Gaming & Leisure Properties(GLPI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents GLPI's unaudited condensed consolidated financial statements for Q1 2020 and 2019, covering balance sheets, income, equity, and cash flows, with notes on operations, policies, and financial instruments Condensed Consolidated Balance Sheets GLPI's balance sheets as of March 31, 2020, show increased total assets, driven by higher cash and cash equivalents, alongside a rise in long-term debt | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------------------------------------------------------------------------------ | :----------------------------- | :------------------------------- | | Total assets | $8,899,161 | $8,434,298 | | Cash and cash equivalents | $559,545 | $26,823 | | Total liabilities | $6,886,856 | $6,360,053 | | Long-term debt, net | $6,255,714 | $5,737,962 | | Total shareholders' equity | $2,012,305 | $2,074,245 | - Cash and cash equivalents significantly increased from $26.8 million at December 31, 2019, to $559.5 million at March 31, 2020, reflecting enhanced liquidity[15] - Long-term debt, net, rose from $5.7 billion to $6.2 billion, contributing to the increase in total liabilities[15] Condensed Consolidated Statements of Income Q1 2020 income statements show slightly decreased total revenues but increased net income, driven by lower operating expenses despite significant debt extinguishment losses | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Total revenues | $283,482 | $287,864 | | Total operating expenses | $97,132 | $117,089 | | Income from operations | $186,350 | $170,775 | | Losses on debt extinguishment | $(17,329) | $0 | | Net income | $96,894 | $93,010 | | Basic earnings per common share | $0.45 | $0.43 | | Diluted earnings per common share | $0.45 | $0.43 | - Net income increased by $3.9 million (4.2%) year-over-year, reaching $96.9 million, despite a $4.4 million (1.5%) decrease in total revenues[16] - Operating expenses decreased by $20.0 million (17.1%) year-over-year, largely due to the absence of a $13.0 million loan impairment charge recorded in Q1 2019[16] Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from December 2019 to March 2020, primarily due to dividends paid, partially offset by net income and common stock issuances | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | | Total Shareholders' Equity | $2,012,305 | $2,074,245 | | Dividends paid | $(150,796) | N/A | | Net income | $96,894 | N/A | | Common Stock Shares Outstanding | 215,107,229 | 214,694,165 | - Total shareholders' equity decreased by $61.9 million, from $2,074.2 million at December 31, 2019, to $2,012.3 million at March 31, 2020[19] - Dividends paid amounted to $150.8 million ($0.70 per common share) during the three months ended March 31, 2020[19] Condensed Consolidated Statements of Cash Flows Cash flows show a significant net increase in cash for Q1 2020, primarily from financing activities, despite decreased operating cash flow | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | $198,785 | $221,423 | | Net cash used in investing activities | $(646) | $(348) | | Net cash provided by (used in) financing activities | $334,583 | $(216,524) | | Net increase in cash and cash equivalents | $532,722 | $4,551 | | Cash and cash equivalents at end of period | $559,545 | $30,334 | - Net cash provided by operating activities decreased by $22.6 million (10.2%) year-over-year[22] - Financing activities shifted from using $216.5 million cash in Q1 2019 to providing $334.6 million cash in Q1 2020, largely due to increased long-term debt proceeds[22] Notes to the Condensed Consolidated Financial Statements This section details GLPI's financial statements, covering its REIT business, accounting policies, real estate, debt, leases, revenue, EPS, stock compensation, and COVID-19 impacts 1. Business and Operations GLPI operates as a self-administered REIT, leasing real estate to gaming operators, with 44 facilities across 16 states, all 100% occupied, but temporarily closed in mid-March due to COVID-19 - GLPI's primary business is acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements[29] - As of March 31, 2020, GLPI's portfolio consisted of interests in 44 gaming and related facilities, geographically diversified across 16 states, and 100% occupied[29] - All of the Company's tenants' casino operations and its two TRS Properties were temporarily closed in mid-March 2020 due to the COVID-19 pandemic, with uncertain reopening dates[30] 2. Basis of Presentation The unaudited condensed consolidated financial statements are prepared under U.S. GAAP for interim information, reflecting estimates and assumptions, with Q1 2020 results not indicative of the full year due to COVID-19 uncertainty - Financial statements are prepared in accordance with U.S. GAAP for interim information, requiring management estimates and assumptions[31][32] - Operating results for the three months ended March 31, 2020, are not necessarily indicative of the full year due to the uncertainty related to the COVID-19 outbreak[33] 3. New Accounting Pronouncements GLPI adopted ASU 2018-15 and ASU 2016-13 in Q1 2020 with immaterial impact, and is evaluating ASU 2020-04 regarding LIBOR phase-out - Adoption of ASU 2018-15 (Internal Use Software) and ASU 2016-13 (Credit Losses) in Q1 2020 had an immaterial impact on financial statements[36][37] - The Company is evaluating ASU 2020-04 (Reference Rate Reform) regarding the expected discontinuation of LIBOR and its potential impact on financial statements[38] 4. Real Estate Investments Real estate investments, net, slightly decreased to $7.05 billion at March 31, 2020, from $7.10 billion at December 31, 2019, primarily due to accumulated depreciation | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Total real estate investments | $8,301,496 | $8,301,496 | | Less accumulated depreciation | $(1,255,220) | $(1,200,941) | | Real estate investments, net | $7,046,276 | $7,100,555 | - Real estate investments, net, decreased by $54.3 million, primarily due to an increase in accumulated depreciation[39] 5. Property and Equipment Used in Operations Property and equipment used in operations, net, decreased to $92.4 million at March 31, 2020, from $94.1 million at December 31, 2019, mainly due to accumulated depreciation | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Total property and equipment | $266,928 | $266,282 | | Less accumulated depreciation | $(174,485) | $(172,202) | | Property and equipment, net | $92,443 | $94,080 | - Property and equipment, net, decreased by $1.6 million, primarily due to accumulated depreciation[40] 6. Receivables GLPI holds a $246.0 million unsecured Eldorado Loan and a $57.7 million secured Belterra Park Loan, while the $13.0 million Casino Queen Loan was fully written off in Q1 2019, with Casino Queen in lease default as of March 31, 2020 - GLPI has a $246.0 million unsecured Eldorado Loan (9.27% interest) and a $57.7 million secured Belterra Park Loan (11.20% interest) as of March 31, 2020[42][43] - The $13.0 million Casino Queen Loan was fully written off in Q1 2019 due to the borrower's declining operating results and expected inability to repay, resulting in an impairment charge[47][79] - As of March 31, 2020, Casino Queen was in violation of its lease's rent coverage ratio, though all lease payments remained current[48] 7. Lease Assets and Lease Liabilities GLPI recognizes right-of-use assets and lease liabilities for operating leases, primarily ground leases, with a weighted average remaining lease term of 53.40 years and a discount rate of 6.7%, resulting in a total lease cost of $8.4 million for Q1 2020 | Metric | March 31, 2020 (in thousands) | | :-------------------------------- | :----------------------------- | | Right-of-use assets - operating leases | $183,376 | | Land rights, net | $651,651 | | Right-of-use assets and land rights, net | $835,027 | | Present value of lease liabilities | $183,298 | | Lease Expense Component | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------ | :----------------------------------- | :----------------------------------- | | Operating lease cost | $3,695 | $3,893 | | Variable lease cost | $1,462 | $2,436 | | Short-term lease cost | $227 | $238 | | Amortization of land right assets | $3,020 | $3,090 | | Total lease cost | $8,404 | $9,657 | - Weighted average remaining lease term for operating leases is 53.40 years, with a weighted average discount rate of 6.7%[59] 8. Long-term Debt GLPI's total long-term debt, net, increased to $6.26 billion at March 31, 2020, primarily due to fully drawing its $1.175 billion revolving credit facility to enhance liquidity and repay senior unsecured notes, incurring a $17.3 million loss on debt extinguishment | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :------------------------------------------------------------------------------------------------ | :----------------------------- | :------------------------------- | | Unsecured $1,175 million revolver | $1,174,600 | $46,000 | | Total long-term debt, net | $6,255,714 | $5,737,962 | - GLPI fully drew down its $1.175 billion revolving credit facility in Q1 2020, increasing borrowings from $46.0 million to $1,174.6 million, to boost liquidity and repay senior unsecured notes[63][177] - The Company redeemed $215.2 million of 4.875% notes due November 2020 and $400 million of 4.375% notes due April 2021, incurring a $17.3 million loss on early debt extinguishment[66][167] 9. Fair Value of Financial Assets and Liabilities GLPI's financial instruments are valued using a fair value hierarchy, with cash, deferred compensation, and real estate loans at carrying value, and long-term debt based on quoted market prices, noting a $13.0 million loan impairment charge in Q1 2019 | Financial Instrument | March 31, 2020 Carrying Amount (in thousands) | March 31, 2020 Fair Value (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------------------- | | Cash and cash equivalents | $559,545 | $559,545 | | Real estate loans | $303,684 | $303,684 | | Senior unsecured credit facility | $1,623,600 | $1,605,640 | | Senior unsecured notes | $4,675,000 | $4,052,813 | - The fair value of senior unsecured notes ($4.05 billion) was lower than their carrying amount ($4.68 billion) at March 31, 2020[76] - A $13.0 million loan impairment charge was recorded in Q1 2019 for the Casino Queen Loan, which was measured at fair value on a nonrecurring basis (Level 3)[78][79] 10. Commitments and Contingencies GLPI is involved in various legal and administrative proceedings, but management does not anticipate a material adverse effect on its financial position or results of operations, maintaining adequate insurance coverage - GLPI is subject to various legal and administrative proceedings but does not believe the final outcome will have a material adverse effect on its financial position or results of operations[80] - The Company maintains adequate insurance coverage to mitigate risks from such proceedings[80] 11. Revenue Recognition GLPI's revenue primarily stems from triple-net master leases with Penn, Eldorado, and Boyd, and single-property leases, featuring fixed and performance-based percentage rent components, with tenants responsible for executory costs and initial terms of 10-15 years - GLPI's rental income is derived from triple-net master leases with Penn, Eldorado, and Boyd, and single-property leases with Penn (Meadows) and Casino Queen[81] - Lease structures include fixed rent (often with annual escalators) and performance-based percentage rent, which resets periodically based on facility net revenues[83][84][85][86][87][88] | Revenue Component | Three Months Ended March 31, 2020 (in thousands) | | :-------------------- | :----------------------------- | | Building base rent | $167,325 | | Land base rent | $47,592 | | Percentage rent | $38,566 | | Total cash rental income | $253,483 | | Total rental income | $249,407 | | Interest income from real estate loans | $7,316 | | Total income from real estate | $256,723 | 12. Earnings Per Share Basic and diluted EPS for Q1 2020 increased to $0.45 from $0.43 in Q1 2019, reflecting higher net income and a slight increase in weighted-average common shares outstanding | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to common shareholders | $96,750 (in thousands) | $92,852 (in thousands) | | Weighted-average common shares outstanding | 215,090 (in thousands) | 214,626 (in thousands) | | Basic EPS | $0.45 | $0.43 | | Diluted weighted-average common shares outstanding | 215,449 (in thousands) | 215,288 (in thousands) | | Diluted EPS | $0.45 | $0.43 | - Basic and diluted EPS increased by $0.02 year-over-year[102] 14. Stock-Based Compensation GLPI recognized $1.8 million in compensation expense for time-based restricted stock and $2.4 million for performance-based restricted stock in Q1 2020, with total unrecognized costs of $10.8 million and $18.1 million, respectively | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Compensation expense (restricted stock) | $1,800 | $2,000 | | Compensation expense (performance-based) | $2,400 | $2,300 | - As of March 31, 2020, total unrecognized compensation cost for restricted stock awards was $10.8 million (2.06 years remaining vesting period) and $18.1 million for performance-based restricted stock awards (2.23 years remaining vesting period)[104][106] 13. Shareholders' Equity GLPI sold 7,971 common shares under its ATM Program in Q1 2020, generating $0.3 million net proceeds, with $599.6 million remaining, and declared a Q1 2020 dividend of $0.70 per common share, totaling $150.6 million - GLPI sold 7,971 common shares under its ATM Program in Q1 2020 at an average price of $45.90, generating $0.3 million in net proceeds[111] - As of March 31, 2020, $599.6 million remained available for issuance under the ATM Program[111] | Dividend | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :---------------- | :--------------------- | :--------------------- | | Common Stock Dividend | $150,574 | $145,954 | | Per Share | $0.70 | $0.68 | 15. Segment Information GLPI operates two segments: GLP Capital (leased real property) and TRS Properties, with GLP Capital's net income increasing to $96.5 million in Q1 2020, while TRS Properties' net income declined to $0.4 million due to COVID-19 closures - GLPI has two reportable segments: GLP Capital (leased real property) and TRS Properties (Hollywood Casino Perryville and Hollywood Casino Baton Rouge)[114] | Segment | Net Income Q1 2020 (in thousands) | Net Income Q1 2019 (in thousands) | | :-------------- | :-------------------------------- | :-------------------------------- | | GLP Capital | $96,521 | $90,763 | | TRS Properties | $373 | $2,247 | | Total | $96,894 | $93,010 | - TRS Properties' net income declined significantly due to COVID-19 related closures in mid-March 2020[150] 16. Supplemental Disclosures of Cash Flow Information and Noncash Activities Cash paid for interest significantly increased to $52.3 million in Q1 2020 from $20.9 million in Q1 2019, and GLPI recorded $203 million in right-of-use assets and related lease liabilities in Q1 2019 upon adopting ASU 2016-02 | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------------- | :----------------------------------- | :----------------------------------- | | Cash paid for interest | $52,339 | $20,850 | - Cash paid for interest increased by $31.5 million year-over-year[117] - In Q1 2019, GLPI recorded $203 million in right-of-use assets and related lease liabilities as a noncash activity due to the adoption of ASU 2016-02[118] 17. Subsequent Events Subsequent to March 31, 2020, GLPI acquired Tropicana Las Vegas for $307.5 million in rent credits, is negotiating a deferred rent agreement with Casino Queen, and declared a Q2 2020 dividend of $0.60 per share, payable as $0.12 cash and $0.48 stock, reflecting COVID-19 impacts - On April 16, 2020, GLPI acquired Tropicana Las Vegas from Penn in exchange for $307.5 million in rent credits, with Penn continuing to operate it under a nominal rent lease until sold[119] - GLPI is negotiating a deferred rent agreement with Casino Queen, the only tenant from whom cash rents were not collected in April 2020[120] - The Board declared a Q2 2020 dividend of $0.60 per share ($0.12 cash, $0.48 stock), reflecting COVID-19 impacts and anticipating continued tenant payment fulfillment[121][189] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on GLPI's financial condition and results for Q1 2020, discussing its business model, COVID-19 impacts, financial highlights, critical accounting estimates, and detailed analysis of revenues, expenses, and liquidity Our Operations GLPI, a REIT spun off from Penn National Gaming, Inc., primarily acquires and leases real estate to gaming operators under triple-net arrangements, with 44 facilities across 16 states, 100% occupied, and revenue mainly from master leases and two TRS Properties - GLPI's primary business is acquiring, financing, and owning real estate property to be leased to gaming operators in triple-net lease arrangements[126] - As of March 31, 2020, GLPI's portfolio consisted of interests in 44 gaming and related facilities, 100% occupied, across 16 states[126] - The majority of GLPI's earnings come from rental revenues from triple-net master leases with Penn, Boyd, and Eldorado, with tenants responsible for executory costs[127] Recent Developments The COVID-19 pandemic significantly impacted GLPI, leading to temporary casino closures, prompting the acquisition of Tropicana Las Vegas for rent credits, an option for Penn to purchase Hollywood Casino Perryville, a full draw of its revolving credit facility, and amended credit facility covenants - All casino operations of GLPI's tenants and its own TRS Properties were temporarily closed in mid-March 2020 due to COVID-19, with uncertain reopening timelines and recovery extent[131] - GLPI acquired Tropicana Las Vegas from Penn for $307.5 million in rent credits, to be applied to rent obligations for several months in 2020[131] - GLPI fully drew down its $530 million revolving credit facility in March 2020 to strengthen liquidity and repaid certain near-term senior unsecured notes[133] Executive Summary GLPI reported total revenues of $283.5 million and net income of $96.9 million for Q1 2020, with increased net income driven by lower operating expenses and interest expense, partially offset by debt extinguishment charges and decreased TRS Properties revenue due to COVID-19 closures | Metric | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :----------------------- | :------------------------------------ | :------------------------------------ | | Total revenues | $283.5 | $287.9 | | Income from operations | $186.4 | $170.8 | | Net income | $96.9 | $93.0 | - Total operating expenses decreased by $20.0 million, primarily due to a $13.0 million loan impairment charge in Q1 2019 not recurring in Q1 2020 and lower TRS expenses due to COVID-19 closures[136] - Other income and expenses increased by $12.5 million due to $17.3 million in debt extinguishment charges in Q1 2020, partially offset by lower interest expense from refinancing activities[136] Results of Operations GLPI's Q1 2020 results show a slight revenue decline but increased net income due to reduced operating expenses, though COVID-19 is expected to negatively impact future rent escalations and variable rent resets, with non-GAAP measures increasing for GLP Capital but declining for TRS Properties | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :----------------------- | :----------------------------------- | :----------------------------------- | | Total revenues | $283,482 | $287,864 | | Total operating expenses | $97,132 | $117,089 | | Net income | $96,894 | $93,010 | - COVID-19 is expected to prevent rent escalations in 2020 and negatively impact variable rent resets for Boyd, Amended Pinnacle, Eldorado, and Meadows leases[139] - The variable rent resets for the Boyd Master Lease and Amended Pinnacle Master Lease are expected to result in approximately $1.5 million and $5.0 million annual reductions, respectively, for the subsequent two-year period[139] FFO, AFFO and Adjusted EBITDA GLPI's non-GAAP financial measures (FFO, AFFO, Adjusted EBITDA) increased overall in Q1 2020, driven by the GLP Capital segment's higher income and lower operating expenses, while the TRS Properties segment saw declines due to COVID-19 related closures | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------------------- | | Funds from operations (FFO) | $151,174 | $148,692 | | Adjusted funds from operations (AFFO) | $188,810 | $183,015 | | Adjusted EBITDA | $258,813 | $258,419 | | Segment (Q1 2020) | FFO (in thousands) | AFFO (in thousands) | Adjusted EBITDA (in thousands) | | :------------------ | :----------------- | :------------------ | :----------------------------- | | GLP Capital | $150,800 | $187,207 | $253,859 | | TRS Properties | $374 | $1,603 | $4,954 | - Net income, FFO, AFFO, and Adjusted EBITDA for the TRS Properties segment declined due to the impact of COVID-19, which forced both properties to close in mid-March 2020[150] Revenues Total revenues decreased by 1.5% to $283.5 million in Q1 2020, with total income from real estate increasing by 0.7% due to rent escalations, while gaming, food, beverage, and other revenue from TRS Properties decreased by 18.9% due to COVID-19 closures | Revenue Category | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Variance (in thousands) | Percentage Variance | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------- | :------------------ | | Rental income | $249,407 | $247,678 | $1,729 | 0.7% | | Interest income from real estate loans | $7,316 | $7,193 | $123 | N/A | | Total income from real estate | $256,723 | $254,871 | $1,852 | 0.7% | | Gaming, food, beverage and other | $26,759 | $32,993 | $(6,234) | (18.9)% | | Total revenues | $283,482 | $287,864 | $(4,382) | (1.5)% | - Total income from real estate increased by $1.9 million, or 0.7%, primarily due to rent escalations, partially offset by lower ground lease gross-ups[154] - Gaming, food, beverage and other revenue for TRS Properties decreased by $6.2 million, or 18.9%, due to COVID-19 related closures in mid-March 2020[156] Operating expenses Total operating expenses decreased by 17.0% to $97.1 million in Q1 2020, primarily due to the absence of a $13.0 million loan impairment charge from Q1 2019, reduced gaming, food, beverage, and other expenses at TRS Properties due to COVID-19 closures, and lower general and administrative expenses | Expense Category | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Variance (in thousands) | Percentage Variance | | :-------------------------- | :----------------------------------- | :----------------------------------- | :---------------------- | :------------------ | | Gaming, food, beverage and other | $16,503 | $19,022 | $(2,519) | (13.2)% | | Land rights and ground lease expense | $8,078 | $9,249 | $(1,171) | (12.7)% | | General and administrative | $15,988 | $17,240 | $(1,252) | (7.3)% | | Depreciation | $56,563 | $58,578 | $(2,015) | (3.4)% | | Loan impairment charges | $0 | $13,000 | $(13,000) | N/A | | Total operating expenses | $97,132 | $117,089 | $(19,957) | (17.0)% | - The $13.0 million loan impairment charge related to the Casino Queen Loan in Q1 2019 did not recur in Q1 2020, significantly contributing to the decrease in operating expenses[163][164] - Gaming, food, beverage and other expenses decreased by $2.5 million (13.2%) due to the closure of TRS Properties in mid-March 2020[158] Other income (expenses) Total other expenses increased by 16.3% to $89.1 million in Q1 2020, primarily driven by $17.3 million in losses on debt extinguishment from early redemption of senior unsecured notes, partially offset by a $4.7 million decrease in interest expense due to refinancing activities | Expense Category | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | Variance (in thousands) | Percentage Variance | | :-------------------------- | :----------------------------------- | :----------------------------------- | :---------------------- | :------------------ | | Interest expense | $(72,004) | $(76,728) | $4,724 | (6.2)% | | Interest income | $196 | $89 | $107 | 120.2% | | Losses on debt extinguishment | $(17,329) | $0 | $(17,329) | N/A | | Total other expenses | $(89,137) | $(76,639) | $(12,498) | 16.3% | - Losses on debt extinguishment of $17.3 million were recorded in Q1 2020 due to the redemption of $215.2 million of 4.875% senior unsecured notes due November 2020 and $400 million of 4.375% senior unsecured notes due April 2021[167] - Interest expense decreased by $4.7 million (6.2%) due to the issuance of lower-cost senior unsecured notes and increased borrowings under the revolving credit facility to repay higher-cost debt[166] Taxes Income tax expense decreased to $0.3 million in Q1 2020 from $1.1 million in Q1 2019, resulting in a lower effective tax rate of 0.3% | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :---------------- | :----------------------------------- | :----------------------------------- | | Income tax expense | $319 | $1,126 | | Effective tax rate | 0.3% | 1.2% | - Income tax expense decreased by $0.8 million year-over-year[168] Liquidity and Capital Resources GLPI's liquidity primarily stems from operating cash flow, bank borrowings, and debt/equity issuances, with operating cash flow decreasing in Q1 2020 but financing activities providing significant cash due to increased debt issuance for liquidity and debt repayment, while maintaining compliance with debt covenants and monitoring the LIBOR transition - Primary liquidity sources are cash flow from operations, bank borrowings, and proceeds from debt and equity securities[169] | Cash Flow Activity | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Net cash provided by operating activities | $198.8 | $221.4 | | Net cash provided by (used in) financing activities | $334.6 | $(216.5) | - The decrease in operating cash flow was due to higher interest payments and lower cash receipts from customers, partially offset by lower operating expenses[170] Capital Expenditures Capital maintenance expenditures for TRS Properties were $0.6 million in Q1 2020, primarily for slot machines, with tenants responsible for capital maintenance at leased properties under triple-net leases | Capital Expenditure Type | Three Months Ended March 31, 2020 (in millions) | Three Months Ended March 31, 2019 (in millions) | | :------------------------- | :------------------------------------ | :------------------------------------ | | Capital maintenance expenditures | $0.6 | $0.5 | - Capital maintenance expenditures for TRS Properties primarily focused on slot machines and equipment[175] - Tenants are responsible for capital maintenance expenditures at leased properties under the triple-net lease structure[175] Debt GLPI's senior unsecured credit facility had a gross outstanding balance of $1.624 billion at March 31, 2020, with the $1.175 billion revolving credit facility fully drawn, and the company redeemed $615.2 million of senior unsecured notes in Q1 2020, incurring a $17.3 million loss on extinguishment, but remained in compliance with all debt covenants - The senior unsecured credit facility had a gross outstanding balance of $1.624 billion at March 31, 2020, with the $1.175 billion revolving credit facility fully drawn[177] - GLPI redeemed $215.2 million of 4.875% notes due November 2020 and $400 million of 4.375% notes due April 2021 in Q1 2020, resulting in a $17.3 million loss on early extinguishment[182] - As of March 31, 2020, GLPI was in compliance with all financial covenants under its Credit Facility and Senior Notes, and an amendment was secured to allow non-cash rent for covenant purposes[181][184] Distribution Requirements As a REIT, GLPI must annually distribute at least 90% of its taxable income to avoid corporate income tax, with the Q2 2020 dividend declared at $0.60 per share, 20% cash and 80% common stock, reflecting COVID-19 impacts and non-cash rents - GLPI must distribute at least 90% of its REIT taxable income annually to maintain REIT status and avoid federal corporate income tax[188] - The Q2 2020 dividend was declared at $0.60 per share, consisting of $0.12 cash and $0.48 common stock, reflecting COVID-19 impacts and anticipated non-cash rents[189] LIBOR Transition GLPI's variable interest rate exposure is limited to its revolving credit facility and Term Loan A-1, both indexed to LIBOR, which is expected to be phased out by late 2021, with the company anticipating renegotiating its revolving credit facility and not expecting a significant impact on overall operations from the transition to a new reference rate like SOFR - GLPI's variable interest rate exposure is limited to its revolving credit facility and Term Loan A-1, both indexed to LIBOR[190] - LIBOR is expected to be phased out by late 2021, potentially transitioning to the Secured Overnight Financing Rate (SOFR)[190][191] - GLPI expects to renegotiate its revolving credit facility and does not anticipate a significant impact on overall operations from the reference rate transition[191] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GLPI's primary market risk is interest rate risk, with $6.3 billion in indebtedness at March 31, 2020, of which $4.68 billion is fixed-rate, and rising interest rates could increase financing costs and limit refinancing ability, though the company may use interest rate swap agreements, subject to REIT limitations - GLPI's primary market risk exposure is interest rate risk, with total indebtedness of $6,299.6 million at March 31, 2020[193] - $4,675.0 million of GLPI's obligations at March 31, 2020, are fixed-rate Senior Notes with maturities ranging from 3.5 to 10 years[193] | Debt Type | Total (in thousands) | Fair Value at 3/31/2020 (in thousands) | | :---------- | :------------------- | :----------------------------------- | | Fixed rate | $4,675,000 | $4,052,813 | | Variable rate | $1,623,600 | $1,605,640 | ITEM 4. CONTROLS AND PROCEDURES GLPI's management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with new controls implemented to evaluate loans and assess the impact of ASU 2016-13 Evaluation of Controls and Procedures GLPI's management, including its principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2020, concluding they were effective - GLPI's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[197] Changes in Internal Control over Financial Reporting GLPI implemented new controls to ensure adequate evaluation of loans and proper assessment of ASU 2016-13's impact on financial statements for its Q1 2020 adoption - New controls were implemented to evaluate loans and assess the impact of ASU 2016-13 on financial statements for its Q1 2020 adoption[198] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Information regarding legal proceedings is incorporated by reference from Note 10: Commitments and Contingencies in Part I of this report, indicating no material adverse effect is anticipated - Information on legal proceedings is incorporated by reference from Note 10: Commitments and Contingencies[200] ITEM 1A. RISK FACTORS GLPI's risk factors are detailed in its Annual Report, with material changes primarily related to the significant impact of the COVID-19 pandemic on tenant operations and the uncertainty surrounding the realization of value for the Tropicana Las Vegas real property assets - COVID-19 has had, and is expected to continue to have, a significant impact on GLPI's tenants' financial conditions and operations, potentially affecting rent obligations[202][203] - The ability to realize significant value for the real property assets of Tropicana Las Vegas, acquired for $307.5 million in rent credits, is uncertain due to current economic conditions[204] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company did not repurchase any shares of common stock or sell any unregistered securities during the three months ended March 31, 2020 - The Company did not repurchase any common stock or sell unregistered securities during Q1 2020[205] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the period - No defaults upon senior securities occurred[206] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to GLPI - Mine safety disclosures are not applicable to the Company[206] ITEM 5. OTHER INFORMATION No other information is reported under this item - No other information is reported under this item[207] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including amendments to the Credit Agreement, subsidiary issuer lists, CEO/CFO certifications, and financial information formatted in Inline XBRL - Exhibits include Amendment No. 5 to the Credit Agreement, lists of subsidiary issuers, CEO/CFO certifications, and financial information in Inline XBRL format[208] SIGNATURE The report is duly signed on behalf of Gaming and Leisure Properties, Inc. by Steven T. Snyder, Chief Financial Officer, on May 1, 2020 - The report was signed by Steven T. Snyder, Chief Financial Officer, on May 1, 2020[212]