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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-06 · 259 added, 251 removed, 419 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q (“Form 10-Q”), and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2019.

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q (“Form 10-Q”), and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2019.

EXECUTIVE OVERVIEW

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(“Barstool Sports”), a leading digital sports, entertainment and media platform.

We also operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which launched an online casino (“iCasino”) through our HollywoodCasino.com gaming platform in the third quarter of 2019 and is scheduled to launch an online sports betting app called Barstool Sports in the third quarter of 2020.

Our MYCHOICE ® customer loyalty program currently has over 20 million members and provides our members with various benefits, including complimentary goods and/or services.

We believe our continued evolution into the best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value.

As of June 30, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia.

We also operate an interactive gaming (“iGaming”) division through our subsidiary, Penn Interactive Ventures, LLC (“Penn Interactive”), which operates an online casino (“iCasino”) and launched an online sports betting app called Barstool Sports in Pennsylvania in September 2020.

Our MYCHOICE ® customer loyalty program currently has over 20 million members, to whom we provide various benefits, including complimentary goods and/or services.

We believe our continued evolution into a best-in-class omni-channel provider of retail and online gaming and sports betting entertainment will be a catalyst for our core land-based business, while also providing a platform for significant long-term shareholder value.

As of September 30, 2020, we owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states and were licensed to offer live sports betting at our properties in Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania and West Virginia.

The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases;

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On March 11, 2020, the World Health Organization declared the novel coronavirus (known as “COVID-19”) outbreak to be a global pandemic.

We began temporary suspension of the operations of all of our 41 properties starting between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

We began reopening our properties on May 18, 2020 with reduced gaming and hotel capacity and limited food and beverage offerings in order to accommodate comprehensive social distancing and health and safety protocols developed in close consultation with state regulators and local and state public health officials.

As of June 30, 2020, we reopened 31 of our properties and as of the date of filing this Form 10-Q with the U.S.

Securities and Exchange Commission (the “SEC”), all of our properties, with the exception of Tropicana Las Vegas (“Tropicana”), which is scheduled to reopen on September 1, 2020;

Valley Race Park;

and Zia Park Casino;

have reopened.

We began temporary suspension of the operations of all of our properties between March 13, 2020 and March 19, 2020 pursuant to various orders from state gaming regulatory bodies or governmental authorities to combat the rapid spread of COVID-19.

As of September 30, 2020, with the exception of Valley Race Park and Zia Park Casino, all of our properties have reopened.

For a thorough discussion of the operating performance of our properties since reopening, see “Results of Operations” below.

During the first quarter of 2020, the Company took various actions to reduce its cost structure during the property closures to help mitigate the operating and financial impact of the COVID-19 pandemic, which included:

(i) furloughing approximately 26,000 employees and operating with a minimum staffing of less than 850 employees company-wide during the closures;

(ii) enacting meaningful compensation reductions to its remaining property and corporate leadership teams effective April 1, 2020 until such time as the Company determines that its properties have substantially returned to normal operations;

and (iii) executing substantial reductions in operating expenses, capital expenditures, including temporarily suspending construction of its two planned Category 4 development projects in Pennsylvania, and overall costs.

In addition, the Company’s Board of Directors elected to forgo their cash compensation effective April 1, 2020 until such time as the Company determines that its properties have substantially returned to normal operations.

As of June 30, 2020, approximately 13,000 employees have returned to work.

Between March 13, 2020 and May 19, 2020, the Company entered into a series of transactions to improve its financial position and liquidity in light of the COVID-19 pandemic, including:

(i) borrowing the remaining available amount of $430.0 million under its Revolving Credit Facility ;

(ii) entering into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with the Company ’ s Tropicana property in exchange for rent credits of

$307.5 million, which closed on April 14, 2020, and (b) purchase the land underlying the Company ’ s H ollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which is expected to close in the fourth quarter of 2020 (the land will be immediately leased back from GLPI);

(iii) completing an offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes;

and (iv) completing a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million.

During the first quarter of 2020, the Company took various actions to reduce its cost structures to help mitigate the operating and financial impact of the COVID-19 pandemic during the period the properties were closed, which included:

(i) furloughing the vast majority of its employees and operating with a minimum staffing of less than 850 employees company-wide during the closures;

(ii) enacting meaningful compensation reductions to its remaining property and corporate leadership teams effective April 1, 2020 and through September 30, 2020 (compensation was fully restored effective October 1, 2020);

and (iii) executing substantial reductions in operating expenses and capital expenditures, including temporarily suspending construction of its two planned Category 4 development projects in Pennsylvania.

In addition, during the pendency of property closures, the Company’s Board of Directors elected to forgo their cash compensation, effective April 1, 2020, and through September 30, 2020.

Between March 13, 2020 and September 30, 2020, we entered into a series of transactions to improve our financial position and liquidity in light of the COVID-19 pandemic, including:

(i) on March 13, 2020, we provided notice to our lenders to borrow the remaining available amount of $430.0 million under our Revolving Credit Facility;

(ii) on March 27, 2020, we entered into a binding term sheet with GLPI (the “Term Sheet”) whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana Las Vegas (“Tropicana”) in exchange for rent credits of $307.5 million, which closed on April 16, 2020, and (b) a sale-leaseback of the land underlying our Hollywood Casino Morgantown (“Morgantown”) development project in Morgantown, Pennsylvania, in exchange for rent credits of $30.0 million, which closed on October 1, 2020;

(iii) on May 14, 2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to acquire additional 2.75% Convertible Notes), we completed a public offering of $330.5 million aggregate principal amount of 2.75% Convertible Notes;

(iv) on May 14,

2020 (May 19, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed a public offering of 19,166,667 aggregate shares of common stock, par value of $0.01 per share, of the Company (“Penn Common Stock”) for gross proceeds of $345.0 million;

and (v) on September 24, 2020 (September 25, 2020 with respect to the Underwriters’ exercising their options to purchase additional shares), we completed a public offering of 16,100,000 aggregate shares of Penn Common Stock for gross proceeds of $982.1 million.

In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement, which, among other things, provides it with relief from its financial covenants for a period of up to one year.

The terms “Revolving Credit Facility,” “Convertible Notes” and “Credit Agreement” are defined in “Liquidity and Capital Resources.”

The COVID-19 pandemic caused significant disruptions to our business and a material adverse impact on our financial condition, results of operations, and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of any recovery in visitation and consumer spending at our properties;

(ii) the continued impact of implementing social distancing and health and safety guidelines at our properties, including reductions in gaming and hotel capacity and limiting the number of food and beverage options;

and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic worsens.

We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether any recovery in visitation and consumer spending is sustainable.

In the event that the COVID-19 pandemic worsens and/or we are required to again temporarily suspend our operations, we may need to take additional actions to reduce costs, preserve liquidity and remain in compliance with our financial covenants.

Further, on September 30, 2020, the Company fully repaid $670.0 million of outstanding borrowings under its Revolving Credit Facility.

The terms “Revolving Credit Facility,” “Convertible Notes” and “Credit Agreement” are defined in “Liquidity and Capital Resources” below.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic.

The economic relief package includes government loan enhancement programs and various tax provisions to help improve liquidity for American businesses.

Based on our evaluation of the CARES Act, we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss carryback and immediate expensing for eligible qualified improvement property.

We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above.

The Penn National Gaming Foundation established a COVID-19 emergency relief fund to assist our team members and local relief organizations affected by the COVID-19 pandemic.

More than $1.7 million has been raised through personal donations from our Chief Executive Officer, senior management team, Board of Directors and property general managers, in addition to contributions from the Company and property employee assistance funds.

We also extended medical benefits of furloughed employees through August 31, 2020.

The Company continues to evaluate the nature and extent of the impact of the COVID-19 pandemic on its business.

We are currently unable to determine the length and severity of the pandemic.

The continuation of the outbreak may again cause state gaming and health authorities to require temporary suspension of operations at our properties;

enforce further limits on the number of customers in casinos;

or continue or increase prohibitions of large gatherings, such as concerts and conventions.

The COVID-19 pandemic may further influence changes in customer behavior or a potential reduction in consumer discretionary spending.

The COVID-19 pandemic had a material adverse impact on our business, financial condition, results of operations and cash flows for the first quarter and second quarter of 2020.

Due to the ongoing situation, our business, financial condition, results of operations and cash flows for the third and fourth quarter 2020 could be impacted in ways we are not able to fully predict today.

Even with most of our properties reopened, there can be no assurance that our business, financial condition, results of operations and cash flows will return to levels that existed prior to the COVID-19 pandemic.

Based on our evaluation of the CARES Act, we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (“NOL”) carryback and immediate expensing for eligible qualified improvement property.

We intend to continue to review and consider available benefits under the CARES Act for which we qualify, including those described above.

The COVID-19 pandemic caused significant disruptions to our business and a material adverse impact on our financial condition, results of operations and cash flows, the magnitude of which continues to develop based on (i) the timing and extent of the recovery in visitation and consumer spending at our properties;

and (iii) whether any of our properties will be required to again temporarily suspend operations in the event that the pandemic worsens.

We are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change or whether the recovery in visitation and consumer spending is sustainable.

The Company could experience other potential adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, or impairments of investments in joint ventures.

In addition, the negative impacts of the COVID-19 pandemic may result in further changes in the amount of valuation allowance required.

Actual results may differ materially from the Company’s current estimates as the scope of the COVID-19 pandemic evolves, depending largely, though not exclusively, on the impact of required capacity reductions, social distancing and health and safety guidelines, and the sustainability of current trends in recovery at our reopened properties.

Recent Acquisitions, Development Projects and Other

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Upon closing, we became Barstool Sports’ exclusive gaming partner for up to 40 years and have the sole right to utilize the Barstool Sports brand for all of our online and retail sports betting and iCasino products.

As noted above, Penn Interactive is scheduled to launch the Barstool Sports online sports betting app in the third quarter of 2020, with the first planned launch in Pennsylvania.

We expect the Barstool Sports app to operate in additional states by the end of the fourth quarter of 2020.

In addition, we expect to use the Barstool Sports brand in the operation of our retail sportsbooks later in 2020.

As noted above, Penn Interactive launched the Barstool Sports online sports betting app in September 2020, which currently operates in Pennsylvania.

We expect the Barstool Sports app to operate in Michigan by the end of 2020, subject to regulatory approval.

In addition, we expect to use the Barstool Sports brand in the operation of certain of our retail sportsbooks by the end of 2020.

In May 2019, we acquired Greektown Casino-Hotel (“Greektown”), in Detroit, Michigan, subject to a triple net lease with VICI Properties Inc.

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In March 2020, in light of the COVID-19 pandemic, we temporarily suspended construction of our development of two Category 4 satellite gaming casinos in Pennsylvania:

Hollywood Casino York (“York”) and Morgantown.

The Term Sheet discussed above also provides that the Company and GLPI will enter into an option agreement whereby GLPI will grant the Company the exclusive right until December 31, 2020 to purchase the operations of Hollywood Casino Perryville for $31.1 million, with the closing of such purchase to occur on a date selected by the Company during 2021.

If the option is exercised and the transaction is completed, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial rent of $7.8 million per year subject to escalation.

The option agreement is expected to be formalized in the third quarter of 2020 and we currently expect to exercise the option by the end of 2020.

Hollywood Casino York (“York”)

and Morgantown.

We anticipate resuming construction later this year on both projects and expect them to open in the second half of 2021.

If, as anticipated, the option is exercised and the transaction is completed, we would lease the real estate assets associated with Hollywood Casino Perryville from GLPI with initial rent of $7.8 million per year subject to escalation.

We expect to exercise the purchase option by the end of 2020.

Additionally, pursuant to the Term Sheet, we agreed that, in the future, we would exercise the next scheduled five-year renewal under the Penn Master Lease as well as the Pinnacle Master Lease, and GLPI agreed they would grant us the option to exercise an additional five-year renewal term at the end of the lease term on the Penn Master Lease and the Pinnacle Master Lease, subject to certain conditions.

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Most of our properties operate in mature, competitive markets.

While the full impact of the COVID-19 pandemic on our business cannot be reasonably estimated at this time, we continue to expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting;

We expect that the majority of our future growth will come from new business lines or distribution channels, such as retail and online gaming and sports betting;

entrance into new jurisdictions;

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Prior to the COVID-19 pandemic, the economic environment, specifically historically low levels of unemployment, strength in residential real estate prices, and high levels of consumer confidence, had resulted in a stable operating environment in recent years.

The COVID-19 pandemic has significantly increased the level of unemployment and decreased the level of consumer confidence.

The COVID-19 pandemic has increased the level of unemployment and decreased the level of consumer confidence.

Our ability to succeed in this new environment will be predicated on our ability to adjust operations and cost structures at our reopened properties to reflect the new economic and health and safety conditions, operating our properties efficiently, realizing revenue and cost synergies from recent acquisitions, and offering our customers additional gaming experiences through our omni-channel distribution strategy.

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sweepstakes and poker machines not located in casinos;

the potential for increased fantasy sports, Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in;

the potential for increased fantasy sports, significant growth of Native American gaming tribes, historic racing or state-sponsored i-lottery products in or adjacent to states we operate in;

and other forms of gaming in the U.S.

More specifically, due to recent legislation to expand gaming in and around Illinois, Indiana, Massachusetts and Pennsylvania, several of our properties within our Northeast segment and some

of our properties within our Midwest segment have been and will continue to be negatively impacted by new or increased competition.

More specifically, due to recent legislation to expand gaming in and around Illinois, Indiana, Massachusetts and Pennsylvania, several of our properties within our Northeast segment and some of our properties within our Midwest segment have been and will continue to be negatively impacted by new or increased competition.

Key Performance Indicators

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However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others.

For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs.

For example, decreases in discretionary consumer spending have historically been brought

about by weakened general economic conditions, such as lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, and high fuel or other transportation costs.

In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters.

We believe that the COVID-19 pandemic will lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation and the volume of play for the foreseeable future.

We believe that the COVID-19 pandemic has led to and will continue to lead to meaningful decreases in discretionary consumer spending and will continue to negatively impact visitation at our properties and the volume of play for the foreseeable future.

In all instances, such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments.

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as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDAR and related margins.

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(dollars in millions) 2020 2019 2020 2019

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Intersegment eliminations (2)

(2.5) (0.7) (5.4) (0.7)

Total $ 1,129.7 $ 1,354.5 $ 2,551.3 $ 3,960.2

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(14.6) (25.0) (42.2) (66.1)

Intersegment eliminations (2)

— (0.1) — (0.1)

452.6 407.9 729.4 1,205.8

Rent expense associated with triple net operating leases (4)

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(1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club and the Company’s joint venture interests in Sam Houston Race Park, Valley Race Park, and Freehold Raceway.

The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, and iGaming;

The Other category also includes Penn Interactive, which operates social gaming, our internally-branded retail sportsbooks, iGaming and our Barstool Sports online sports betting app;

our management contract for Retama Park Racetrack;

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(3) The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other category).

As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric.

Adjusted EBITDAR decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our properties as a result of the COVID-19 pandemic.

As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric.

For three months ended September 30, 2020, as compared to the prior year period, Adjusted EBITDAR and Adjusted EBITDA, and the related margins, increased due to higher spend per trip (despite reductions in visitation) and cost structure initiatives such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food

and beverage offerings, such as buffets.

For nine months ended September 30, 2020, as compared to the prior period, Adjusted EBITDAR and Adjusted EBITDA, and the related margins, decreased due to the temporary closures of our properties as a result of the COVID-19 pandemic.

(4) Solely comprised of rent expense associated with the operating lease components contained within the Master Leases (primarily land), the Tropicana Lease, the Meadows Lease (as defined in “Liquidity and Capital Resources” ), the Margaritaville Lease and the Greektown Lease (referred to collectively as our “triple net operating leases”).

The finance lease components contained within the Master Leases (primarily buildings) result in interest expense, as opposed to rent expense.

(5) Adjusted EBITDA decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our properties as a result of the COVID-19 pandemic.

As rent expense is a normal, recurring cash operating expense, it is included within the calculation of Adjusted EBITDA.

(6) As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric.

(7) Adjusted EBITDA margin decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our properties as a result of the COVID-19 pandemic.

Consolidated comparison of the three and six months ended June 30, 2020 and 2019

Consolidated comparison of the three and nine months ended September 30, 2020 and 2019

The following table presents our consolidated revenues:

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

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Total revenues $ 1,129.7 $ 1,354.5 $ (224.8) (16.6) % $ 2,551.3 $ 3,960.2 $ (1,408.9) (35.6) %

Consolidated revenues decreased for the three and six months ended June 30, 2020 as a result of the temporary closures of all of our properties due to the COVID-19 pandemic.

Consolidated revenues decreased for the three and nine months ended September 30, 2020 primarily as a result of the COVID-19 pandemic, including the temporary closures of all of our properties during the year, and its continued impact on our business.

We began temporarily closing our properties on March 13, 2020 and began reopening our properties on May 18, 2020, resulting in all of our properties being closed for at least two months.

As of June 30, 2020, 31 of our 41 properties were reopened.

Our properties are subject to restrictions on gaming capacity;

depending on the jurisdiction, generally 50% less gaming devices.

As of September 30, 2020 , 39 of our 41 properties were reopened.

Our properties are subject to restrictions on gaming capacity, which depending on the jurisdiction, are generally 50% less gaming devices.

Furthermore, due primarily to the implementation of social distancing and health and safety protocols, our properties are subject to reduced hotel capacity and limitations on the number of food and beverage offerings.

As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and safety and health protocols are relaxed or no longer necessary.

Upon reopening, our properties generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels.

As a result, upon reopening our properties, gaming revenue now represents a larger portion of our total revenues, which we expect to continue until at least such time that social distancing and health and safety protocols are relaxed or no longer necessary.

Since reopening, our properties have generally experienced reduced visitation and higher spend per trip, as compared to pre-closure levels.

We largely attribute the higher spend per trip to pent-up demand, visitation from our higher worth customers, and customers’ propensity to spend after a prolonged period of limited domestic commerce and upon receipt of government stimulus payments.

In addition, in many of the states in which we operate, leisure alternatives remain partially limited (e.g., bars, concerts, entertainment events, etc.), which may have impacted our operating results upon reopening our properties.

See “Segment comparison of the three and six months ended June 30, 2020 and 2019 ” below for more detailed explanations of the fluctuations in revenues.

See “Segment comparison of the three and nine months ended September 30, 2020 and 2019” below for more detailed explanations of the fluctuations in revenues.

Operating expenses

The following table presents our consolidated operating expenses:

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

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Food, beverage, hotel and other expenses consist principally of salaries and wages and costs of goods sold associated with our food, beverage, hotel, retail, racing, and other operations.

Gaming, food, beverage, hotel and other expenses for the three and six

months ended June 30, 2020 decreased year over year primarily as a result of the temporary closures of all of our properties due to the COVID-19 pandemic, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses.

Gaming, food, beverage, hotel and other expenses for the three and nine

months ended September 30, 2020 decreased year over year primarily as a result of the temporary closures of all of our properties due to the COVID-19 pandemic, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses.

As discussed above, our reopened properties are operating with reduced gaming and hotel capacity and limited food and beverage options.

As such, our properties are operating with a reduced workforce, which reduces our salaries and wages.

As such, our properties are operating with a reduced workforce, which reduced our salaries and wages.

In addition, our properties have reduced marketing costs, which reduces gaming expenses.

General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, lobbying expenses, and certain housekeeping services, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit.

General and administrative expenses also include stock-based compensation expense, pre-opening and acquisition costs, gains and losses on disposal of assets, changes in the fair value of our contingent purchase price obligations, expense associated with cash-settled stock-based awards (including changes in fair value thereto) and rent expense associated with our triple net operating leases.

General and administrative expenses for the three and six months ended June 30, 2020 decreased year over year primarily as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which are discussed above and were mostly effective April 1, 2020.

In addition, during the three and six months ended June 30, 2020, we recognized a gain on disposal of assets of $28.5 million as well as $21.8 million in payroll credits under the CARES Act, both of which reduced general and administrative expenses.

Offsetting these decreases for the three and six months ended June 30, 2020, as compared to the prior year periods, were increases in rent expense associated with our triple net operating leases of $13.8 million and $26.6 million, respectively, which principally relate to the Tropicana Lease and the Greektown Lease, and increases in expense associated with the Company’s cash-settled stock-based awards of $19.5 million and $10.2 million, respectively, which are largely driven by the increase in the Company’s stock price.

Furthermore, the expense associated with the Company’s contingent purchase price obligations decreased by $7.2 million for the six months ended June 30, 2020, as compared to the prior year period.

Depreciation and amortization for the three and six months ended June 30, 2020 decreased year over year primarily due to fixed assets becoming fully depreciated since June 30, 2019, the sale of the real estate assets of Tropicana in April 2020, and decreases of $0.3 million and $0.9 million, respectively, in amortization expense at Penn Interactive, offset by increases of $1.3 million and $4.8 million, respectively, at Greektown, which was acquired in May 2019.

Impairment losses for the six months ended June 30, 2020 primarily relate to impairments taken on our goodwill and other intangible assets of $113.0 million and $498.5 million, respectively, as a result of an interim impairment assessment during the first quarter of 2020.

General and administrative expenses also include stock-based compensation expense;

pre-opening and acquisition costs;

gains and losses on disposal of assets;

changes in the fair value of our contingent purchase price obligations;

expense associated with cash-settled stock-based awards (including changes in fair value thereto);

restructuring costs (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic;

and rent expense associated with our triple net operating leases.

For three months ended September 30, 2020, general and administrative expenses increased year over year primarily due to the increase in expense associated with the Company’s cash-settled stock-based awards of $43.0 million, which is largely driven by the increase in the Company's stock price.

Rent expense associated with our triple net operating leases increased by $12.7 million, as compared to the prior year period;

the increase principally relates to the Tropicana Lease.

Additionally, we incurred $12.4 million of restructuring costs primarily related to employee severance as a result of the COVID-19 pandemic that had not been incurred before the third quarter of 2020.

The increase in general and administrative expenses was offset by $13.6 million in payroll tax credits received under the CARES Act as well as a recognized gain of $6.1 million related to the sale of assets, both of which reduced general and administrative expenses for three months ended September 30, 2020.

For nine months ended September 30, 2020, general and administrative expenses decreased year over year primarily as a result of the actions taken to reduce our cost structure while our properties were temporarily closed, which are discussed above and were mostly effective April 1, 2020 through September 30, 2020.

In addition, we received $35.0 million in payroll credits under the CARES Act as well as recognized a gain on disposal of assets of $33.9 million, both of which reduced general and administrative expenses for the nine months ended September 30, 2020.

Additionally, the expense associated with the Company’s contingent purchase price obligations decreased by $8.4 million, as compared to the prior year period.

Offsetting these decreases for nine months ended September 30, 2020, as compared to the prior year period, was an increase in expense associated with the Company’s cash-settled stock-based awards expense of $53.2 million, due to the increase in our stock price, and an increase in rent expense of $39.3 million, which principally relates to the Tropicana Lease and the Greektown Lease.

Additionally, we incurred $12.4 million of restructuring costs, primarily related to employee severance as a result of the COVID-19 pandemic as described above.

Depreciation and amortization for the three and nine months ended September 30, 2020 decreased year over year primarily due to fixed assets becoming fully depreciated since September 30, 2019, the sale of the real estate assets of Tropicana in April 2020, and decreases of $1.0 million and $6.8 million, respectively, in amortization expense at Penn Interactive.

These were offset for the nine months ended September 30, 2020 by an increase of $4.0 million at Greektown, which was acquired in May 2019.

Impairment losses for the nine months ended September 30, 2020 primarily relate to impairments taken on our goodwill and other intangible assets of $113.0 million and $498.5 million, respectively, as a result of an interim impairment assessment during the first quarter of 2020.

During the first quarter of 2020, we identified an indicator of impairment triggered by the COVID-19 pandemic, which caused all of our gaming properties to temporarily close.

2 unchanged sentences

The following table presents our consolidated other income (expenses):

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

1 unchanged sentence

Interest expense, net $ (142.3) $ (133.5) $ (8.8) 6.6 % $ (407.1) $ (400.5) $ (6.6) 1.6 %

Income (loss) from unconsolidated affiliates $ (1.7) $ 6.2 $ (7.9) N/M $ 2.4 $ 11.9 $ (9.5) (79.8) %

Income from unconsolidated affiliates $ 5.0 $ 9.8 $ (4.8) (49.0) % $ 7.4 $ 21.7 $ (14.3) (65.9) %

Income tax benefit (expense) $ 14.3 $ (19.6) $ 33.9 N/M $ 172.2 $ (53.0) $ 225.2 N/M

1 unchanged sentence

N/M - Not meaningful

Interest expense, net increased for the three months ended June 30, 2020, as compared to the prior year period, due to increases in interest expense relating to our Master Leases of $0.7 million and interest expense relating to our long-term debt of $0.1 million.

Interest expense relating to our long-term debt increased due to the issuance of the 2.75% Convertible Notes, which offset the reduction in interest expense incurred on the Senior Secured Credit Facilities ( as defined in “Liquidity and Capital Resources” ) from a decrease in the London Interbank Offered Rate (referred to as “LIBOR”) during the corresponding periods.

Interest expense, net decreased for the six months June 30, 2020, as compared to the prior year period, primarily due to a decrease in interest expense relating to our long-term debt of $1.7 million and an increase in capitalized interest of $0.9 million, offset by an increase in interest expense relating to our Master Leases of $0.4 million.

The decrease in interest expense relating to long-term debt is due to the decrease in LIBOR during the corresponding periods despite incremental borrowings under our Revolving Credit Facility in light of the COVID-19 pandemic and the issuance of the Convertible Notes.

Income (loss) from unconsolidated affiliates relates principally to Barstool Sports and our Kansas Entertainment joint venture.

The decrease for the three and six months ended June 30, 2020, as compared to the prior year periods, was due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which was temporarily closed between March 18, 2020 and May 25, 2020.

Income tax benefit (expense) was $58.4 million and $157.9 million for the three and six months ended June 30, 2020, respectively, as compared to $(18.5) million and $(33.4) million for the three and six months ended June 30, 2019, respectively.

Our effective tax rate (income taxes as a percentage of income or loss from operations before income taxes) including discrete items was 21.4% and 16.1% for the three and six months ended June 30, 2020, as compared to 26.5% for both the three and six months ended June 30, 2019, primarily due to a reduction of pre-tax income.

Interest expense, net increased for the three and nine months ended September 30, 2020, as compared to the prior year period, due to increases in interest expense related to our Master Leases of $6.1 million and $6.5 million, respectively.

Additionally, the interest expense associated with our long-term debt increased, as compared to the prior year period, by $3.0 million and $1.2 million for three and nine months ended September 30, 2020, respectively, primarily due to the issuance of our 2.75% Convertible Notes, which offset the reduction in interest expense incurred on the Senior Secured Credit Facilities (as defined in “ Liquidity and Capital Resources ”) from a decrease in the London Interbank Offered Rate (referred to as “LIBOR”) during the corresponding periods.

Income from unconsolidated affiliates relates principally to Barstool Sports and our Kansas Entertainment joint venture.

The decrease for the three and nine months ended September 30, 2020, as compared to the prior year periods, was due to a decrease in the results of operations of Hollywood Casino at Kansas Speedway, which was temporarily closed between March 18, 2020 and May 25, 2020 and continues to be impacted by COVID-19 capacity restrictions.

Income tax benefit (expense) was $14.3 million and $172.2 million for the three and nine months ended September 30, 2020, respectively, as compared to $(19.6) million and $(53.0) million for the three and nine months ended September 30, 2019, respectively.

Our effective tax rate (income taxes as a percentage of income or loss from operations before income taxes) including discrete items was (11.3)% and 20.2% for the three and nine months ended September 30, 2020, as compared to 31.0% and 28.0% for the three and nine months ended September 30, 2019.

The effective rate for the three months ended September 30, 2020, was lower than the prior year period, primarily driven by the reduction in the valuation allowance as a result of the recent law change whereby qualified improvement property now qualifies for accelerated bonus depreciation, which was applied on a retroactive basis.

The change in the effective rate for the nine months ended September 30, 2020 as compared to the prior year period was primarily due to a reduction of pre-tax income.

The CARES Act temporarily removes certain restrictions originally imposed by the Tax Cuts and Jobs Act of 2017.

Corporate taxpayers are now permitted to carryback up to five years of federal net operating losses (“NOLs”) originating in tax years 2018, 2019, and 2020 and offset 100% of taxable income with available NOLs.

Corporate taxpayers are now permitted to carryback up to five years of federal NOLs originating in tax years 2018, 2019, and 2020 and offset 100% of taxable income with available NOLs.

The CARES Act also temporarily (i) increases the interest deductibility threshold from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020, (ii) allows a refund of alternative minimum tax credits, (iii) increases the corporate charitable deduction limit to 25% and (iv) makes eligible qualified improvement property available for immediate expensing.

The enactment of the CARES Act did not have a significant impact on our effective tax rate for the three months ended June 30, 2020;

however, we are estimating an income tax refund between approximately $40 million and $50 million primarily attributable to the carryback of NOLs.

Due to t he enactment of the CARES Act, we are estimating an income tax refund between approximately $40 million and $50 million primarily attributable to the carryback of NOLs.

We will continue to monitor any impact and revise our preliminary near-term liquidity benefit as a result of this new law.

As of June 30, 2020, we have a valuation allowance on the portion of the deferred tax assets that is not more likely than not to be realized as a result of the negative objective evidence of being in a three-year cumulative loss and we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or a portion of these allowances.

As of September 30, 2020, we have a valuation allowance on the portion of the deferred tax assets that is not more likely than not to be realized as a result of the negative objective evidence of being in a three-year cumulative loss and we intend to continue maintaining a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or a portion of these allowances.

A reduction in the valuation allowance would result in a significant decrease to income tax expense in the period the release is recorded.

3 unchanged sentences

Other includes miscellaneous income and expense items.

The amount for the three and six months ended June 30, 2020 relates to unrealized holding gains of $29.5 million and $7.7 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio.

Segment comparison of the three and six months ended June 30, 2020 and 2019

The amount for the three and nine months ended September 30, 2020 relates primarily to unrealized holding gains of $67.9 million and $75.6 million, respectively, on equity securities (including warrants), which were acquired during the third quarter of 2019 in connection with Penn Interactive entering into multi-year agreements with sports betting operators for online sports betting and related iGaming market access across our portfolio.

Segment comparison of the three and nine months ended September 30, 2020 and 2019

Northeast Segment

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Total revenues $ 545.1 $ 628.9 $ (83.8) (13.3) % $ 1,168.5 $ 1,778.6 $ (610.1) (34.3) %

Adjusted EBITDAR $ (3.6) $ 186.2 $ (189.8) N/M $ 120.9 $ 351.0 $ (230.1) (65.6) %

Adjusted EBITDAR $ 204.8 $ 189.1 $ 15.7 8.3 % $ 325.7 $ 540.1 $ (214.4) (39.7) %

Adjusted EBITDAR margin 37.6 % 30.1 % 750 bps 27.9 % 30.4 % (250) bps

N/M - Not meaningful

The Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our gaming properties within the Northeast segment beginning between March 13, 2020 and March 19, 2020 as a result of the COVID-19 pandemic.

We reopened Hollywood Casino at Charles Town Races on June 5, 2020, Meadows Racetrack and Casino on June 9, 2020, and Hollywood Casino at Penn National Race Course on June 19, 2020.

Furthermore, our Indiana properties and our Ohio properties reopened on June 15, 2020 and June 19, 2020, respectively.

Plainridge Park Casino, Hollywood Casino Bangor, and Greektown, reopened on July 8, 2020, July 10, 2020, and August 5, 2020, respectively.

All of our properties within the Northeast segment reopened with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In the periods between reopening and June 30, 2020, the majority of our reopened properties in the Northeast segment experienced total revenues and Adjusted EBITDAR growth as compared to the prior year, with Hollywood Casino Toledo particularly benefiting from the fact that casinos in Detroit, Michigan had not yet reopened as of June 30, 2020.

In addition to Hollywood Casino Toledo, Ameristar East Chicago, Hollywood Casino Lawrenceburg, and Hollywood Gaming at Dayton Raceway experienced strong reopenings.

Hollywood Casino at Charles Town Races initially benefited after reopening due to the fact that one of its principal competitors located in Maryland reopened approximately 4 weeks after our property reopened.

Meadows Racetrack and Casino and Hollywood Casino at Penn National Race Course continue to be negatively impacted by recent increases in competition in and around the Pennsylvania market.

In the periods between reopening and June 30, 2020, Adjusted EBITDAR margins of reopened properties were higher than the prior year due to operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings, such as buffets.

The Northeast segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic.

Our gaming properties within the region experienced temporary closures beginning on March 13, 2020.

All of our properties within the Northeast segment reopened between June 5, 2020 and August 5, 2020 and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In response to the impact of the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the three months ended September 30, 2020, the Northeast segment’s total revenues decreased, as compared to the prior year period, due principally to the temporary closures and social distancing measures described above.

Despite the decrease in total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin increased for the three months ended September 30, 2020, as compared to the prior year period, due to higher spend per trip and our cost structure savings initiatives described above.

Hollywood Casino Toledo particularly benefited from delayed reopening dates of casinos in Detroit, Michigan as well as strict social distancing limitations on casino occupancy of 15% in Detroit, Michigan, which, on the other hand, negatively impacted Greektown's performance for the period.

Along with Greektown, Hollywood Casino Bangor and Plainridge Park Casino were amongst the last regional properties to reopen during the third quarter of 2020, between July 8, 2020 and August 5, 2020, and they continue to be negatively impacted by the COVID-19 pandemic environment.

For the nine months ended September 30, 2020, the Northeast segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above.

We reopened Hollywood Casino at Charles Town Races, Hollywood Casino at Penn National Race Course, Meadows Racetrack and Casino, our Indiana properties and our Ohio properties between June 5, 2020 and June 19, 2020.

Since reopening, Ameristar East Chicago, Hollywood Casino Toledo and Hollywood Gaming at Dayton Raceway experienced strong reopening results.

Hollywood Casino at Penn National Race Course and Meadows Racetrack and Casino continued to be negatively impacted by recent increases in competition in and around the Pennsylvania market in addition to COVID-19 occupancy restrictions.

South Segment

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

4 unchanged sentences

Adjusted EBITDAR margin 47.1 % 32.2 % 1490 bps 36.2 % 32.9 % 330 bps

The South segment’s total revenues and Adjusted EBITDAR decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, and Adjusted EBITDAR margin decreased for the six months ended June 30, 2020 due to the temporary closures of our gaming properties within the South segment on March 17, 2020 as a result of the COVID-19 pandemic.

We reopened our Louisiana properties and our Mississippi properties between May 18, 2020 and May 21, 2020, all with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

Despite the temporary closures, Adjusted EBITDAR margin increased for the three months ended June 30, 2020 due to operating with a reduced workforce,

focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings, such as buffets.

In the periods between reopening and June 30, 2020, as compared to the prior year, with the exception of Ameristar Vicksburg, all of our reopened properties in the South segment experienced Adjusted EBITDAR growth with 1 st Jackpot Casino, Boomtown New Orleans, and Margaritaville also experiencing growth in total revenues.

In addition, the favorable year-over-year comparisons at the majority of our South segment properties accelerated throughout the reopened period.

Boomtown New Orleans initially benefited after reopening due to the fact that one of its principal competitors reopened approximately 3-4 weeks after our property reopened.

For the three months ended June 30, Change For the six months ended June 30, Change

The South segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic and Hurricane Laura (described below).

Our gaming properties within the region experienced temporary closures beginning March 17, 2020.

We reopened our Louisiana properties and our Mississippi properties between May 18, 2020 and May 21, 2020.

All of our properties within the South segment reopened and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the three months ended September 30, 2020, the South segment’s total revenues decreased, as compared to prior year period, due principally to the social distancing measures described above as well as the temporary closure of L’Auberge Lake Charles that lasted 17 days due to Hurricane Laura.

With the exception of L’Auberge Lake Charles, all of our reopened properties in the South segment experienced Adjusted EBITDAR growth with 1 st Jackpot Casino, Boomtown Biloxi, Boomtown New Orleans, L’Auberge Baton Rouge and Margaritaville also experiencing growth in total revenues.

For the nine months ended September 30, 2020, the Souths segment’s total revenues and Adjusted EBITDAR decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above.

However, Adjusted EBITDAR margin increased for the nine months ended September 30, 2020, as compared to the prior year period due to our cost structure savings initiatives described above.

On August 27, 2020, Hurricane Laura made landfall in Lake Charles, Louisiana and caused significant damage to L’Auberge Lake Charles, forcing it to close for 17 days.

We expect to recover property damages and lost earnings for the disruption of our business through insurance proceeds in 2021, as described in Note 4, “Hurricane Laura,” in the notes to our unaudited Condensed Consolidated Financial Statements.

The property is currently undergoing restorations and operating at further reduced capacity.

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Total revenues $ 78.7 $ 161.5 $ (82.8) (51.3) % $ 223.0 $ 484.4 $ (261.4) (54.0) %

Adjusted EBITDAR $ (3.0) $ 50.5 $ (53.5) N/M $ 21.6 $ 100.4 $ (78.8) (78.5) %

Adjusted EBITDAR $ 33.6 $ 50.6 $ (17.0) (33.6) % $ 55.2 $ 151.0 $ (95.8) (63.4) %

Adjusted EBITDAR margin 42.7 % 31.3 % 1140 bps 24.8 % 31.2 % (640) bps

N/M - Not meaningful

The West segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our gaming properties within the West segment beginning between March 16, 2020 and March 19, 2020 as a result of the COVID-19 pandemic.

Cactus Petes, Horseshu and M Resort reopened on June 4, 2020;

and Ameristar Black Hawk reopened on June 17, 2020;

all with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

Tropicana is scheduled to reopen on September 1, 2020 and Zia Park Casino has not yet reopened.

In the period between reopening and June 30, 2020, Cactus Petes and Horseshu experienced growth in total revenues as well as Adjusted EBITDAR as compared to the prior year.

The reopening results of Ameristar Black Hawk were negatively impacted by the fact that the property has not yet been permitted to reopen table games.

In addition, the reopening results of M Resort were negatively impacted by general weakness in the economic environment in Las Vegas, which is a destination market.

The West segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic.

Our gaming properties within the region experienced temporary closures beginning on March 16,

The majority of our properties within the West segment reopened between June 4, 2020 and June 17, 2020.

Tropicana reopened on September 17, 2020 and Zia Park Casino has not yet reopened.

All our reopened properties operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

The West segment’s total revenues and Adjusted EBITDAR decreased for the three and nine months ended September 30, 2020, as compared to the prior year periods, due to the temporary closures and social distancing measures described above.

Adjusted EBITDAR margin increased for the three months ended September 30, 2020 primarily due to the reopening of our M Resort and Cactus Petes and Horseshu properties in which Adjusted EBITDAR and Adjusted EBITDAR margins were higher than the prior year due to our cost saving initiatives described above.

For nine months ended September 30, 2020, Adjusted EBITDAR margin decreased as compared to the prior year periods, due to the temporary closures and social distancing measures described above.

Midwest Segment

For the three months ended June 30, Change For the six months ended June 30, Change

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

2 unchanged sentences

Total revenues $ 229.1 $ 275.8 $ (46.7) (16.9) % $ 493.2 $ 815.3 $ (322.1) (39.5) %

Adjusted EBITDAR $ (4.6) $ 97.8 $ (102.4) N/M $ 64.9 $ 197.0 $ (132.1) (67.1) %

Adjusted EBITDAR $ 108.5 $ 104.3 $ 4.2 4.0 % $ 173.4 $ 301.3 $ (127.9) (42.4) %

Adjusted EBITDAR margin 47.4 % 37.8 % 960 bps 35.2 % 37.0 % (180) bps

N/M - Not meaningful

The Midwest segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased for the three and six months ended June 30, 2020, as compared to the prior year periods, due to the temporary closures of our gaming properties within the Midwest segment beginning between March 16, 2020 and March 18, 2020 as a result of the COVID-19 pandemic.

We reopened Hollywood Casino at Kansas Speedway on May 25, 2020, Ameristar Council Bluffs and Argosy Casino Riverside on June 1, 2020, and Hollywood Casino St.

Louis and River City Casino on June 16, 2020.

Our Illinois properties and Prairie State Gaming reopened on July 1, 2020.

All of our gaming properties reopened with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In the periods between reopening and June 30, 2020, all of our reopened properties within the Midwest segment experienced a decline in total revenues as compared to the prior year.

However, in the periods between reopening and June 30, 2020, Ameristar Council Bluffs, Argosy Casino Riverside and River City Casino grew Adjusted EBITDAR as compared to the prior year.

The operating performance of Hollywood Casino at Kansas Speedway upon reopening was negatively impacted by more lenient social distancing protocols and regulatory restrictions at nearby competitors located in Missouri.

For the three months ended June 30, Change For the six months ended June 30, Change

The Midwest segment’s results of operations for the three and nine months ended September 30, 2020 were primarily impacted by the COVID-19 pandemic.

Our gaming properties within the region experienced temporary closures beginning on March 16, 2020.

All of our properties within the Midwest segment reopened between May 25, 2020 and July 1, 2020 and continue to operate with reduced gaming and hotel (if applicable) capacity and limited food and beverage offerings.

In response to the COVID-19 pandemic on our operations, we implemented cost saving initiatives to offset inevitable revenue degradation, such as:

operating with a reduced workforce, focusing on higher margin gaming offerings, reducing marketing costs, and limiting certain lower margin food and beverage offerings.

For the three months ended September 30, 2020, the Midwest segment’s total revenues decreased, as compared to the prior year period, due principally to the temporary closures and social distancing measures described above.

For the nine months ended September 30, 2020, the Midwest segment’s total revenues, Adjusted EBITDAR and Adjusted EBITDAR margin decreased, as compared to the prior year period, due to the temporary closures and social distancing measures described above.

For the three months ended September 30, Change For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ % 2020 2019 $ %

Gaming $ 15.1 $ — $ 15.1 N/M $ 22.7 $ 0.1 $ 22.6 N/M

Gaming $ 11.0 $ 3.3 $ 7.7 233.3 % $ 33.7 $ 3.4 $ 30.3 891.2 %

Food, beverage, and other 12.7 9.1 3.6 39.6 % 37.9 28.5 9.4 33.0 %

1 unchanged sentence

Adjusted EBITDAR $ (14.6) $ (25.0) $ 10.4 (41.6) % $ (42.2) $ (66.1) $ 23.9 (36.2) %

N/M - Not meaningful

Total revenues and Adjusted EBITDAR of the Other category increased for the three and six months ended June 30, 2020, as compared to the prior year periods, principally as a result of Penn Interactive, specifically the launch of iGaming in Pennsylvania during the third quarter of 2019 and growth in operating live sports betting at retail sportsbooks within the Company’s properties.

As noted above, Penn Interactive is scheduled to launch the Barstool Sports online sports betting app in the third quarter of 2020, with the first planned launch in Pennsylvania.

We expect the Barstool Sports app to operate in additional states by end of the fourth quarter of 2020.

In addition, we expect to use the Barstool Sports brand in the operation of our retail sportsbooks later in 2020.

In addition to Penn Interactive, the increases in Adjusted EBITDAR are driven by decreases in corporate overhead costs of $6.9 million and $5.8 million for the three and six months ended June 30, 2020, respectively, which are principally due to employee furloughs upon property closures and compensation reductions effective April 1, 2020.

Total revenues and Adjusted EBITDAR of the Other category increased for the three and nine months ended September 30, 2020, as compared to the prior year periods, principally as a result of Penn Interactive.

Penn Interactive experienced (i) growth in operating live sports betting at retail sportsbooks within the Company’s properties;

(ii) the launch of the Barstool Sports online sports betting app in September 2020, which currently operates in Pennsylvania;

and (iii) increases in online social and real-money-gaming revenue due to the temporary closures of our properties.

We expect the Barstool Sports app to operate in Michigan by the end of 2020, subject to regulatory approval.

In addition, we expect to use the Barstool Sports brand in the operation of certain of our retail sportsbooks by the end of 2020.

In addition to Penn Interactive, the increases in Adjusted EBITDAR are driven by decreases in corporate overhead costs of $7.4 million and $13.2 million for the three and nine months ended September 30, 2020, respectively, which are principally due to the temporary closures of our properties and permanent reduction of our workforce, compensation reductions effective April 1, 2020 through September 30, 2020, and the overall reduction of our operations due to temporary property closures and restricted occupancy levels as a result of the COVID-19 pandemic.

Non-GAAP Financial Measures

39 unchanged sentences

The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures, as well as related margins:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(dollars in millions) 2020 2019 2020 2019

1 unchanged sentence

Income tax expense (benefit) (14.3) 19.6 (172.2) 53.0

Loss (income) from unconsolidated affiliates 1.7 (6.2) (2.4) (11.9)

Income from unconsolidated affiliates (5.0) (9.8) (7.4) (21.7)

Interest expense, net 142.3 133.5 407.1 400.5

5 unchanged sentences

39.5 (3.4) 46.7 (6.4)

Loss (gain) on disposal of assets (1)

(Gain) loss on disposal of assets (1)

(6.0) 7.4 (33.9) 8.3

6 unchanged sentences

Insurance recoveries, net of deductible charges (1)

Income (loss) from unconsolidated affiliates ( 1.7 ) 6.2 2.4 11.9

— (1.5) (0.1) (1.5)

Income from unconsolidated affiliates 5.0 9.8 7.4 21.7

Non-operating items of equity method investments (3)

1.2 0.9 3.2 2.8

Other expenses (1)(4)

12.4 — 12.4 —

Adjusted EBITDA 343.6 311.6 419.1 934.8

8 unchanged sentences

As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards.

During the three and six months ended June 30, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget, while the price of the Company’s common stock did not vary significantly during the three and six months ended June 30, 2019, which resulted in minimal favorable variance to budget.

During the three and nine months ended September 30, 2020, the price of the Company’s common stock increased significantly, which resulted in unfavorable variances to budget, while the price of the Company’s common stock did not vary significantly during the three and nine months ended September 30, 2019, which resulted in minimal favorable variance to budget.

(3) Consists principally of interest expense, net;

2 unchanged sentences

and stock-based compensation expense associated with Barstool Sports and our Kansas Entertainment joint venture.

(4) Consists of non-recurring restructuring charges (primarily severance) associated with a company-wide initiative, triggered by the COVID-19 pandemic, designed to (i) improve the operational effectiveness across our property portfolio;

and (ii) improve the effectiveness and efficiency of our Corporate functional support areas.

LIQUIDITY AND CAPITAL RESOURCES

6 unchanged sentences

and our compliance with covenants contained under our debt agreements.

Between March 13, 2020 and May 19, 2020, the Company entered into a series of transactions to improve its financial position and liquidity in light of the COVID-19 pandemic, including:

(i) borrowing the remaining available amount of $430.0 million under our Revolving Credit Facility;

(ii) entering into the Term Sheet with GLPI whereby GLPI agreed to (a) purchase the real estate assets associated with Tropicana in exchange for rent credits of $307.5 million, which closed on April 14, 2020, and (b) purchase the land underlying the Company ’ s Morgantown development project in exchange for rent credits of $30.0 million, which is expected to close in the fourth quarter of 2020 (the land will be immediately leased back from GLPI);

(iii) completing an offering of $330.5 million aggregate principal amount of Convertible Notes;

and (iv) completing a public offering of 19,166,667 aggregate shares of Penn Common Stock for gross proceeds of $345.0 million.

In addition, on April 14, 2020, the Company entered into an amendment to its Credit Agreement , which, among other things, provides the Company with relief from its financial covenants for a period of up to one year.

For the six months ended June 30, Change

For the nine months ended September 30, Change

(dollars in millions) 2020 2019 $ %

Net cash provided by (used in) operating activities $ (130.9) $ 315.2 $ (446.1) N/M

Net cash provided by operating activities $ 220.8 $ 519.2 $ (298.4) (57.5) %

Net cash used in investing activities $ (235.9) $ (542.1) $ 306.2 (56.5) %

Net cash provided by financing activities $ 1,155.1 $ 86.9 $ 1,068.2 1,229.2 %

Net cash provided by (used in) financing activities $ 1,445.5 $ (33.9) $ 1,479.4 N/M

N/M - Not meaningful

Operating Cash Flow

The decrease in net cash provided by (used in) operating activities of $446.1 million for the six months ended June 30, 2020, compared to the prior year period, is due to the temporary closures of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers.

Offsetting this decrease was a $105.2 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, which is due to the fact that we utilized rent credits to pay the May and June 2020 rent due under the Master Leases and the Meadows Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition).

The decrease in net cash provided by operating activities of $298.4 million for the nine months ended September 30, 2020, compared to the prior year period, is due to the temporary closures of our properties due to the COVID-19 pandemic, which significantly decreased cash receipts from customers.

Offsetting this decrease was a $230.1 million decrease in cash paid for rent and interest payments, in total, under our Triple Net Leases, which is caused by the fact that we utilized rent credits to pay rent due for May 2020, June 2020, July 2020 and August 2020 under the Master Leases and the Meadows Lease (offset by the increase in payments under the Greektown Lease due to the timing of the acquisition).

Investing Cash Flow

The decrease in net cash used in investing activities of $276.1 million for the six months ended June 30, 2020, compared to the prior year period, is primarily due to the acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash acquired, during the six months ended June 30, 2019.

As a part of the acquisitions of Margaritaville and Greektown, the Company entered into sale-leaseback transactions with VICI in the amounts of $261.1 million and $700.0 million, respectively, which had no net impact on the determination of net cash used in investing activities for the six months ended June 30, 2019.

In addition, capital expenditures decreased by $21.3 million for the six months ended June 30, 2020, as compared to the prior year period (see below).

The decrease in net cash used in investing activities of $306.2 million for the nine months ended September 30, 2020, compared to the prior year period, is primarily due to the acquisitions of the operations of Margaritaville and Greektown for $109.1 million and $289.2 million, respectively, both net of cash acquired, during the nine months ended September 30, 2019.

In addition, capital expenditures decreased by $39.1 million for the nine months ended September 30, 2020, as compared to the prior year period (see below).

These decreases were partially offset by our investment in Barstool Sports made during the first quarter of 2020.

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In March 2020, in order to preserve liquidity given the uncertainty surrounding the COVID-19 pandemic and its impact on our business, we temporarily suspended construction of our two planned Category 4 satellite casinos in York and Morgantown, Pennsylvania, respectively, which represented overall capital investments of approximately $120 million and $111 million inclusive of each of the gaming licenses acquired in a prior year, respectively.

We previously expected both of these projects to be complete by the end of 2020.

We expect both of these projects to be complete in the second half of 2021.

Furthermore, in light of the COVID-19 pandemic, we do not expect that we will spend as much as previously budgeted for in 2020 and disclosed in our Form 10-K for the year ended December 31, 2019 on capital expenditures.

Capital expenditures for the six months ended June 30, 2020 and 2019 were $73.7 million and $95.0 million, respectively, of which $29.5 million and $12.0 million, respectively, pertained to our York and Morgantown development projects.

expenditures decreased for the six months ended June 30, 2020, as compared to the prior year period, due to a decrease in spending in advance of and upon temporarily closing our properties, offset by an increase in spending pertaining to our York and Morgantown development projects.

Capital expenditures for six months ended June 30, 2020 and 2019 were principally funded by cash provided by operating activities as well as borrowings under our Revolving Credit Facility.

We expect that as operations continue to recover, capital expenditures will begin to increase.

Capital expenditures for the nine months ended September 30, 2020 and 2019 were $97.6 million and $136.7 million, respectively, of which $31.9 million and $18.2 million, respectively, pertained to our York and Morgantown development projects.

Capital expenditures decreased for the nine months ended September 30, 2020, as compared to the prior year period, due to a decrease in spending in advance of and upon temporarily closing our properties, offset by an increase in spending pertaining to our York and Morgantown development projects.

Capital expenditures for nine months ended September 30, 2020 and 2019 were principally funded by cash provided by operating activities as well as borrowings under our Revolving Credit Facility.

We expect that as operations continue to recover, capital expenditures will continue to increase.

Financing Cash Flow

The increase in net cash provided by financing activities of $1,068.2 million for the six months ended June 30, 2020, as compared to the prior year period, is primarily due to an increase in net borrowings under our Senior Secured Credit Facilities of $362.1 million, $322.2 million of net proceeds from the issuance of the Convertible Notes, and $331.2 million of net proceeds from the offering of shares of Penn Common Stock.

For the nine months ended September 30, 2020, as compared to the prior year period, net cash from financing activities increased by $1,479.4 million to net cash provided by financing activities of $1,445.5 million from $33.9 million of net cash used in financing activities.

The increase is driven primarily by the separate public offerings of Penn Common Stock on May 14, 2020 and September 24, 2020, in which we received net proceeds of $331.2 million and $957.6 million, respectively.

Additionally, we received $322.2 million of net proceeds from the issuance of the Convertible Notes.

These increases were partially offset by an increase in net repayments under our Senior Secured Credit Facilities of $228.0 million.

Senior Secured Credit Facilities

As of June 30, 2020, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $2,436.4 million, consisting of a $654.6 million Term Loan A Facility and a $1,111.8 million Term Loan B-1 Facility (as such terms are defined below), and a Revolving Credit Facility, which had $670.0 million drawn as of June 30, 2020.

Additionally, as of June 30, 2020, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $29.4 million.

On March 13, 2020, we borrowed the remaining available amount of $430.0 million under our Revolving Credit Facility, resulting in $0.6 million available borrowing capacity as of June 30, 2020.

As of September 30, 2020, the Company’s Senior Secured Credit Facilities had a gross outstanding balance of $1,754.8 million, consisting of a $645.8 million Term Loan A Facility and a $1,109.0 million Term Loan B-1 Facility (as such terms are defined below), and a Revolving Credit Facility, which had a zero balance as of September 30, 2020.

Additionally, as of

September 30, 2020, the Company had conditional obligations under letters of credit issued pursuant to the Senior Secured Credit Facilities with face amounts aggregating $29.4 million.

On March 13, 2020, we borrowed the remaining available amount of $430.0 million under our Revolving Credit Facility.

The Company elected to draw down the remaining available funds from its Revolving Credit Facility in order to maintain maximum financial flexibility in light of the COVID-19 pandemic.

Through the use of our September 2020 equity raise proceeds, we repaid the balance of our Revolving Credit Facility in full and had $670.6 million in available borrowing capacity as of September 30, 2020.

In January 2017, the Company entered into an agreement to amend and restate its previous credit agreement, dated October 30, 2013, as amended (the “Credit Agreement”), which provided for:

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and (iii) maintain an interest coverage ratio of 2.50:1.00, tested quarterly on a PF TTM basis.

plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%;

In addition, the Amendment Agreement (i) provides that, during the Covenant Relief Period, loans under the Revolving Credit Facility and the Term Loan A Facility shall bear interest at either a base rate or an adjusted LIBOR rate, in each case, plus an applicable margin, in the case of base rate loans, of 2.00%, and in the case of adjusted LIBOR rate loans, of 3.00%;

(ii) provides that, during the Covenant Relief Period, the Company shall pay a commitment fee on the unused portion of the commitments under the Revolving Credit Facility at a rate of 0.50% per annum;

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2.75% Unsecured Convertible Notes

In May 2020, the Company completed an offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par.

In May 2020, the Company completed a public offering of $330.5 million aggregate principal amount of 2.75% unsecured convertible notes that mature, unless earlier converted, redeemed or repurchased, on May 15, 2026 (the “Convertible Notes”) at a price of par.

After lender fees and discounts, net proceeds received by the Company were $322.2 million.

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However, in no event will the conversion exceed 55.5555 shares of common stock per $1,000 principal amount of notes.

As of June 30, 2020, based on the initial conversion price, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815.

Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the initial conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect.

As of September 30, 2020, the maximum number of shares that could be issued to satisfy the conversion feature of the Convertible Notes is 18,360,815.

Prior to February 15, 2026, at their election, holders of the Convertible Notes may convert outstanding notes starting in the fourth quarter of 2020 if the trading price of the Company’s common stock exceeds 130% of the conversion price or, starting shortly after the issuance of the Convertible Notes, if the trading price per $1,000 principal amount of notes is less than 98% of the product of the trading price of the Company’s common stock and the conversion rate then in effect.

The Convertible Notes may, at the Company’s election, be settled in cash, shares of common stock of the Company, or a combination thereof.

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If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms.

As of June 30, 2020, the Company was in compliance with all required financial covenants.

The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Form 10-Q with the SEC.

As of September 30, 2020, the Company was in compliance with all required financial covenants.

The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Form 10-Q with the U.S Securities and Exchange Commission (the “SEC”).

Common Stock Offering

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All of the shares were issued at a public offering price of $18.00 per share, resulting in gross proceeds of $345.0 million, and net proceeds of $331.2 million after underwriter fees and discounts of $13.8 million.

On September 24, 2020, the Company completed a public offering of 14,000,000 shares of Penn Common Stock and on September 25, 2020, the underwriters exercised their right to purchase an additional 2,100,000 shares of Penn Common Stock, resulting in an aggregate public offering of 16,100,000 shares of Penn Common Stock.

All of the shares were issued at a public offering price of $61.00 per share, resulting in gross proceeds of $982.1 million, and net proceeds of $957.6 million after underwriter fees and discounts of $24.5 million.

Triple Net Leases

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The Company’s Master Leases are accounted for as either operating leases, finance leases, or financing obligations.

In addition, four of the Company’s gaming facilities, Meadows, Margaritaville, Greektown and Tropicana, are subject to individual triple net leases.

As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, collectively as our “Triple Net Leases.” See “Payments to our REIT Landlords under Triple Net Leases” below for tabular information on the payments made during the three and six months ended June 30, 2020 and 2019 pertaining to our Triple Net Leases, inclusive of rent credits utilized.

In addition, four of the Company’s gaming facilities,

Meadows, Margaritaville, Greektown and Tropicana, are subject to individual triple net leases.

As previously mentioned, we refer to the Penn Master Lease, the Pinnacle Master Lease, the Meadows Lease, the Margaritaville Lease, the Greektown Lease, and the Tropicana Lease, collectively as our “Triple Net Leases.” See “Payments to our REIT Landlords under Triple Net Leases” below for tabular information on the payments made during the three and nine months ended September 30, 2020 and 2019 pertaining to our Triple Net Leases, inclusive of rent credits utilized.

Penn Master Lease

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The Penn Master Lease has an initial term of 15 years with four subsequent, five-year renewal periods on the same terms and conditions, exercisable at the Company’s option.

The payment structure under the Penn Master Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, depending on the Adjusted Revenue to Rent Ratio (as defined in the Penn Master Lease) of 1.8:1, and a component that is based on performance, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all properties under the Penn Master Lease (other than Hollywood Casino Columbus and Hollywood Casino Toledo (“Columbus and Toledo”)) compared to a contractual baseline during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the net revenues of Columbus and Toledo in excess of a contractual baseline and subject to a rent floor specific to Hollywood Casino Toledo.

The next annual escalator test date is scheduled to occur effective November 1, 2020 and the next Penn Percentage Rent reset is scheduled to occur on November 1, 2023.

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The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4% of the average annual net revenues of the property during the trailing two-year period.

The next scheduled annual escalator test date and the next Meadows Percentage Rent reset are scheduled to occur on October 1, 2020.

The next annual escalator test date and the next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020.

We expect the results of the annual escalator test and rent reset to be finalized during the fourth quarter.

In connection with the acquisition of Margaritaville, we entered into the Margaritaville Lease with VICI for the real estate assets used in the operations of Margaritaville.

The Margaritaville Lease has an initial term of 15 years, with four subsequent five-year renewal options on the same terms and conditions, exercisable at the Company’s option.

The payment structure under the Margaritaville Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”).

The payment structure under

the Margaritaville Lease includes a fixed component, a portion of which is subject to an annual escalator of up to 2%, and a component that is based on performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of the property compared to a contractual baseline during the preceding two years (“Margaritaville Percentage Rent”).

On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator from an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1 to a minimum ratio of net revenue to rent of 6.1:1.

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Total payments made to our REIT Landlords, GLPI and VICI, inclusive of rent credits utilized, were as follows:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

(in millions) 2020 2019 2020 2019

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$ 228.1 $ 222.6 $ 668.5 $ 645.4

(1) During the three months ended June 30, 2020, we utilized rent credits to pay $72.1 million, $54.2 million and $4.5 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.

(1) During the three and nine months ended September 30, 2020, we utilized rent credits to pay $83.0 million, $54.2 million and $4.5 million and $155.1 million, $108.4 million, and $9.0 million of rent under the Penn Master Lease, Pinnacle Master Lease and Meadows Lease, respectively.

(2) Rent payable under the Tropicana Lease is nominal.

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Relocation Fees

As of June 30, 2020 and December 31, 2019, other long-term obligations included $68.8 million and $76.4 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, which opened in August 2014 and September 2014, respectively.

As of September 30, 2020 and December 31, 2019, other long-term obligations included $68.8 million and $76.4 million, respectively, related to the relocation fees for Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course, which opened in August 2014 and September 2014, respectively.

The relocation fee for each property is payable as follows:

$7.5 million upon the opening of the property and eighteen semi-annual payments of $4.8 million beginning one year after the commencement of operations.

As of June 30, 2020, we reopened 31 of our properties and as of the date of filing this Form 10-Q with the SEC, we reopened all of our properties, with the exception of Tropicana, Valley Race Park, and Zia Park Casino.

Though virtually all of our properties have reopened, we cannot be certain whether cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs in the future, particularly in the event that the COVID-19 pandemic worsens.

Our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control, including the impact of the COVID-19 pandemic.

Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Senior Secured Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future.

However, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside our control, including the impact of the COVID-19 pandemic.

We cannot be certain:

(i) of the impact of the operating restrictions to accommodate social distancing and health guidelines will be on our properties;

(ii) of the magnitude and duration of the impact of the COVID-19 pandemic (including reoccurrences) on general economic conditions, capital markets, unemployment and our liquidity, operations, supply chain and personnel, including the potential that some or all of properties may be forced to close or cease operations for a certain period of time;

(iii) that our business will generate sufficient cash flow from operations;

(iv) that the U.S.

(i) of the impact of the operating restrictions to accommodate social distancing and health and safety guidelines will be on our properties;

including the potential that some or all of properties may be forced to close or cease operations for a certain period of time;

or (iii) that the U.S.

economy and our business will recover to levels that existed prior to the COVID-19 pandemic and on what time frame.

(v) that we will fully achieve the synergies in connection with the Pinnacle Acquisition;

(vi) that we will be able to maintain the minimum liquidity required under our Senior Secured Credit Facilities;

or (vii) that future borrowings will be available under our Senior Secured Credit Facilities or capital will be available in the credit or equity markets on favorable terms to enable us to service our indebtedness, to make capital expenditures or to maintain working capital.

We caution you that the trends seen at our reopened properties may not continue and that these trends may not recur at our other properties as they reopen.

We caution you that the trends seen at our reopened properties (e.g., higher spend per trip) may not continue.

In addition, while we anticipated that a significant amount of our future growth would come through the pursuit of opportunities within other distribution channels, such as retail and online sports betting, social gaming, retail gaming, and iGaming;

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there can be no assurance that this will be the case given the uncertainty arising from the COVID-19 pandemic.

While we do not anticipate pursuing material acquisition opportunities in the near term, if we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements.

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, including without limitation the lasting impacts of the COVID-19 pandemic.

If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements.

See Part II, Item 1A.

“Risk Factors” of this Form 10-Q.

See also “Risks Related to Our Capital Structure” in Part I, Item 1A.

What changed 10-Q

Item 2. Management’s Discussion and Analysis