)
 
(1,159
)
Adjusted funds from operations
 
$
181,394

 
$
164,681

 
$
3,624

 
$
4,554

Interest, net (1)
 
73,674

 
53,562

 
2,601

 
2,602

Income tax expense
 
197

 
228

 
1,262

 
1,378

Capital maintenance expenditures
 
2

 
3

 
1,015

 
1,159

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
(2,899
)
 
(3,039
)
 

 

Adjusted EBITDA
 
$
252,368

 
$
215,435

 
$
8,502

 
$
9,693

 
 
GLP Capital
 
TRS Properties
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Net income
 
$
180,960

 
$
182,586

 
$
5,083

 
$
6,184

Losses (gains) from dispositions of property
 
8

 
(9
)
 
5

 
234

Real estate depreciation
 
121,243

 
49,749

 

 

Funds from operations
 
$
302,211

 
$
232,326

 
$
5,088

 
$
6,418

Straight-line rent adjustments
 
17,287

 
33,233

 

 

Direct financing lease adjustments
 

 
29,239

 

 

Other depreciation
 
999

 
1,038

 
4,201

 
4,690

Amortization of land rights
 
12,496

 
5,455

 

 

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
5,790

 
6,296

 

 

Stock based compensation
 
8,508

 
4,603

 

 

Losses on debt extinguishment
 

 
3,473

 

 

Retirement costs
 

 
13,149

 

 

Loan impairment charges
 
13,000

 

 

 

Capital maintenance expenditures
 
(4
)
 
(51
)
 
(1,543
)
 
(1,933
)
Adjusted funds from operations
 
$
360,287

 
$
328,761

 
$
7,746

 
$
9,175

Interest, net (1)
 
147,712

 
104,549

 
5,202

 
5,202

Income tax expense
 
265

 
399

 
2,320

 
2,699

Capital maintenance expenditures
 
4

 
51

 
1,543

 
1,933

Amortization of debt issuance costs, bond premiums and original issuance discounts
 
(5,790
)
 
(6,296
)
 

 

Adjusted EBITDA
 
$
502,478

 
$
427,464

 
$
16,811

 
$
19,009

 

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(1) 
Interest expense, net for the GLP Capital segment is net of intercompany interest eliminations of $2.6 million and $5.2 million for both the three and six months ended June 30, 2019 and 2018, respectively. 

Net income for our GLP Capital segment was $90.2 million for the three months ended June 30, 2019 and $88.9 million for the three months ended June 30, 2018. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $155.8 million, $181.4 million and $252.4 million for the three months ended June 30, 2019, respectively. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $113.5 million, $164.7 million and $215.4 million for the three months ended June 30, 2018, respectively. The increase in net income for our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, was primarily driven by a $37.4 million increase in income from real estate, partially offset by a $19.5 million increase in operating expenses and a $16.6 million increase in other expenses, net. The increase in income from real estate in our GLP Capital segment was primarily due to the Tropicana Transactions, the Penn-Pinnacle Merger and the partial recognition of income previously deferred under the Penn Master Lease and Meadows Lease. These increases were partially offset by the elimination of the revenue gross-up for real estate taxes paid directly by our tenants under ASC 842 and the first percentage rent reset under the Penn Master Lease, which resulted in a rent decrease.

The increase in operating expenses in our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018 was primarily driven by an increase in depreciation expense resulting from the addition of the Tropicana and Plainridge Park real estate assets to our real estate portfolio and the acceleration of depreciation related to the closure of the Resorts Casino Tunica property by our tenant, as well as the reclassification of the Pinnacle building assets to real estate investments on our balance sheet. As a result of the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety and our investment in the direct financing lease was unwound. Also driving the increase was accelerated land right amortization expense also related to the Resorts Casino Tunica closure by our tenant. The closure of the Resorts Casino Tunica property by our tenant will not impact the rent collected from Penn under the Penn Master Lease, as our lease with Penn is cross-collateralized and does not allow for rent reductions for individual property closures. These increases were offset by a significant decrease in real estate tax expense, as we are no longer required to gross-up our financial statements for the real estate taxes paid directly by our tenants under ASC 842, as well as the absence of retirement costs in the current period. The increase in other expenses, net in our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, was primarily due to an increase in interest expense related to the debt refinancing in the second quarter of 2018 and debt issuances in the third quarter of 2018, the proceeds of which were utilized for the October 2018 closings of the Tropicana Transactions and the acquisition of Plainridge Park Casino, as well as, the funding of the Belterra Park Loan in connection with the Penn-Pinnacle Merger.

The increase in FFO in our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018 was driven by the explanations above, including an add-back for the depreciation expense. The increase in AFFO for our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018 was primarily driven by the changes described above, as well as the add-back for the accelerated amortization expense and higher stock based compensation expense, partially offset by lower direct financing lease adjustments and straight-line rent adjustments, both of which are added back for AFFO purposes. Direct financing lease adjustments represent the portion of cash rent we received from tenants that was applied against our lease receivable and thus not recorded as revenue. These adjustments were eliminated due to the unwinding of the direct financing lease in October 2018, as the cash received is now recorded as rental income and no add-back to AFFO is necessary. Adjusted EBITDA for our GLP Capital segment for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018 also increased, driven by the explanations above, as well as, a higher add-back for interest expense.

Net income for our GLP Capital segment was $181.0 million for the six months ended June 30, 2019 and $182.6 million for the six months ended June 30, 2018. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $302.2 million, $360.3 million and $502.5 million for the six months ended June 30, 2019, respectively. FFO, AFFO, and Adjusted EBITDA for our GLP Capital segment were $232.3 million, $328.8 million and $427.5 million for the six months ended June 30, 2018, respectively. The decrease in net income for our GLP Capital segment for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, was primarily driven by an $83.0 million increase in income from real estate, partially offset by a $45.1 million increase in operating expenses and a $39.7 million increase in other expenses, net. The changes in income from real estate and other expenses, net were driven by the explanations above for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, while the changes described above, in addition to a loan impairment charge of $13.0 million related to the Company's unsecured loan to Casino Queen drove the increase in operating expenses. FFO, AFFO and Adjusted EBITDA for our GLP Capital segment for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, were primarily driven by the explanations above for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, as well as the add-back of the loan impairment charges for AFFO purposes.

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Revenues

Revenues for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
 
 
 
 
 
 
 
Percentage
Three Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Total income from real estate
 
$
255,764

 
$
218,332

 
$
37,432

 
17.1
 %
Gaming, food, beverage and other
 
33,249

 
35,889

 
(2,640
)
 
(7.4
)%
Total revenues
 
$
289,013

 
$
254,221

 
$
34,792

 
13.7
 %
 
 
 
 
 
 
 
 
Percentage
Six Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Total income from real estate
 
$
510,635

 
$
427,636

 
$
82,999

 
19.4
 %
Gaming, food, beverage and other
 
66,242

 
70,635

 
(4,393
)
 
(6.2
)%
Total revenues
 
$
576,877

 
$
498,271

 
$
78,606

 
15.8
 %
 
Total income from real estate
 
For the three months ended June 30, 2019 and 2018, total income from real estate was $255.8 million and $218.3 million, respectively, for our GLP Capital segment. For the six months ended June 30, 2019 and 2018, total income from real estate was $510.6 million and $427.6 million, respectively, for our GLP Capital segment. 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 statement of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord. 

Total income from real estate increased $37.4 million, or 17.1%, for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, primarily due to the Tropicana Transactions and the Penn-Pinnacle Merger (including the Plainridge Park acquisition, the increased rent under the Amended Pinnacle Master Lease and the Belterra Park Loan) both of which occurred in the fourth quarter of 2018, the impact of the rent escalators under the Penn and Boyd Master Leases, the partial recognition of income previously deferred under the Penn Master Lease and Meadows Lease and the recognition of cash rent that was previously applied against the lease receivable on our balance sheet as rental income. As a result of the Penn-Pinnacle Merger, the Amended Pinnacle Master Lease is treated as an operating lease in its entirety and all cash rent received from our tenants is recognized as revenue when earned. These increases were partially offset by the first percentage rent reset on the Penn Master Lease, which resulted in a rent decrease and the elimination of the revenue gross-up for real estate taxes paid directly by our tenants under ASC 842. Total income from real estate increased $83.0 million, or 19.4%, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, primarily due to explanations above for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018.


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Details of the Company's income from real estate for the three and six months ended June 30, 2019 was as follows (in thousands):
Three Months Ended June 30, 2019
Penn Master Lease
 
Amended Pinnacle Master Lease
 
Eldorado Master Lease and Mortgage
 
Boyd Master Lease and Mortgage
 
Penn - Meadows Lease
 
Casino Queen Lease
 
Total
Building base rent
$
68,482

 
$
56,297

 
$
15,229

 
$
18,702

 
$
3,284

 
$
2,276

 
$
164,270

Land base rent
23,492

 
17,778

 
3,340

 
2,933

 

 

 
47,543

Percentage rent
21,873

 
7,905

 
3,340

 
2,796

 
2,792

 
1,356

 
40,062

Total cash rental income
$
113,847

 
$
81,980

 
$
21,909

 
$
24,431

 
$
6,076

 
$
3,632

 
$
251,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line rent adjustments
$
2,232

 
$
(6,319
)
 
$
(2,894
)
 
$
(2,235
)
 
$
573

 
$

 
$
(8,643
)
Ground rent in revenue
926

 
1,729

 
2,115

 
418

 

 

 
5,188

Other rental revenue

 

 

 

 
143

 

 
143

Total rental income
$
117,005

 
$
77,390

 
$
21,130

 
$
22,614

 
$
6,792

 
$
3,632

 
$
248,563

Interest income from mortgaged real estate

 

 
5,590

 
1,611

 

 

 
7,201

Total income from real estate
$
117,005

 
$
77,390

 
$
26,720

 
$
24,225

 
$
6,792

 
$
3,632

 
$
255,764

Six Months Ended June 30, 2019
PENN Master Lease
 
Amended Pinnacle Master Lease
 
ERI Master Lease and Mortgage
 
BYD Master Lease and Mortgage
 
PENN - Meadows Lease
 
Casino Queen Lease
 
Total
Building base rent
$
136,964

 
$
112,078

 
$
30,459

 
$
36,988

 
$
6,567

 
$
4,551

 
$
327,607

Land base rent
46,984

 
35,481

 
6,680

 
5,839

 

 

 
94,984

Percentage rent
43,558

 
15,738

 
6,680

 
5,566

 
5,584

 
2,712

 
79,838

Total cash rental income
$
227,506

 
$
163,297

 
$
43,819

 
$
48,393

 
$
12,151

 
$
7,263

 
$
502,429

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight-line rent adjustments
$
4,463

 
$
(12,637
)
 
$
(5,789
)
 
$
(4,469
)
 
$
1,145

 
$

 
$
(17,287
)
Ground rent in revenue
1,888

 
3,510

 
4,501

 
852

 

 

 
10,751

Other rental revenue

 

 

 

 
348

 

 
348

Total rental income
$
233,857

 
$
154,170

 
$
42,531

 
$
44,776

 
$
13,644

 
$
7,263

 
$
496,241

Interest income from mortgaged real estate

 

 
11,181

 
3,213

 

 

 
14,394

Total income from real estate
$
233,857

 
$
154,170

 
$
53,712

 
$
47,989

 
$
13,644

 
$
7,263

 
$
510,635


Gaming, food, beverage and other revenue
 
Gaming, food, beverage and other revenue for our TRS Properties segment decreased by $2.6 million, or 7.4%, for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, due to decreases in revenues at both TRS Properties, primarily resulting from general market deterioration in the Baton Rouge region and the June 2018 smoking ban at all Baton Rouge casinos that went into effect late in the second quarter of 2018, as well as decreased admissions at the Hollywood Casino Perryville. Gaming, food, beverage and other revenue for our TRS Properties segment decreased by $4.4 million, or 6.2%, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, primarily due to the explanations above.


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Operating expenses
 
Operating expenses for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
 
 
 
 
 
 
 
Percentage
Three Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Gaming, food, beverage and other
 
$
19,168

 
$
20,407

 
$
(1,239
)
 
(6.1
)%
Real estate taxes
 

 
21,800

 
(21,800
)
 
(100.0
)%
Land rights and ground lease expense
 
15,229

 
6,444

 
8,785

 
136.3
 %
General and administrative
 
15,984

 
24,806

 
(8,822
)
 
(35.6
)%
Depreciation
 
67,865

 
27,523

 
40,342

 
146.6
 %
Total operating expenses
 
$
118,246

 
$
100,980

 
$
17,266

 
17.1
 %
 
 
 
 
 
 
 
 
Percentage
Six Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Gaming, food, beverage and other
 
$
38,190

 
$
40,065

 
$
(1,875
)
 
(4.7
)%
Real estate taxes
 

 
43,395

 
(43,395
)
 
(100.0
)%
Land rights and ground lease expense
 
24,478

 
12,976

 
11,502

 
88.6
 %
General and administrative
 
33,224

 
41,266

 
(8,042
)
 
(19.5
)%
Depreciation
 
126,443

 
55,477

 
70,966

 
127.9
 %
Loan impairment charges
 
13,000

 

 
13,000

 
N/A

Total operating expenses
 
$
235,335

 
$
193,179

 
$
42,156

 
21.8
 %
 

Real estate taxes

Real estate taxes decreased as we are no longer required to gross-up our financial statements for the real estate taxes paid directly by our tenants under ASC 842. In December 2018, the FASB issued ASU 2018-20, which clarifies that lessor costs paid directly to a third-party by a lessee on behalf of the lessor, are no longer required to be recognized in the lessor's financial statements. Therefore, upon the adoption of ASU 2016-02 on January 1, 2019, we no longer gross-up our financial statements for real estate taxes paid directly to third-parties by its tenants.

Land rights and ground lease expense

Land rights and ground lease expense includes the amortization of land rights and rent expense related to the Company's long-term ground leases. Land rights and ground lease expense increased by $8.8 million, or 136.3%, for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, primarily due to the closure of the Resorts Casino Tunica property by our tenant, resulting in the acceleration of land right amortization expense related to the ground lease at this property. Our acquisition of rights to six long-term ground leases in connection with the October 2018 Tropicana Acquisition further contributed to the increase in land rights and ground lease expense for the three months ended June 30, 2019, as compared to the comparable prior year period. In connection with this acquisition, we acquired land rights to long-term leases which are recorded on our consolidated balance sheet as land right assets and amortized over the term of the leases, including renewal options. We also record rent expense related to these ground leases with offsetting revenue recorded within the consolidated statements of income as we have concluded that as the lessee we are the primary obligor under the ground leases. We sublease these ground leases back to our tenants, who are responsible for payment directly to the landlord. Land rights and ground lease expense increased by $11.5 million, or 88.6%, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018 for the reasons described above.

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 $8.8 million or 35.6%, for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, primarily due to the absence of retirement costs related to the retirement of our former Chief Financial Officer in 2018. General and administrative expenses decreased by $8.0 million or 19.5%, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, primarily due to the explanation above.


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Depreciation

Depreciation expense increased by $40.3 million, or 146.6%, to $67.9 million for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018, primarily due to the acceleration of depreciation related to the closure of the Resorts Casino Tunica property by our tenant, the addition of the Tropicana and Plainridge Park real estate assets to our portfolio and the reclassification of the Pinnacle building assets to real estate investments on our balance sheet as a result of the Penn-Pinnacle Merger, which required the Amended Pinnacle Master Lease to be treated as an operating lease in its entirety. Depreciation expense increased by $71.0 million, or 127.9%, to $126.4 million for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, for the reasons described above.

Loan impairment charges

On March 17, 2017 the Company provided a new unsecured $13.0 million, 5.5-year term loan to CQ Holding Company, Inc., an affiliate of Casino Queen ("CQ Holding Company"), to partially finance their acquisition of Lady Luck Casino in Marquette, Iowa. During 2018, the operating results of Casino Queen declined substantially and Casino Queen defaulted under its senior credit agreement and also the unsecured loan with GLPI. As a result, the operations of Casino Queen were put up for sale during the fourth quarter of 2018. At December 31, 2018, active negotiations for the sale of Casino Queen's operations were taking place and full payment of the principal was still expected, due to the anticipation that the operations were to be sold in the near term for an amount allowing for repayment of the full $13.0 million of loan principal due to GLPI.

During the first quarter of 2019, the operating results of Casino Queen continued to decline, resulting in the anticipated acquirer withdrawing from the sales process. Subsequent offers for the operating assets of Casino Queen have declined substantially and proceeds from the sale are not expected to generate enough cash to repay all of Casino Queen’s creditors. Thus, because the Company does not expect Casino Queen to be able to repay the $13.0 million of principal due to it under the unsecured loan agreement, the full $13.0 million of principal was written off at March 31, 2019. The Company has recorded an impairment charge of $13.0 million through the condensed consolidated statement of income for the six months ended June 30, 2019 to reflect the write-off of the Casino Queen loan.
Other income (expenses)
 
Other income (expenses) for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
 
 
 
 
 
 
 
 
Percentage
Three Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Interest expense
 
$
(76,523
)
 
$
(57,055
)
 
$
(19,468
)
 
(34.1
)%
Interest income
 
248

 
891

 
(643
)
 
(72.2
)%
Losses on debt extinguishment
 

 
(3,473
)
 
3,473

 
(100.0
)%
Total other expenses
 
$
(76,275
)
 
$
(59,637
)
 
$
(16,638
)
 
(27.9
)%
 
 
 
 
 
 
 
 
 
Percentage
Six Months Ended June 30,
 
2019
 
2018
 
Variance
 
Variance
Interest expense
 
$
(153,251
)
 
$
(111,123
)
 
$
(42,128
)
 
(37.9
)%
Interest income
 
337

 
1,372

 
(1,035
)
 
(75.4
)%
Losses on debt extinguishment
 

 
(3,473
)
 
3,473

 
(100.0
)%
Total other expenses
 
$
(152,914
)
 
$
(113,224
)
 
$
(39,690
)
 
(35.1
)%

Interest expense

Interest expense increased by $19.5 million, or 34.1%, for the three months ended June 30, 2019, as compared to the three months ended June 30, 2018, primarily due to the issuance of $850 million of 5.25% senior unsecured notes due 2025, $500 million of 5.75% senior unsecured notes due 2028 and $750 million of 5.30% senior unsecured notes due 2029 during 2018, as well as increased borrowings under our revolving credit facility, partially offset by a decrease in interest expense related to the termination of the Term Loan A facility, partial repayment of the Term Loan A-1 facility and the tender and call of our 4.375% senior unsecured notes due 2018. The proceeds from the issuance of the senior unsecured notes in 2018 and the increased borrowings were used to finance the Tropicana Transactions, to purchase Plainridge Park and to fund the Belterra Park Loan. Interest expense increased by $42.1 million or, 37.9%, for the six months ended June 30, 2019, as compared to the six months ended June 30, 2018, primarily due to the explanation above.

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Losses on debt extinguishment

On May 21, 2018, the Company entered into the second amendment to the senior unsecured credit facility (the "Credit Facility"), which increased the Company's revolving commitments to an aggregate principal amount of $1,100 million, eliminated the Term Loan A facility and extended the maturity date of the revolving credit facility to May 21, 2023. The Company recorded a loss on the early extinguishment of debt, related to the second amendment to the Credit Facility, of approximately $1.0 million for the proportional amount of unamortized debt issuance costs associated with the extinguished Term Loan A facility and related to the banks that are no longer participating in the Credit Facility.

Also on May 21, 2018, the Company completed a cash tender offer (the "Tender Offer") to purchase any and all of the outstanding $550 million aggregate principal of its 4.375% Senior Unsecured Notes due 2018 (the "2018 Notes"). The Company received tenders from the holders of approximately $393.5 million in aggregate principal of the 2018 Notes, or approximately 72% of its outstanding 2018 Notes in connection with the Tender Offer at a price of 100.396% of the unpaid principal amount plus accrued and unpaid interest through the settlement date. The Company recorded a loss on the early extinguishment of debt, related to the Tender Offer of approximately $2.5 million for the proportional amount of unamortized debt issuance costs associated with the tendered 2018 Notes and the difference between the reaquisition price of the tendered 2018 Notes and their net carrying value.

Taxes

During the three months ended June 30, 2019 and 2018, income tax expense was approximately $1.5 million and $1.6 million, respectively. Our effective tax rate (income taxes as a percentage of income before income taxes) was 1.5% for the three months ended June 30, 2019, as compared to 1.7% for the three months ended June 30, 2018. During the six months ended June 30, 2019 and 2018, income tax expense was approximately $2.6 million and $3.1 million, respectively. Our effective tax rate was 1.4% for the six months ended June 30, 2019, as compared to 1.6% for the six months ended June 30, 2018.
 
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 $364.1 million and $305.6 million during the six months ended June 30, 2019 and 2018, respectively. The increase in net cash provided by operating activities of $58.5 million for the six months ended June 30, 2019 as compared to the corresponding period in the prior year was primarily comprised of an increase in cash receipts from customers/tenants of $101.3 million, partially offset by increases in cash paid for interest, cash paid for operating expenses and cash paid to employees of $36.9 million, $3.4 million and $1.6 million, respectively. The increase in cash receipts collected from our customers and tenants for the six months ended June 30, 2019 as compared to the corresponding period in the prior year was primarily due to the Tropicana Transactions and the Penn-Pinnacle Merger both of which occurred in the fourth quarter of 2018, partially offset by a decrease in our TRS Properties' revenues. The increase in cash paid for interest was related to the Company's new borrowings which were used to fund the Tropicana Transactions, the acquisition of Plainridge Park and the Belterra Park Loan.

Investing activities used cash of $1.4 million and provided cash of $27.5 million during the six months ended June 30, 2019 and 2018, respectively.  Net cash used in investing activities during the six months ended June 30, 2019 primarily consisted of capital expenditures of $1.5 million, partially offset by proceeds from sales of property and equipment of $0.2 million. Net cash provided by investing activities during the six months ended June 30, 2018 consisted of rental payments received from tenants and applied against the lease receivable on our balance sheet of $29.2 million, partially offset by capital expenditures of $2.0 million.
 
Financing activities used cash of $363.8 million and $217.7 million during the six months ended June 30, 2019 and 2018, respectively. Net cash used in financing activities during the six months ended June 30, 2019 was driven by dividend payments of $292.4 million, repayments of long-term debt of $217.1 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of stock option exercises of $9.1 million, partially offset by $155.0 million of proceeds from the issuance of long-term debt. Net cash used by financing activities during the six months ended June 30, 2018 included dividend payments of $269.5 million, repayments of long-term debt of $923.6 million, financing costs of $19.7 million, $1.9 million of premium and related costs paid on the tender of senior unsecured notes and taxes paid related to shares withheld for tax purposes on restricted stock award vestings, net of stock option exercises of $2.9 million, partially offset by proceeds from the issuance of long-term debt of $1,000.0 million. During the six months ended June 30, 2018, the Company

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issued $1,000.0 million in new senior unsecured notes, completed a tender of $393.5 million aggregate principal of the 2018 Notes, repaid a portion of the Term Loan A-1 facility and extinguished the Term Loan A facility.

Capital Expenditures
 
Capital expenditures are accounted for as either capital project or capital maintenance (replacement) expenditures. Capital project expenditures are for fixed asset additions that expand an existing facility or create a new facility. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. Capital maintenance expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.

During the six months ended June 30, 2019 and 2018, the TRS Properties spent approximately $1.5 million and $2.0 million, respectively, for capital maintenance 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. 

Debt

Senior Unsecured Credit Facility
 
The Company's Credit Facility consists of a $1,175 million revolving credit facility and a $525 million Term Loan A-1 facility. The revolving credit facility matures on May 21, 2023 and the Term Loan A-1 facility matures on April 28, 2021.

At June 30, 2019, the Credit Facility had a gross outstanding balance of $865 million, consisting of the $525 million Term Loan A-1 facility and $340 million of borrowings under the revolving credit facility. Additionally, at June 30, 2019, the Company was contingently obligated under letters of credit issued pursuant to the Credit Facility with face amounts aggregating approximately $0.4 million, resulting in $834.6 million of available borrowing capacity under the revolving credit facility as of June 30, 2019.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder. At June 30, 2019, the Company was in compliance with all required financial covenants under the Credit Facility.

Senior Unsecured Notes

 At June 30, 2019, the Company had $4,975 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, 2019, the Company was in compliance with all required financial covenants under the Senior Notes.


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Table of Contents

Finance Lease Liability

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

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 $5,841.1 million at June 30, 2019. Furthermore, $4,975.0 million of our obligations at June 30, 2019, are the Senior Notes that have fixed interest rates with maturity dates ranging from one and one-half to ten years. An increase in interest rates could make the financing of any acquisition by GLPI more costly, as well as increase the costs of its variable rate debt obligations. Rising interest rates could also limit GLPI’s ability to refinance its debt when it matures or cause GLPI to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. GLPI may manage, or hedge, interest rate risks related to its borrowings by means of interest rate swap agreements. 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, 2019 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, 2019.
 
 
07/01/19- 12/31/19
 
1/01/20- 12/31/20
 
1/01/21- 12/31/21
 
1/01/22- 12/31/22
 
1/01/23- 12/31/23
 
Thereafter
 
Total
 
Fair Value at 6/30/2019
 
(in thousands)
Long-term debt:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fixed rate
$

 
$
1,000,000

 
$
400,000

 
$

 
$
500,000

 
$
3,075,000

 
$
4,975,000

 
$
5,316,563

Average interest rate

 
4.88%
 
4.38%
 

 
5.38%
 
5.38%
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable rate
$

 
$

 
$
525,000

 
$

 
$
340,000

 
$

 
$
865,000

 
$
859,750

Average interest rate (1) 


 

 
3.59%
 

 
3.50%
 


 
 

 
 

 
 

(1)           Estimated rate, reflective of forward LIBOR plus the spread over LIBOR applicable to variable-rate borrowing.
 

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Table of Contents

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, 2019, 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, 2019 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
 
We implemented controls to ensure we had identified and adequately evaluated our lease agreements and properly assessed the impact of ASU 2016-02 on our financial statements to facilitate the adoption of this new guidance on January 1, 2019.


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Table of Contents

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: 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 on Form 10-K. There have been no material changes in our risk factors from those previously disclosed in 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.

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, 2019.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5. OTHER INFORMATION
 
Not applicable.
 

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Table of Contents

ITEM 6. EXHIBITS
Exhibit
 
Description of Exhibit
 
 
 
10.1*
 
 
 
 
31.1*
 
 
 
 
31.2*
 
 
 
 
32.1*
 
 
 
 
32.2*
 
 
 
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
104
 
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL and contained in Exhibit 101.
 
 

*
Filed or furnished, as applicable, herewith 

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Table of Contents

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.
 
 
GAMING AND LEISURE PROPERTIES, INC.
 
 
August 8, 2019
By:
/s/ Steven T. Snyder
 
 
Steven T. Snyder
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)


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