Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Operations
GLPI is a self-administered and self-managed Pennsylvania REIT. The Company was formed from the 2013 tax-free spin-off of the real estate assets of PENN and was incorporated in Pennsylvania on February 13, 2013, as a wholly-owned subsidiary of PENN. On November 1, 2013, PENN contributed to GLPI, through a series of internal corporate restructurings, substantially all of the assets and liabilities associated with PENN's real property interests and real estate development business, as well as the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville 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. On July 1, 2021, the Company sold the operations of Hollywood Casino Perryville to PENN and leased the real estate to PENN pursuant to a standalone lease. On December 17, 2021, the Company sold the operations of Hollywood Casino Baton Rouge to Casino Queen Holding Company Inc. ("Casino Queen") and leased the real estate to Casino Queen pursuant to the Casino Queen Master Lease as described below. On December 17, 2021, GLPI declared a special dividend to the Company's shareholders to distribute the accumulated earnings and profits attributable to these sales. In 2021, as a result of the sale of the operations of Hollywood Casino Perryville and Hollywood Casino Baton Rouge, GLP Holdings, Inc. was merged into GLP Capital, L. P., the operating partnership ("GLP Capital").
During 2020, the Company and Tropicana LV, LLC, a wholly owned subsidiary of the Company that at the time held the real estate of the Tropicana Las Vegas Casino Hotel Resort, elected to treat Tropicana LV, LLC as a TRS. In September 2022, Bally's Corporation ("Bally's") acquired both the building assets from GLPI and PENN's outstanding equity interests in Tropicana Las Vegas. GLPI retained ownership of the land and entered into a ground lease with Bally's. In connection with this transaction, Tropicana LV, LLC was merged into GLP Capital and GLPI paid a special earnings and profit dividend of $0.25 per share in the first quarter of 2023 related to the sale of the building.
As partial consideration for the transactions with The Cordish Companies ("Cordish") described below, GLP Capital issued 7,366,683 newly-issued operating partnership units ("OP Units") to affiliates of Cordish. OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. Such issuance of OP Units to Cordish in exchange for its contribution of certain real property assets resulted in GLP Capital becoming treated as a partnership for income tax purposes, with GLPI being deemed to contribute substantially all of the assets and liabilities of GLP Capital in exchange for the general partnership and a majority of the limited partnership interests, and a minority limited partnership interest being owned by Cordish (the "UPREIT Transaction"). In advance of the UPREIT Transaction, the Company, together with GLP Financing II, Inc. jointly elected for GLP Financing II, Inc. to be treated as a TRS effective December 23, 2021. On January 3, 2023, the Company issued 286,643 OP Units to affiliates of Bally's in connection with its acquisition of Bally's Hard Rock Hotel & Casino ("Bally's Biloxi") and Bally's Tiverton Casino & Hotel ("Bally's Tiverton").
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 March 31, 2023, GLPI's portfolio consisted of interests in 59 gaming and related facilities, the real property associated with 34 gaming and related facilities operated by PENN, the real property associated with 7 gaming and related facilities operated by Caesars Entertainment Corporation ("Caesars"), the real property associated with 4 gaming and related facilities operated by Boyd Gaming Corporation ("Boyd"), the real property associated with 9 gaming and related facilities operated by Bally's, the real property associated with 2 gaming and related facilities operated by Casino Queen and the real property associated with 3 gaming and related facilities operated by Cordish. These facilities, including our corporate headquarters building, are geographically diversified across 18 states and contain approximately 30.2 million square feet. As of March 31, 2023, our properties were 100% occupied. We expect to continue growing our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
32
PENN Master Lease and Amended Penn Master Lease
As a result of the Spin-Off, GLPI owns substantially all of PENN’s former real property assets (as of the consummation of the Spin-Off) and leases back most of those assets to PENN for use by its subsidiaries pursuant to a unitary master lease (the "Original PENN Master Lease"). The Original PENN Master Lease is a triple-net operating lease, the term of which expires on October 31, 2033, with no purchase option, followed by three remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions.
On October 10, 2022, the Company announced that it agreed to create a new master lease with PENN for seven of PENN's current properties. The companies also agreed to a funding mechanism to support PENN's pursuit of relocation and development opportunities at several of the properties included in the new master lease. The transaction, including the creation of the new master lease, became effective on January 1, 2023.
Pursuant to this agreement, the Original PENN Master Lease was amended (the "Amended Penn Master Lease") to remove PENN's properties in Aurora and Joliet, Illinois; Columbus and Toledo, Ohio; and Henderson, Nevada. The properties removed from the Original Penn Master Lease were added to a new master lease. In addition, the existing leases for the Hollywood Casino at The Meadows in Pennsylvania (the "Meadows Lease") and the Hollywood Casino Perryville in Maryland (the "Perryville Lease") were terminated and these properties were transferred into the new master lease (the "PENN 2023 Master Lease"). GLPI agreed to fund up to $225 million for the relocation of PENN's riverboat casino in Aurora at a 7.75% cap rate and, if requested by PENN, will fund up to $350 million for the relocation of the Hollywood Casino Joliet as well as the construction of hotels at Hollywood Casino Columbus and a second hotel tower at the M Resort Spa Casino at then current market rates.
The terms of the PENN 2023 Master Lease and the Amended PENN Master Lease are substantially similar to the Original PENN Master Lease with the following key differences;
• The PENN 2023 Master Lease is cross-defaulted and co-terminus with the Amended PENN Master Lease.
• The rent for the PENN 2023 Master Lease is $232.2 million in base rent which is fixed with annual escalation of 1.50%, with the first escalation to occur for the lease year beginning on November 1, 2023.
• The rent for the Amended 2023 PENN Master Lease was adjusted to $284.1 million, consisting of $208.2 million of building base rent, $43.0 million of land base rent, and $32.9 million of percentage rent.
Amended Pinnacle Master Lease, Boyd Master Lease and Belterra Park Lease
In April 2016, the Company acquired substantially all of the real estate assets of Pinnacle Entertainment, Inc. ("Pinnacle") for approximately $4.8 billion. GLPI originally leased these assets back to Pinnacle, under a unitary triple-net lease, the term of which expires on April 30, 2031, with no purchase option, followed by four remaining 5-year renewal options (exercisable by the tenant) on the same terms and conditions (the "Pinnacle Master Lease"). On October 15, 2018, the Company completed the previously announced transactions with PENN, Pinnacle and Boyd to accommodate PENN's acquisition of the majority of Pinnacle's operations, pursuant to a definitive agreement and plan of merger between PENN and Pinnacle, dated December 17, 2017 (the "PENN-Pinnacle Merger"). Concurrent with the PENN-Pinnacle Merger, the Company amended the Pinnacle Master Lease to allow for the sale of the operating assets of Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort from Pinnacle to Boyd (the "Amended Pinnacle Master Lease") and entered into a new unitary triple-net master lease agreement with Boyd (the "Boyd Master Lease") for these properties on terms similar to the Company’s Amended Pinnacle Master Lease. The Boyd Master Lease has an initial term of 10 years (from the original April 2016 commencement date of the Pinnacle Master Lease and expiring April 30, 2026), with no purchase option, followed by five 5-year renewal options (exercisable by the tenant) on the same terms and conditions. The Company also purchased the real estate assets of Plainridge Park Casino ("Plainridge Park") from PENN for $250.0 million, exclusive of transaction fees and taxes and added this property to the Amended Pinnacle Master Lease. The Amended Pinnacle Master Lease was assumed by PENN at the consummation of the PENN-Pinnacle Merger. The Company also entered into a mortgage loan agreement with Boyd in connection with Boyd's acquisition of Belterra Park Gaming & Entertainment Center ("Belterra Park") whereby the Company loaned Boyd $57.7 million (the "Belterra Park Loan"). In May 2020, the Company acquired the real estate assets of Belterra Park in satisfaction of the Belterra Park Loan, subject to a long-term lease (the "Belterra Park Lease") with a Boyd affiliate operating the property. The Belterra Park Lease rent terms are consistent with the Boyd Master Lease. The annual rent is comprised of a fixed component, part of which is subject to an annual escalator of up to 2% if certain rent coverage ratio thresholds are met, and a component that is based on the performance of the facilities which is adjusted, subject to certain
33
floors, every two years to an amount equal to 4% of the average annual net revenues of Belterra Park during the preceding two years in excess of a contractual baseline.
Second Amended and Restated Caesars Master Lease
On October 1, 2018, the Company closed its previously announced transaction to acquire certain real property assets from Tropicana Entertainment Inc. ("Tropicana") and certain of its affiliates pursuant to a Purchase and Sale Agreement dated April 15, 2018 between Tropicana and GLP Capital, which was subsequently amended on October 1, 2018 (as amended, the "Amended Real Estate Purchase Agreement"). Pursuant to the terms of the Amended Real Estate Purchase Agreement, the Company acquired the real estate assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge (the "GLP Assets") from Tropicana for an aggregate cash purchase price of $964.0 million, exclusive of transaction fees and taxes (the "Tropicana Acquisition"). Concurrent with the Tropicana Acquisition, Eldorado Resorts, Inc. (now doing business as Caesars) acquired the operating assets of these properties from Tropicana pursuant to an Agreement and Plan of Merger dated April 15, 2018 by and among Tropicana, GLP Capital, Caesars and a wholly-owned subsidiary of Caesars and leased the GLP Assets from the Company pursuant to the terms of a new unitary triple-net master lease with an initial term of 15 years, with no purchase option, followed by four successive 5-year renewal periods (exercisable by the tenant) on the same terms and conditions (the "Caesars Master Lease").
On June 15, 2020, the Company amended and restated the Caesars Master Lease (as amended, the "Amended and Restated Caesars Master Lease") to, (i) extend the initial term of 15 years to 20 years, with renewals of up to an additional 20 years at the option of Caesars, (ii) remove the variable rent component in its entirety commencing with the third lease year, (iii) in the third lease year, increase annual land base rent to approximately $23.6 million and annual building base rent to approximately $62.1 million, (iv) provide fixed escalation percentages that delay the escalation of building base rent until the commencement of the fifth lease year with building base rent increasing annually by 1.25% in the fifth and sixth lease years, 1.75% in the seventh and eighth lease years and 2% in the ninth lease year and each lease year thereafter, (v) subject to the satisfaction of certain conditions, permit Caesars to elect to replace the Tropicana Evansville and/or Tropicana Greenville properties under the Amended and Restated Caesars Master Lease with one or more of Caesars Gaming Scioto Downs, The Row in Reno, Isle Casino Racing Pompano Park, Isle Casino Hotel – Black Hawk, Lady Luck Casino – Black Hawk, Isle Casino Waterloo ("Waterloo"), Isle Casino Bettendorf ("Bettendorf") or Isle of Capri Casino Boonville, provided that the aggregate value of such new property, individually or collectively, was at least equal to the value of Tropicana Evansville or Tropicana Greenville, as applicable, (vi) permit Caesars to elect to sell its interest in Belle of Baton Rouge and sever it from the Amended and Restated Caesars Master Lease (with no change to the rent obligation to the Company), subject to the satisfaction of certain conditions, and (vii) provide certain relief under the operating, capital expenditure and financial covenants thereunder in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. The effectiveness of the Amended and Restated Caesars Master Lease was subject to the review and approval of certain gaming regulatory agencies and the expiration of applicable gaming regulatory advance notice periods, which conditions were satisfied on July 23, 2020.
On December 18, 2020, the Company and Caesars entered into an amendment to the Amended and Restated Caesars Master Lease (as amended, the "Second Amended and Restated Caesars Master Lease") in connection with the completion of an Exchange Agreement (the "Exchange Agreement") with subsidiaries of Caesars in which Caesars transferred to the Company the real estate assets of Waterloo and Bettendorf in exchange for the transfer by the Company to Caesars of the real property assets of Tropicana Evansville, plus a cash payment of $5.7 million. In connection with the Exchange Agreement, the annual building base rent was increased to $62.5 million and the annual land component was increased to $23.7 million.
Horseshoe St. Louis Lease
On October 1, 2018, the Company entered into a loan agreement with Caesars in connection with Caesars’s acquisition of Lumière Place Casino, now known as Horseshoe St. Louis ("Horseshoe St. Louis"), whereby the Company loaned Caesars $246.0 million (the "CZR loan"). The CZR loan bore interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until its maturity. On the one-year anniversary of the CZR loan, the mortgage evidenced by a deed of trust on the Horseshoe St. Louis property terminated and the loan became unsecured. On June 24, 2020, the Company received approval from the Missouri Gaming Commission to own the Horseshoe St. Louis property in satisfaction of the CZR loan. On September 29, 2020, the transaction closed and the Company entered into a new triple net lease with Caesars (the "Horseshoe St. Louis Lease") the initial term of which expires on October 31, 2033, with four separate renewal options of five years each, exercisable at the tenant's option. The Horseshoe St. Louis Lease rent terms were adjusted on December 1, 2021 such that the annual escalator is now fixed at 1.25% for the second through fifth lease years, increasing to 1.75% for the sixth and seventh lease years and thereafter increasing by 2.0% for the remainder of the lease.
34
Bally's Master Lease
On June 3, 2021, the Company completed its previously announced transaction pursuant to which a subsidiary of Bally's acquired 100% of the equity interests in the Caesars subsidiary that currently operates Tropicana Evansville and the Company reacquired the real property assets of Tropicana Evansville from Caesars for a cash purchase price of approximately $340.0 million. In addition, the Company purchased the real estate assets of Dover Downs Hotel & Casino from Bally's for a cash purchase price of approximately $144.0 million. The real estate assets of these two facilities were added to a new triple net master lease (the "Bally's Master Lease") which has an initial annual rent of $40 million and an initial term of 15 years, with no purchase option, followed by four 5 year renewal options (exercisable by the tenant) on the same terms and conditions.
On April 1, 2022, the Company completed the previously announced acquisition from Bally's of the land and real estate assets of Bally's three Black Hawk Casinos in Black Hawk, Colorado and Bally's Quad Cities Casino & Hotel in Rock Island, Illinois for $150 million in total consideration. These properties were added to the existing Bally's Master Lease and the initial rent for the lease was increased by $12.0 million on an annual basis.
On January 3, 2023, the Company closed its previously announced acquisition from Bally's of the land and real estate assets of Bally's Hard Rock Hotel & Casino ("Bally's Biloxi") and Bally's Tiverton Casino & Hotel ("Bally's Tiverton") for $635.0 million in total consideration, inclusive of approximately $15 million in the form of OP units. These properties were added to the Bally's Master Lease. The initial annual rent for the lease was increased by $48.5 million on an annual basis. All rent in the Bally's Master Lease is subject to contractual escalations based on the Consumer Price Index ("CPI"), with a 1% floor and 2% ceiling, subject to the CPI meeting a 0.5% threshold.
In connection with GLPI’s commitment to consummate the Bally’s Biloxi and Bally's Tiverton acquisitions, it also agreed to pre-fund, at Bally’s election, a deposit of up to $200.0 million, which was funded in September 2022 and recorded in Other assets on the Condensed Consolidated Balance Sheet at December 31, 2022. This amount was credited to GLPI along with a $9.0 million transaction fee payable at closing which occurred on January 3, 2023. The Company continues to have the option, subject to receipt by Bally's of required consents, to acquire the real property assets of Bally's Twin River Lincoln Casino Resort ("Bally's Lincoln") prior to December 31, 2024 for a purchase price of $771.0 million and additional rent of $58.8 million.
Tropicana Las Vegas Lease
On April 16, 2020, the Company and certain of its subsidiaries closed on its previously announced transaction to acquire the real property associated with the Tropicana Las Vegas from PENN in exchange for $307.5 million of rent credits which were applied against future rent obligations due under the parties' existing leases during 2020.
On September 26, 2022, Bally’s acquired both GLPI’s building assets and PENN's outstanding equity interests in Tropicana Las Vegas for an aggregate cash acquisition price, net of fees and expenses, of approximately $145 million, which resulted in a pre-tax gain of $67.4 million, $52.8 million after-tax. GLPI retained ownership of the land and concurrently entered into a ground lease for an initial term of 50 years (with a maximum term of 99 years inclusive of tenant renewal options) with initial annual rent of $10.5 million. All rent is subject to contractual escalations based on the CPI, with a 1% floor and 2% ceiling, subject to the CPI meeting a 0.5% threshold. The ground lease is supported by a Bally’s corporate guarantee and cross-defaulted with the Bally's Master Lease (the "Tropicana Las Vegas Lease").
Morgantown Lease
On October 1, 2020, the Company and PENN closed on their previously announced transaction whereby GLPI acquired the land under PENN's gaming facility under construction in Morgantown, Pennsylvania in exchange for $30.0 million in rent credits that were utilized by PENN in the fourth quarter of 2020. The Company is leasing the land back to an affiliate of PENN for an initial annual rent of $3.0 million, provided, however, that (i) on the opening date and on each anniversary thereafter the rent shall be increased by 1.5% annually (on a prorated basis for the remainder of the lease year in which the gaming facility opens) for each of the following three lease years and (ii) commencing on the fourth anniversary of the opening date and for each anniversary thereafter, (a) if the CPI increase is at least 0.5% for any lease year, the rent for such lease year shall increase by 1.25% of rent as of the immediately preceding lease year, and (b) if the CPI increase is less than 0.5% for such lease year, then the rent shall not increase for such lease year subject to escalation provisions following the opening of the property (the "Morgantown Lease"). Hollywood Casino Morgantown opened on December 22, 2021.
35
Casino Queen Master Lease
On November 25, 2020, the Company entered into a definitive agreement to sell the operations of our Hollywood Casino Baton Rouge to Casino Queen for $28.2 million (the "HCBR transaction"). The HCBR transaction closed on December 17, 2021. The Company retained ownership of all real estate assets at Hollywood Casino Baton Rouge and simultaneously entered into a triple net master lease with Casino Queen, which includes the Casino Queen property in East St. Louis that was leased by the Company to Casino Queen and the Hollywood Casino Baton Rouge facility ("Casino Queen Master Lease"). The initial annual cash rent is approximately $21.4 million and the lease has an initial term of 15 years with four 5-year renewal options (exercisable by the tenant) on the same terms and conditions. This rental amount will be increased annually by 0.5% for the first six years. Beginning with the seventh lease year through the remainder of the lease term, if the CPI increases by at least 0.25% for any lease year then annual rent shall be increased by 1.25%, and if the CPI increase is less than 0.25% then rent will remain unchanged for such lease year. Additionally, the Company will complete the current landside development project that is in process and the rent under the Casino Queen Master Lease will be adjusted upon delivery to reflect a yield of 8.25% on GLPI's project costs. The Company will also have a right of first refusal with Casino Queen for other sale leaseback transactions up to $50 million until December 2023.
Maryland Live! Lease and Pennsylvania Live! Master Lease
On December 6, 2021, the Company announced that it agreed to acquire the real property assets of Live! Casino & Hotel Maryland, Live! Casino & Hotel Philadelphia, and Live! Casino Pittsburgh, including applicable long-term ground leases, from affiliates of Cordish for aggregate consideration of approximately $1.81 billion, excluding transaction costs at deal announcement. The transaction also includes a binding partnership on future Cordish casino developments, as well as potential financing partnerships between the Company and Cordish in other areas of Cordish's portfolio of real estate and operating businesses. On December 29, 2021, the Company completed its acquisition of the real property assets of Live! Casino & Hotel Maryland and entered into a single asset lease for Live! Casino & Hotel Maryland (the "Maryland Live! Lease"). On March 1, 2022, the Company completed its acquisition of the real estate assets of Live! Casino & Hotel Philadelphia and Live! Casino Pittsburgh for $689 million and leased back the real estate to Cordish pursuant to a new triple net master lease with Cordish (the "Pennsylvania Live! Master Lease"). The Pennsylvania Live! Master Lease and the Maryland Live! Lease both have initial lease terms of 39 years, with a maximum term of 60 years inclusive of tenant renewal options. The annual rent for the Maryland Live! Lease is $75.0 million and the Pennsylvania Live! Master Lease is $50.0 million, both of which have a 1.75% fixed yearly escalator on the entirety of rent commencing on the leases' second anniversary.
The majority of our earnings are the result of the rental revenues we receive from our triple-net master leases with PENN, Boyd, Bally's, Cordish and Caesars. Additionally, we have rental revenue from the Casino Queen Master Lease which is also a triple-net lease. In addition to rent, the tenants are required to pay the following executory costs: (1) all facility maintenance, (2) all insurance required in connection with the leased properties and the business conducted on the leased properties, including coverage of the landlord's interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
Additionally, in accordance with Accounting Standards Codification ("ASC") 842, we record revenue for the ground lease rent paid by our tenants with an offsetting expense in land rights and ground lease expense within the Condensed Consolidated Statements of Income as we have concluded that as the lessee we are the primary obligor under the ground leases. We sublease these ground leases back to our tenants, who are responsible for payment directly to the landlord.
36
Executive Summary
Financial Highlights
We reported total revenues and income from operations of $355.2 million and $266.8 million, respectively, for the three months ended March 31, 2023, compared to $315.0 million and $199.8 million, respectively, for the corresponding period in the prior year.
The major factors affecting our results for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, were as follows:
• Total income from real estate increased by $40.2 million to $355.2 million for the three months ended March 31, 2023 compared to $315.0 million for the corresponding period in the prior year. Results for the three months ended March 31, 2023 benefited from our recent acquisitions which in the aggregate increased cash rental income by $25.8 million. The three months ended March 31, 2023 also benefited by $3.5 million compared to the corresponding period in the prior year from escalations on our leases. The Company had favorable variable rent resets of $1.2 million for the three months ended March 31, 2023 compared to the corresponding period in the prior year. The Company also recognized higher accretion of $1.7 million on its Investment in leases, financing receivables and favorable straight-line rent adjustments of $7.2 million compared to the corresponding period in the prior year. Finally, the Company had higher ground rent income of $0.9 million due primarily from the additions to the Bally's Master Lease.
• Total operating expenses decreased by $26.8 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year. This was primarily due to the change in the provision for credit losses, net. The three month period ended March 31, 2022 included a provision of $26.7 million which was driven primarily by the initial reserve established for the Pennsylvania Live! Master Lease which was originated on March 1, 2022. The three month period ended March 31, 2023 included a reversal of $5.7 million which was primarily attributable to improved performance at the properties underlying the Pennsylvania Live! Master Lease. The Company also had lower land rights and ground lease expense of $1.7 million for the three month period ended March 31, 2023 as the prior year included $2.7 million of accelerated land right amortization as the Company donated a portion of the land underlying a ground lease which was partially offset by the full quarter impact of a ground lease in the Pennsylvania Live! Master Lease as well as new ground leases acquired in the first quarter 2023 acquisition of the real property assets of Bally's Biloxi. Depreciation expense for the three months ended March 31, 2023 increased by $6.4 million compared to the corresponding period in the prior year due to our recent acquisitions that were added to the Bally's Master Lease as well as higher depreciation expense related to the building assets at the Company's Joliet and Aurora properties. In connection with the recent transaction with PENN, new facilities are being developed that will replace these existing locations. As a result, the Company decreased the useful life assumption of these two assets to reflect the expected opening date of the new projects. Finally, general and administrative expenses increased by $0.7 million which was attributable to higher transaction costs and stock based compensation charges.
• Other expenses decreased by $0.2 million for the three months ended March 31, 2023, due to higher interest income of $4.2 million because of higher variable market interest rates earned on our cash balances, which was partially offset by higher interest expense associated with the Company's increased borrowings that are primarily fixed in nature to fund our recent acquisitions and a debt extinguishment charge of $0.6 million associated with write-offs of deferred issuance costs associated with the $500 million senior unsecured note that was redeemed in the three months ended March 31, 2023.
• Net income increased by $67.0 million for the three months ended March 31, 2023, as compared to the corresponding periods in the prior year, primarily due to the variances explained above.
Critical Accounting Estimates
We make certain judgments and use certain estimates and assumptions when applying accounting principles in the preparation of our consolidated financial statements. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change. We have identified the accounting for leases, investment in leases, financing receivables, net, allowance for credit losses, income taxes, and real estate investments as critical accounting estimates, as they are the most important to our financial statement presentation and require difficult, subjective and complex judgments.
37
We believe the current assumptions and other considerations used to estimate amounts reflected in our condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations and, in certain situations, could have a material adverse effect on our consolidated financial condition.
For further information on our critical accounting estimates, see Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to our audited consolidated financial statements included in our most recent Annual Report. There has been no material change to these estimates for the three months ended March 31, 2023.
38
Results of Operations
The following are the most important factors and trends that contribute or may contribute to our operating performance:
• We have announced or closed numerous transactions in the past two years and expect to continue to grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.
• Several wholly-owned subsidiaries of PENN lease a substantial number of our properties pursuant to three master leases and a single property lease and account for a significant portion of our revenue.
• The risks related to economic conditions, including recent stress in the banking sector, high inflation levels (that have been negatively impacted by the armed conflict between Russia and Ukraine) and the effect of such conditions on consumer spending for leisure and gaming activities, which may negatively impact our gaming tenants and operators and the variable rent and certain annual rent escalators we receive from our tenants as outlined in the long-term triple-net leases with these tenants.
• The ability to refinance our significant levels of debt at attractive terms and obtain favorable funding in connection with future business opportunities.
• The fact that the rules and regulations of U.S. federal income taxation are constantly under review by legislators, the Internal Revenue Service and the U.S. Department of the Treasury. Changes to the tax laws or interpretations thereof, including any changes proposed and implemented by the current administration, with or without retroactive application, could materially and adversely affect GLPI and its investors.
The consolidated results of operations for the three months ended March 31, 2023 and 2022 are summarized below:
Three Months Ended March 31,
2023 2022
(in thousands)
Total revenues $ 355,214 $ 314,966
Total operating expenses 88,365 115,170
Income from operations 266,849 199,796
Total other expenses (77,661) (77,900)
Income before income taxes 189,188 121,896
Income tax expense 518 204
Net income $ 188,670 $ 121,692
Net income attributable to non-controlling interest in the Operating Partnership (5,319) (2,424)
Net income attributable to common shareholders $ 183,351 $ 119,268
FFO, AFFO and Adjusted EBITDA
Funds From Operations ("FFO"), Adjusted Funds From Operations ("AFFO") and Adjusted EBITDA are non-U.S. generally accepted accounting principles ("GAAP") financial measures used by the Company as performance measures for benchmarking against the Company’s peers and as internal measures of business operating performance, which is used as a bonus metric. These metrics are presented assuming full conversion of limited partnership units to common shares and therefore before the income statement impact of non-controlling interests. The Company believes FFO, AFFO and Adjusted EBITDA provide a meaningful perspective of the underlying operating performance of the Company’s current business. This is especially true since these measures exclude real estate depreciation and we believe that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time.
FFO, AFFO and Adjusted EBITDA are non-GAAP financial measures that are considered supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts defines FFO as net income (computed in accordance with GAAP), excluding (gains) or losses from dispositions of property, net of tax and real estate depreciation. We define AFFO as FFO excluding, as applicable to the particular period, stock based compensation expense; the amortization of debt issuance costs, bond premiums and original issuance discounts; other depreciation; amortization of land rights; accretion on investment in leases, financing receivables; non-cash adjustments to financing lease liabilities; impairment
39
charges; straight-line rent adjustments; losses on debt extinguishment; and (benefit) provision for credit losses, net, reduced by capital maintenance expenditures. Finally, we define Adjusted EBITDA as net income excluding, as applicable to the particular period, interest, net; income tax expense; real estate depreciation; other depreciation; (gains) or losses from dispositions of property, net of tax; stock based compensation expense; straight-line rent adjustments; amortization of land rights; accretion on Investment in leases, financing receivables; non-cash adjustments to financing lease liabilities; impairment charges; losses on debt extinguishment; and (benefit) provision for credit losses, net.
FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. These non-GAAP financial measures: (i) do not represent cash flows from operations as defined by GAAP; (ii) should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating, investing and financing activities; and (iii) are not alternatives to cash flows as a measure of liquidity. In addition, these measures should not be viewed as an indication of our ability to fund our cash needs, including to make cash distributions to our shareholders, to fund capital improvements, or to make interest payments on our indebtedness. Investors are also cautioned that FFO, AFFO and Adjusted EBITDA, as presented, may not be comparable to similarly titled measures reported by other real estate companies, including REITs, due to the fact that not all real estate companies use the same definitions. Our presentation of these measures does not replace the presentation of our financial results in accordance with GAAP.
The reconciliation of the Company’s net income per GAAP to FFO, AFFO, and Adjusted EBITDA for the three months ended March 31, 2023 and 2022 is as follows:
Three Months Ended
March 31,
2023 2022
(in thousands)
Net income $ 188,670 $ 121,692
(Gains) or losses from dispositions of property, net of tax — (51)
Real estate depreciation 65,084 58,659
Funds from operations $ 253,754 $ 180,300
Straight-line rent adjustments (8,752) (1,543)
Other depreciation 470 470
(Benefit) provision for credit losses, net (5,653) 26,656
Amortization of land rights 3,290 5,990
Loss on debt extinguishment 556 —
Amortization of debt issuance costs, bond premiums and original issuance discounts
2,501 2,771
Accretion on investment in leases, financing receivables (5,444) (3,725)
Non-cash adjustment to financing lease liabilities 109 124
Stock based compensation 7,807 7,600
Capital maintenance expenditures (8) (15)
Adjusted funds from operations $ 248,630 $ 218,628
Interest, net 76,444 77,230
Income tax expense 518 204
Capital maintenance expenditures 8 15
Amortization of debt issuance costs, bond premiums and original issuance discounts
(2,501) (2,771)
Adjusted EBITDA $ 323,099 $ 293,306
Net income, FFO, AFFO and Adjusted EBITDA were $188.7 million, $253.8 million, $248.6 million, and $323.1 million for the three months ended March 31, 2023. This compares to net income, FFO, AFFO and Adjusted EBITDA of $121.7 million, $180.3 million, $218.6 million and $293.3 million for the corresponding period in the prior year. The increase in net income was primarily attributable to higher total revenues of $40.2 million and lower operating expenses of $26.8 million as compared to the corresponding period in the prior year.
40
The increase in FFO for the three months ended March 31, 2023 was due to the items described above, excluding gains from dispositions of property and real estate depreciation. The increases in AFFO and Adjusted EBITDA were due to the items described above, less the adjustments mentioned in the tables above.
Revenues
Revenues for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
Three Months Ended March 31, Percentage
2023 2022 Variance Variance
Rental income $ 317,968 $ 287,777 $ 30,191 10.5 %
Interest income from real estate 37,246 27,189 10,057 37.0 %
Total income from real estate
355,214 314,966 40,248 12.8 %
Total income from real estate
• Total income from real estate increased by $40.2 million to $355.2 million for the three months ended March 31, 2023 compared to $315.0 million for the corresponding period in the prior year. Results for the three months ended March 31, 2023 benefited from our recent acquisitions which in the aggregate increased cash rental income by $25.8 million. The three months ended March 31, 2023 also benefited by $3.5 million compared to the corresponding period in the prior year from escalations on our leases. The Company had favorable variable rent resets of $1.2 million for the three months ended March 31, 2023 compared to the corresponding period in the prior year. The Company also recognized higher accretion of $1.7 million on its Investment in leases, financing receivables and favorable straight-line rent adjustments of $7.2 million compared to the corresponding period in the prior year. Finally, the Company had higher ground rent income of $0.9 million due primarily from the addition of the Bally's Master Lease.
Details of the Company's income from real estate for the three months ended March 31, 2023 was as follows (in thousands)
Three Months Ended March 31, 2023 Building base rent Land base rent Percentage rent Total cash income Straight-line rent adjustments Ground rent in revenue Accretion on financing leases Other rental revenue Total income from real estate
Amended PENN Master Lease $ 52,049 $ 10,759 $ 7,685 $ 70,493 $ (3,274) $ 595 $ — $ — $ 67,814
PENN 2023 Master Lease 58,043 — — 58,043 6,492 — — (16) 64,519
Amended Pinnacle Master Lease 59,095 17,814 7,164 84,073 1,858 2,005 — — 87,936
PENN Morgantown Lease — 773 — 773 — — — — 773
Caesars Master Lease 15,824 5,932 — 21,756 2,394 378 — — 24,528
Horseshoe St. Louis Lease 5,844 — — 5,844 472 — — — 6,316
Boyd Master Lease 19,675 2,946 2,566 25,187 574 349 — — 26,110
Boyd Belterra Lease 695 473 472 1,640 152 — — — 1,792
Bally's Master Lease 25,115 — — 25,115 — 2,916 — — 28,031
Maryland Live! Lease 18,750 — — 18,750 — 2,113 3,287 — 24,150
Pennsylvania Live! Master Lease 12,500 — — 12,500 — 322 2,157 — 14,979
Casino Queen Master Lease 5,557 — — 5,557 84 — — — 5,641
Tropicana Las Vegas Lease — 2,625 — 2,625 — — — — 2,625
Total $ 273,147 $ 41,322 $ 17,887 $ 332,356 $ 8,752 $ 8,678 $ 5,444 $ (16) $ 355,214
41
Three Months Ended March 31, 2022 Building base rent Land base rent Percentage rent Total cash income Straight-line rent adjustments Ground rent in revenue Accretion on financing leases Other rental revenue Total income from real estate
Original PENN Master Lease (1)
$ 71,249 $ 23,492 $ 23,637 $ 118,378 $ 2,232 $ 678 $ — $ — $ 121,288
Amended Pinnacle Master Lease 57,936 17,814 6,695 82,445 (4,837) 1,872 — — 79,480
PENN Meadows Lease (1)
3,953 — 2,261 6,214 572 — — 134 6,920
PENN Morgantown — 762 — 762 — — — — 762
PENN Perryville Lease (1)
1,457 486 — 1,943 60 — — — 2,003
Caesars Master Lease 15,629 5,932 — 21,561 2,589 378 — — 24,528
Horseshoe St. Louis Lease 5,772 — — 5,772 544 — — — 6,316
Boyd Master Lease 19,289 2,946 2,461 24,696 574 432 — — 25,702
Boyd Belterra Lease 682 473 454 1,609 (303) — — — 1,306
Bally's Master Lease 10,000 — — 10,000 — 2,178 — — 12,178
Maryland Live! Lease 18,750 — — 18,750 — 2,094 3,059 — 23,903
Pennsylvania Live! Master Lease 4,167 — — 4,167 — 106 666 — 4,939
Casino Queen Master Lease 5,529 — — 5,529 112 — — — 5,641
Total $ 214,413 $ 51,905 $ 35,508 $ 301,826 $ 1,543 $ 7,738 $ 3,725 $ 134 $ 314,966
(1) As previously discussed, these three leases were amended and or terminated effective January 1, 2023 with the underlying real estate assets placed into the PENN 2023 Master Lease.
In accordance with ASC 842, the Company records revenue for the ground lease rent paid by its tenants with an offsetting expense in land rights and ground lease expense within the condensed consolidated statements of income as the Company has concluded that as the lessee it is the primary obligor under the ground leases. The Company subleases these ground leases back to its tenants, who are responsible for payment directly to the landlord.
The Company recognizes earnings on Investment in leases, financing receivables, based on the effective yield method using the discount rate implicit in the leases. The amounts in the table above labeled accretion on financing leases represent earnings recognized in excess of cash received during the period.
Operating expenses
Operating expenses for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
Three Months Ended March 31, Percentage
2023 2022 Variance Variance
Land rights and ground lease expense $ 12,014 $ 13,704 $ (1,690) (12.3) %
General and administrative 16,450 15,732 718 4.6 %
Gains from dispositions — (51) 51 (100.0) %
Depreciation 65,554 59,129 6,425 10.9 %
Provision for credit losses (5,653) 26,656 (32,309) (121.2) %
Total operating expenses $ 88,365 $ 115,170 $ (26,805) (23.3) %
42
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 decreased by $1.7 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The decrease is the result of a $2.7 million accelerated write-off due to a partial donation of leased land which occurred during the three month period ended March 31, 2022. Partially offsetting this decrease was the full quarter impact of a ground lease in the Pennsylvania Live! Master Lease as well as new ground leases acquired in the first quarter 2023 acquisition of the real property assets of Bally's Biloxi.
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 increased by $0.7 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year. The reason for the decline for the three months ended March 31, 2023 was primarily due to increased transaction costs and higher stock based compensation expense.
Depreciation
Depreciation expense increased by $6.4 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year due to the Company's additions to the Bally's Master Lease as well as higher depreciation expense due to shortening the useful life assumptions at our properties at Joliet and Aurora as mentioned previously.
(Benefit) Provision for credit losses
The Company recorded a benefit for credit losses of $5.7 million for the three months ended March 31, 2023. As described in Note 4, the Company follows ASC 326 “Credit Losses”, which requires that the Company measure and record current expected credit losses, the scope of which includes our Investments in leases, - financing receivables, net.
During the three months ended March 31, 2023, the underlying casino operations in the Pennsylvania Live! Master Lease outperformed the budgeted expectations that were utilized in the reserve calculation at December 31, 2022. This resulted in an improved rent coverage ratio in its reserve calculation which led to a reduction in the Pennsylvania Live! Master Lease reserve at March 31, 2023 compared to its balance at December 31, 2022. This was the primary reason for the reduction in reserves at March 31, 2023 compared to December 31, 2022.
During the three months ended March 31, 2022, the Company recorded provisions of $26.7 million on the Investment in leases, financing receivables, net, which was primarily for the initial recognition of reserves for the Pennsylvania Live! Master Lease as the lease was originated on March 1, 2022.
The reason for the higher allowance for credit losses as a percentage of the outstanding investment in leases for the Pennsylvania Live! Master Lease compared to the Maryland Live! Lease is primarily due to the significantly higher rent coverage ratio on the Maryland Live! Lease compared to the Pennsylvania Live! Master Lease. Future changes in economic probability factors and earnings assumptions at the underlying facilities may result in non-cash provisions or recoveries in future periods that could materially impact our results of operations.
Other income (expenses)
Other income (expenses) for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
Three Months Ended March 31, Percentage
2023 2022 Variance Variance
Interest expense $ (81,360) $ (77,922) $ (3,438) 4.4 %
Interest income 4,255 22 4,233 19,240.9 %
Losses on debt extinguishment (556) — (556) N/A
Total other expenses $ (77,661) $ (77,900) $ 239 (0.3) %
43
Interest expense
Interest expense increased by $3.4 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year. The increase was due to increased borrowings that partially funded our recent acquisitions.
Interest income
Interest income increased by $4.2 million for the three months ended March 31, 2023 as compared to the corresponding period in the prior year due to higher market interest rates earned on cash deposits.
Losses on debt extinguishmen t
The Company redeemed its $500 million, 5.375% Senior Notes that were scheduled to mature in November 2023 during the three months ended March 31, 2023. In connection with this transaction the Company wrote-off deferred issuance costs of $0.6 million.
Net income attributable to noncontrolling interest in the Operating Partnership
As partial consideration for the acquisition of certain real estate assets, the Company's operating partnership issued OP Units to affiliates of Cordish and Bally's. The OP Units are exchangeable for common shares of the Company on a one-for-one basis, subject to certain terms and conditions. The operating partnership is a variable interest entity ("VIE") in which the Company is the primary beneficiary because it has the power to direct the activities of the VIE that most significantly impact the partnership's economic performance and has the obligation to absorb losses of the VIE that could be potentially significant to the VIE and the right to receive benefits from the VIE that could be significant to the VIE. Therefore, the Company consolidates the accounts of the operating partnership, and reflects the third party ownership in this entity as a noncontrolling interest in the Condensed Consolidated Balance Sheets and allocates the proportion of net income to the noncontrolling interests on the Condensed Consolidated Statements of Income.
44
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 $241.2 million and $233.2 million during the three months ended March 31, 2023 and 2022, respectively. The increase in net cash provided by operating activities of $8.0 million for the three months ended March 31, 2023, as compared to the corresponding period in the prior year, was primarily comprised of an increase in cash receipts from customers of $30.4 million along with a decrease in cash paid to employees of $0.3 million partially offset by increases in amounts paid for operating expenses of $2.0 million and in cash paid for interest of $24.9 million. The increase in cash receipts collected from our customers for the three months ended March 31, 2023, as compared to the corresponding period in the prior year, was due to increased rental income from the Company's recent acquisitions as well as escalations and favorable variable rent resets on our tenant leases.
Investing activities used cash of $422.1 million and $131.4 million during the three months ended March 31, 2023 and 2022, respectively. Net cash used in investing activities during the three months ended March 31, 2023 consisted primarily of $412.3 million for the acquisition of the real estate assets which were added to the Bally's Master Lease, and capital expenditures of $9.8 million. The net cash used in investing activities for the three months ended March 31, 2022 consisted primarily of $129.0 million for the acquisition of the real estate assets contained within the Pennsylvania Live! Master Lease which was accounted for as an Investment in lease, financing receivables and capital expenditures of $2.4 million.
Financing activities used cash of $51.4 million and $670.3 million during the three months ended March 31, 2023 and 2022, respectively. Net cash used in financing activities during the three months ended March 31, 2023 was driven by the repayment of long term debt of $500.0 million, dividend payments of $254.8 million, non-controlling interest distributions of $7.4 million, taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $13.4 million which were partially offset by proceeds from the issuance of long term debt, net of costs, of $660.0 million and proceeds from the issuance of common stock, net of costs, totaling $64.3 million. Cash used in financing activities during the three months ended March 31, 2022 was driven primarily by the repayment of long term debt of $422.9 million relating to the acquisition of the real estate assets contained with the Pennsylvania Live! Master Lease, dividend payments of $230.4 million, noncontrolling interest distributions of $5.1 million and taxes paid related to shares withheld for tax purposes on restricted stock award vestings of $11.9 million.
Capital Expenditures
Capital expenditures are accounted for as either capital project expenditures or capital maintenance (replacement) expenditures. Capital project expenditures are for fixed asset additions that expand an existing facility or create a new facility. The cost of properties developed by the Company include costs of construction, property taxes, interest and other miscellaneous costs incurred during the development period until the project is substantially complete and available for occupancy. Capital maintenance expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair.
During the three months ended March 31, 2023 and 2022, we spent approximately $9.8 million and $2.4 million, respectively, for capital expenditures. The majority of the capital expenditures were related to a land side development project at Hollywood Casino Baton Rouge.
Debt
Term Loan Credit Agreement
On September 2, 2022, GLP Capital entered into a term loan credit agreement (the “Term Loan Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent (“Term Loan Agent”), and the other agents and lenders party thereto from time to time, providing for a $600 million delayed draw credit facility with a maturity date of September 2, 2027 (the “Term Loan Credit Facility”). The Term Loan Credit Facility is guaranteed by GLPI.
The availability of loans under the Term Loan Credit Facility is subject to customary conditions, including pro forma compliance with financial covenants, and the receipt by Term Loan Agent of a conditional guarantee of the Term Loan Credit Facility by Bally’s on a secondary basis, subject to enforcement of all remedies against GLP Capital, GLPI and all sources other than Bally’s. The loans under the Term Loan Credit Facility may be used solely to finance a portion of the purchase price of the acquisition of one or more specified properties of Bally’s in one or a series of related transactions (the “Acquisition”) and to
45
pay fees, costs and expenses incurred in connection therewith. The Company drew down the entire $600 million Term Loan Credit Facility on January 3, 2023 in connection with the acquisition of the real property assets of Bally's Biloxi and Bally's Tiverton.
Subject to customary conditions, including pro forma compliance with financial covenants, GLP Capital can obtain additional term loan commitments and incur incremental term loans under the Term Loan Credit Agreement, so long as the aggregate principal amount of all term loans outstanding under the Term Loan Credit Facility does not exceed $1.2 billion plus up to $60 million of transaction fees and costs incurred in connection with the Acquisition. There is currently no commitment in respect of such incremental loans and commitments.
Interest Rate and Fees
The interest rates per annum applicable to loans under the Term Loan Credit Facility are, at GLP Capital's option, equal to either a Secured Overnight Financing Rate ("SOFR") based rate or a base rate plus an applicable margin, which ranges from 0.85% to 1.7% per annum for SOFR loans and 0.0% to 0.7% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Term Loan Credit Facility. The current applicable margin is 1.30% for SOFR loans and 0.30% for base rate loans. In addition, GLP Capital will pay a commitment fee on the unused commitments under the Term Loan Credit Facility at a rate that ranges from 0.125% to 0.3% per annum, depending on the credit ratings assigned to the Credit Facility from time to time. The current commitment fee rate is 0.25%.
Amortization and Prepayments
The Term Loan Credit Facility is not subject to interim amortization. GLP Capital is required to prepay outstanding term loans with 100% of the net cash proceeds from the issuance of other debt that is unconditionally guaranteed by GLPI and conditionally guaranteed by Bally’s (“Alternative Acquisition Debt”) that is received by GLPI, GLP Capital or any of their subsidiaries after the funding date of the Term Loan Facility (other than any incremental term loans under the Term Loan Credit Agreement and loans under the Bridge Revolving Facility (as defined below)) except to the extent such net cash proceeds are applied to repaying outstanding loans under the Bridge Revolving Facility. GLP Capital is not otherwise required to repay any loans under the Term Loan Credit Facility prior to maturity. GLP Capital may prepay all or any portion of the loans under the Term Loan Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders, and may reborrow loans that it has repaid.
Certain Covenants and Events of Default
The Term Loan Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries, including GLP Capital, to grant liens on their assets, incur indebtedness, sell assets, engage in acquisitions, mergers or consolidations, or pay certain dividends and make other restricted payments. The financial covenants include the following, which are measured quarterly on a trailing four-quarter basis: (i) maximum total debt to total asset value ratio, (ii) maximum senior secured debt to total asset value ratio, (iii) maximum ratio of certain recourse debt to unencumbered asset value, and (iv) minimum fixed charge coverage ratio. GLPI is required to maintain its status as a REIT and is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status. GLPI is also permitted to make other dividends and distributions, subject to pro forma compliance with the financial covenants and the absence of defaults. The Term Loan Credit Facility also contains certain customary affirmative covenants and events of default. The occurrence and continuance of an event of default, which includes, among others, nonpayment of principal or interest, material inaccuracy of representations and failure to comply with covenants, will enable the lenders to accelerate the loans and terminate the commitments thereunder.
Senior Unsecured Credit Agreement and Amended Credit Agreement
On May 13, 2022, GLP Capital entered into a credit agreement (the "Credit Agreement") providing for a $1.75 billion revolving credit facility (the "Initial Revolving Credit Facility") maturing in May 2026, plus two six-month extensions at GLP Capital's option. GLP Capital is the primary obligor under the Credit Agreement, which is guaranteed by GLPI.
On September 2, 2022, GLP Capital entered into an amendment to the Credit Agreement among GLP Capital, Wells Fargo Bank, National Association, as administrative agent (“Agent”), and the several banks and other financial institutions or entities party thereto (as amended by such amendment, the "Amended Credit Agreement"). Pursuant to the Amended Credit Agreement, GLP Capital has the right, at any time until December 31, 2024, to elect to re-allocate up to $700 million in existing revolving commitments under the Amended Credit Agreement to a new revolving credit facility (the “Bridge Revolving Facility” and, collectively with the Initial Revolving Credit Facility, the "Revolver").
46
Loans under the Bridge Revolving Facility are subject to 1% amortization per annum. Amounts repaid under the Bridge Revolving Facility cannot be reborrowed and the corresponding commitments are automatically re-allocated to the existing revolving facility under the Amended Credit Agreement. GLP Capital is required to prepay the loans under the Bridge Revolving Facility with 100% of the net cash proceeds from the issuance of Alternative Acquisition Debt that is received by GLPI, GLP Capital or any of their subsidiaries (other than any term loans under the Term Loan Credit Agreement and any loans under the Bridge Revolving Facility). Any outstanding commitments under the Bridge Revolving Facility that have not been borrowed by December 31, 2024 are automatically re-allocated to the existing revolving facility under the Amended Credit Agreement.
GLP Capital's ability to borrow under the Bridge Revolving Facility is subject to certain conditions including pro forma compliance with GLP Capital's financial covenants, as well as the receipt by Agent of a conditional guarantee of the loans under the Bridge Revolving Facility by Bally’s on a secondary basis, subject to enforcement of all remedies against GLP Capital, GLPI and all sources other than Bally’s. Loans under the Bridge Revolving Facility will not be treated pro rata with loans under the existing revolving credit facility.
At March 31, 2023, $60.0 million was outstanding under the Amended Credit Agreement. Additionally, at March 31, 2023, the Company was contingently obligated under letters of credit issued pursuant to the Amended Credit Agreement with face amounts aggregating approximately $0.4 million, resulting in $1,689.6 million of available borrowing capacity under the Amended Credit Agreement as of March 31, 2023.
The interest rates payable on the loans borrowed under the Revolver are, at GLP Capital's option, equal to either a SOFR based rate or a base rate plus an applicable margin, which ranges from 0.725% to 1.40% per annum for SOFR loans and 0.0% to 0.4% per annum for base rate loans, in each case, depending on the credit ratings assigned to the Amended Credit Agreement. The current applicable margin is 1.05% for SOFR loans and 0.05% for base rate loans. Notwithstanding the foregoing, in no event shall the base rate be less than 1.00%. In addition, GLP Capital will pay a facility fee on the commitments under the revolving facility, regardless of usage, at a rate that ranges from 0.125% to 0.3% per annum, depending on the credit rating assigned to the Amended Credit Agreement from time to time. The current facility fee rate is 0.25%. The Amended Credit Agreement is not subject to interim amortization except with respect to the Bridge Revolving Facility. GLP Capital is not required to repay any loans under the Amended Credit Agreement prior to maturity except as set forth above with respect to the Bridge Revolving Facility. GLP Capital may prepay all or any portion of the loans under the Amended Credit Agreement prior to maturity without premium or penalty, subject to reimbursement of any SOFR breakage costs of the lenders and may reborrow loans that it has repaid.
The Amended Credit Agreement contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and make other restricted payments. The Amended Credit Agreement includes 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. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status, subject to the absence of payment or bankruptcy defaults. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Amended Credit Agreement also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Amended PENN Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Amended Credit Agreement will enable the lenders under the Amended Credit Agreement to accelerate the loans and terminate the commitments thereunder. At March 31, 2023, the Company was in compliance with all required financial covenants under the Amended Credit Agreement.
Senior Unsecured Notes
At March 31, 2023, the Company had $5,675.0 million of outstanding senior unsecured notes (the "Senior Notes"). Each of the Company's Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the Amended 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.
47
The Company may redeem the Senior Notes of any series at any time, and from time to time, at a redemption price of 100% of the principal amount of the Senior Notes redeemed, plus a "make-whole" redemption premium described in the indenture governing the Senior Notes, together with accrued and unpaid interest to, but not including, the redemption date, except that if Senior Notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the Senior Notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the Senior Notes of a particular series, the Company will be required to give holders of the Senior Notes of such series the opportunity to sell their Senior Notes of such series at a price equal to 101% of the principal amount of the Senior Notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The Senior Notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.
The Senior Notes were issued by GLP Capital, L.P. and GLP Financing II, Inc. (the "Issuers"), two consolidated subsidiaries of GLPI, and are guaranteed on a senior unsecured basis by GLPI. The guarantees of GLPI are full and unconditional. The Senior Notes are the Issuers' senior unsecured obligations and rank pari passu in right of payment with all of the Issuers' senior indebtedness, including the Amended Credit Facility, and senior in right of payment to all of the Issuers' subordinated indebtedness, without giving effect to collateral arrangements.
The Senior Notes contain covenants limiting the Company’s ability to: incur additional debt and use its assets to secure debt; merge or consolidate with another company; and make certain amendments to the PENN Master Lease. The Senior Notes also require the Company to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.
On January 13, 2023, the Company announced that it called for redemption all of the $500 million, 5.375% Senior Notes due in 2023 (the "Notes"). The Company redeemed all of the Notes on February 12, 2023 (the "Redemption Date") for $507.5 million which represented 100% of the principal amount of the Notes plus accrued interest through the Redemption Date, incurring a loss on the early extinguishment of debt of $0.6 million, primarily related to debt issuance write-offs. GLPI funded the redemption of the Notes primarily from cash on hand as well as through the settlement of a forward sale agreement that occurred in February 2023 which resulted in the issuance of 1,284,556 shares which raised net proceeds of $64.6 million.
GLPI owns all of the assets of GLP Capital and conducts all of its operations through the operating partnership. Based on the amendments to Rule 3-10 of Regulation S-X that the SEC released on January 4, 2021, we note that since GLPI fully and unconditionally guarantees the debt securities of the Issuers and consolidates both Issuers, we are not required to provide separate financial statements for the Issuers and GLPI since they are consolidated into GLPI and the GLPI guarantee is "full and unconditional".
Furthermore, as permitted under Rule 13-01(a)(4)(vi), we excluded the summarized financial information for the Issuers because the assets, liabilities and results of operations of the Issuers and GLPI are not materially different than the corresponding amounts in GLPI's consolidated financial statements and we believe such summarized financial information would be repetitive and would not provide incremental value to investors.
At March 31, 2023, the Company was in compliance with all required financial covenants under its Senior Notes.
Distribution Requirements
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, in order to qualify to be taxed as a REIT (assuming that certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings that we distribute. Such distributions generally can be made with cash and/or a combination of cash and Company common stock if certain requirements are met. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal income tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code. To the extent any of the Company's taxable income was not previously distributed, the Company will make a dividend declaration pursuant to Section 858(a)(1) of the Code, allowing the Company to treat certain dividends that are to be distributed after the close of a taxable year as having been paid during the taxable year.
48
Outlook
Based on our current level of operations and anticipated earnings, we believe that cash generated from operations and cash on hand, together with amounts available under our Revolver and potential sales of common shares, will be adequate to meet our anticipated debt service requirements, capital expenditures, working capital needs and dividend requirements.
We expect the majority of our future growth to come from acquisitions of gaming and other properties to lease to third parties. If we consummate significant acquisitions in the future, our cash requirements may increase significantly and we would likely need to raise additional proceeds through a combination of either common equity (including under our 2022 ATM Program), issuance of additional operating partnership units, and/or debt offerings. Our future operating performance and our ability to service or refinance our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See "Risk Factors-Risks Related to Our Capital Structure" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of the risk related to our capital structure.
49
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.