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Leases

3 Months Ended

Mar. 31, 2020

Lessee

Master Leases

The components contained within the Master Leases are accounted for as either (i) operating leases, (ii) finance leases, or (iii) financing obligations. Changes to future lease payments under the Master Leases (i.e., when future escalators become known or future variable rent resets occur), which are discussed below, require the Company to either (i) increase both the ROU assets and corresponding lease liabilities with respect to operating and finance leases or (ii) record the incremental variable payment associated with the financing obligation to interest expense.

Penn Master Lease

Pursuant to a triple net master lease with GLPI (the “Penn Master Lease”), which became effective November 1, 2013, the Company leases real estate assets associated with 19 of the gaming facilities used in its operations. 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 Company has determined that the lease term is 35 years.

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 the 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 (“Columbus”) and Hollywood Casino Toledo (“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 Toledo (see below). 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.

Monthly rent associated with Columbus and monthly rent in excess of the Toledo rent floor are considered contingent rent. Expense related to operating lease components associated with Columbus and Toledo are included in “General and administrative” within our unaudited Condensed Consolidated Statements of Operations and the variable expense related to the financing obligation is included in “Interest expense, net” within our unaudited Condensed Consolidated Statements of Operations. Total monthly variable expenses were as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Variable expenses included in “General and administrative”	$	3.1	$	6.8
Variable expenses included in “Interest expense, net”	3.4		6.3
Total variable expenses	$	6.5	$	13.1

Pinnacle Master Lease

In connection with the Pinnacle Acquisition in October 2018, we assumed a triple net master lease with GLPI (the “Pinnacle Master Lease”), originally effective April 28, 2016, pursuant to which the Company leases real estate assets associated with 12 of the gaming facilities used in its operations. Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial ten-year term, with five subsequent, five-year renewal periods, on the same terms and conditions, exercisable at the Company’s option. The Company has determined that the lease term is 32.5 years.

The payment structure under the Pinnacle 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 Pinnacle Master Lease) of 1.8:1, and a component that is based on the performance, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues compared to a contractual baseline during the preceding two

years (“Pinnacle Percentage Rent”). The annual escalator test date and the Pinnacle Percentage Rent reset occurred on May 1, 2020.

Operating Leases

The Company’s operating leases consist mainly of (i) a triple net lease with GLPI for the real estate assets used in the operations of Meadows Racetrack and Casino (the “Meadows Lease”), (ii) a triple net lease with VICI Properties Inc. (NYSE: VICI) (“VICI”) for the real estate assets used in the operation of Margaritaville (the “Margaritaville Lease”), (iii) a triple net lease with VICI for the real estate assets used in the operation of Greektown (the “Greektown Lease” and collectively with the Master Leases, the Meadows Lease, and the Margaritaville Lease, the “Triple Net Leases”), (iv) ground and levee leases to landlords which were not assumed by our REIT Landlords and remain an obligation of the Company, and (v) building and equipment not subject to the Master Leases. Certain of our lease agreements include rental payments based on a percentage of sales over specified contractual amounts, rental payments adjusted periodically for inflation, and rental payments based on usage. The Company’s leases include options to extend the lease terms. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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. As a result of the annual escalator, which was determined to be $0.3 million, effective February 1, 2020, an additional operating right-of-use asset and corresponding operating lease liability of $3.1 million were recognized.

Information related to lease term and discount rate was as follows:



	March 31, 2020		December 31, 2019
Weighted-Average Remaining Lease Term
Operating leases	27.4 years		27.6 years
Finance leases	28.3 years		28.6 years
Financing obligations	30.1 years		30.4 years

Weighted-Average Discount Rate
Operating leases	6.7	%	6.7	%
Finance leases	6.8	%	6.8	%
Financing obligations	8.1	%	8.1	%

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2020:



(in millions)	Operating Leases			Finance Leases			Financing Obligations
Years ending December 31,
2020 (excluding the three months ended March 31, 2020)	$	316.4		$	16.3		$	277.3
2021	404.3			21.7			367.3
2022	401.2			21.6			367.3
2023	398.1			20.8			367.3
2024	381.6			16.7			367.3
Thereafter	8,156.4			393.5			9,270.6
Total lease payments	10,058.0			490.6			11,017.1
Less: Imputed interest	(5,510.6		)	(266.3		)	(6,887.9		)
Present value of future lease payments	4,547.4			224.3			4,129.2
Less: Current portion of lease obligations	(119.1		)	(6.6		)	(35.7		)
Long-term portion of lease obligations	$	4,428.3		$	217.7		$	4,093.5

The components of lease expense were as follows:



	For the three months ended March 31, 2020
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	97.5	$	—	$	—	$	97.5
Operating lease cost⁽²⁾	0.1		0.1		4.1		—		—		4.3
Short-term lease cost	11.7		0.2		0.2		—		—		12.1
Variable lease cost⁽²⁾	0.6		—		0.2		—		—		0.8
Total	$	12.4	$	0.3	$	102.0	$	—	$	—	$	114.7

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.9	$	—	$	3.9
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.9	$	2.0	$	5.9

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.4	$	—	$	97.4



	For the three months ended March 31, 2019
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	84.7	$	—	$	—	$	84.7
Operating lease cost⁽²⁾	0.1		0.2		4.1		—		—		4.4
Short-term lease cost	12.9		0.2		0.6		—		—		13.7
Variable lease cost⁽²⁾	1.3		—		0.3		—		—		1.6
Total	$	14.3	$	0.4	$	89.7	$	—	$	—	$	104.4

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.8	$	—	$	3.8
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.8	$	2.0	$	5.8

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.7	$	—	$	97.7


(1)	Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease and the Greektown Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land) (see table above).


(2)	Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.


(3)	Primarily pertains to the Dayton and Mahoning Valley finance leases.


(4)	Pertains to the components contained within the Master Leases (primarily buildings) determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings) (see table above).

Total payments made under the Triple Net Leases were as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Penn Master Lease	$	114.8	$	114.4
Pinnacle Master Lease	82.5		81.3
Meadows Lease	6.7		6.5
Margaritaville Lease	5.9		5.7
Greektown Lease	13.9		—
Total	$	223.8	$	207.9

Supplemental cash flow information related to leases was as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	3.9	$	3.8
Operating cash flows from operating leases	$	108.2	$	90.6
Financing cash flows from finance leases	$	1.6	$	1.6

Lessor

We lease our hotel rooms to patrons and record the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our unaudited Condensed Consolidated Statements of Operations. For the three months ended March 31, 2020 and 2019, the Company recognized $60.6 million and $71.4 million of lessor revenues related to the rental of hotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature. The cost and accumulated depreciation of property and equipment associated with hotel rooms is included in “Property and equipment, net” within our unaudited Condensed Consolidated Balance Sheets.

Leases

Lessee

Master Leases

Penn Master Lease



	For the three months ended March 31,
(in millions)	2020		2019
Variable expenses included in “General and administrative”	$	3.1	$	6.8
Variable expenses included in “Interest expense, net”	3.4		6.3
Total variable expenses	$	6.5	$	13.1

Pinnacle Master Lease

years (“Pinnacle Percentage Rent”). The annual escalator test date and the Pinnacle Percentage Rent reset occurred on May 1, 2020.

Operating Leases

Information related to lease term and discount rate was as follows:



	March 31, 2020		December 31, 2019
Weighted-Average Remaining Lease Term
Operating leases	27.4 years		27.6 years
Finance leases	28.3 years		28.6 years
Financing obligations	30.1 years		30.4 years

Weighted-Average Discount Rate
Operating leases	6.7	%	6.7	%
Finance leases	6.8	%	6.8	%
Financing obligations	8.1	%	8.1	%

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2020:



(in millions)	Operating Leases			Finance Leases			Financing Obligations
Years ending December 31,
2020 (excluding the three months ended March 31, 2020)	$	316.4		$	16.3		$	277.3
2021	404.3			21.7			367.3
2022	401.2			21.6			367.3
2023	398.1			20.8			367.3
2024	381.6			16.7			367.3
Thereafter	8,156.4			393.5			9,270.6
Total lease payments	10,058.0			490.6			11,017.1
Less: Imputed interest	(5,510.6		)	(266.3		)	(6,887.9		)
Present value of future lease payments	4,547.4			224.3			4,129.2
Less: Current portion of lease obligations	(119.1		)	(6.6		)	(35.7		)
Long-term portion of lease obligations	$	4,428.3		$	217.7		$	4,093.5

The components of lease expense were as follows:



	For the three months ended March 31, 2020
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	97.5	$	—	$	—	$	97.5
Operating lease cost⁽²⁾	0.1		0.1		4.1		—		—		4.3
Short-term lease cost	11.7		0.2		0.2		—		—		12.1
Variable lease cost⁽²⁾	0.6		—		0.2		—		—		0.8
Total	$	12.4	$	0.3	$	102.0	$	—	$	—	$	114.7

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.9	$	—	$	3.9
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.9	$	2.0	$	5.9

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.4	$	—	$	97.4



	For the three months ended March 31, 2019
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	84.7	$	—	$	—	$	84.7
Operating lease cost⁽²⁾	0.1		0.2		4.1		—		—		4.4
Short-term lease cost	12.9		0.2		0.6		—		—		13.7
Variable lease cost⁽²⁾	1.3		—		0.3		—		—		1.6
Total	$	14.3	$	0.4	$	89.7	$	—	$	—	$	104.4

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.8	$	—	$	3.8
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.8	$	2.0	$	5.8

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.7	$	—	$	97.7


(1)	Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease and the Greektown Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land) (see table above).


(2)	Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.


(3)	Primarily pertains to the Dayton and Mahoning Valley finance leases.


(4)	Pertains to the components contained within the Master Leases (primarily buildings) determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings) (see table above).

Total payments made under the Triple Net Leases were as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Penn Master Lease	$	114.8	$	114.4
Pinnacle Master Lease	82.5		81.3
Meadows Lease	6.7		6.5
Margaritaville Lease	5.9		5.7
Greektown Lease	13.9		—
Total	$	223.8	$	207.9

Supplemental cash flow information related to leases was as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	3.9	$	3.8
Operating cash flows from operating leases	$	108.2	$	90.6
Financing cash flows from finance leases	$	1.6	$	1.6

Lessor

Leases

Lessee

Master Leases

Penn Master Lease



	For the three months ended March 31,
(in millions)	2020		2019
Variable expenses included in “General and administrative”	$	3.1	$	6.8
Variable expenses included in “Interest expense, net”	3.4		6.3
Total variable expenses	$	6.5	$	13.1

Pinnacle Master Lease

years (“Pinnacle Percentage Rent”). The annual escalator test date and the Pinnacle Percentage Rent reset occurred on May 1, 2020.

Operating Leases

Information related to lease term and discount rate was as follows:



	March 31, 2020		December 31, 2019
Weighted-Average Remaining Lease Term
Operating leases	27.4 years		27.6 years
Finance leases	28.3 years		28.6 years
Financing obligations	30.1 years		30.4 years

Weighted-Average Discount Rate
Operating leases	6.7	%	6.7	%
Finance leases	6.8	%	6.8	%
Financing obligations	8.1	%	8.1	%

The following is a maturity analysis of our operating leases, finance leases and financing obligations as of March 31, 2020:



(in millions)	Operating Leases			Finance Leases			Financing Obligations
Years ending December 31,
2020 (excluding the three months ended March 31, 2020)	$	316.4		$	16.3		$	277.3
2021	404.3			21.7			367.3
2022	401.2			21.6			367.3
2023	398.1			20.8			367.3
2024	381.6			16.7			367.3
Thereafter	8,156.4			393.5			9,270.6
Total lease payments	10,058.0			490.6			11,017.1
Less: Imputed interest	(5,510.6		)	(266.3		)	(6,887.9		)
Present value of future lease payments	4,547.4			224.3			4,129.2
Less: Current portion of lease obligations	(119.1		)	(6.6		)	(35.7		)
Long-term portion of lease obligations	$	4,428.3		$	217.7		$	4,093.5

The components of lease expense were as follows:



	For the three months ended March 31, 2020
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	97.5	$	—	$	—	$	97.5
Operating lease cost⁽²⁾	0.1		0.1		4.1		—		—		4.3
Short-term lease cost	11.7		0.2		0.2		—		—		12.1
Variable lease cost⁽²⁾	0.6		—		0.2		—		—		0.8
Total	$	12.4	$	0.3	$	102.0	$	—	$	—	$	114.7

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.9	$	—	$	3.9
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.9	$	2.0	$	5.9

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.4	$	—	$	97.4



	For the three months ended March 31, 2019
	Classification
(in millions)	Gaming Expense		Food, Beverage, Hotel and Other Expense		General and Administrative		Interest Expense, net		Depreciation and Amortization		Total
Operating Lease Costs
Rent expense associated with triple net leases classified as operating leases ⁽¹⁾	$	—	$	—	$	84.7	$	—	$	—	$	84.7
Operating lease cost⁽²⁾	0.1		0.2		4.1		—		—		4.4
Short-term lease cost	12.9		0.2		0.6		—		—		13.7
Variable lease cost⁽²⁾	1.3		—		0.3		—		—		1.6
Total	$	14.3	$	0.4	$	89.7	$	—	$	—	$	104.4

Finance Lease Costs
Interest expense ⁽³⁾	$	—	$	—	$	—	$	3.8	$	—	$	3.8
Amortization expense ⁽³⁾	—		—		—		—		2.0		2.0
Total	$	—	$	—	$	—	$	3.8	$	2.0	$	5.8

Financing Obligation Costs
Interest expense ⁽⁴⁾	$	—	$	—	$	—	$	97.7	$	—	$	97.7


(1)	Pertains to the operating lease components contained within the Master Leases (primarily land), the Meadows Lease, the Margaritaville Lease and the Greektown Lease, inclusive of the variable expense associated with Columbus and Toledo for the operating lease components (the land) (see table above).


(2)	Excludes the operating lease costs and variable lease costs pertaining to our triple net leases with our REIT landlords classified as operating leases, discussed in footnote (1) above.


(3)	Primarily pertains to the Dayton and Mahoning Valley finance leases.


(4)	Pertains to the components contained within the Master Leases (primarily buildings) determined to be financing obligations, inclusive of the variable expense associated with Columbus and Toledo for the finance lease components (the buildings) (see table above).

Total payments made under the Triple Net Leases were as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Penn Master Lease	$	114.8	$	114.4
Pinnacle Master Lease	82.5		81.3
Meadows Lease	6.7		6.5
Margaritaville Lease	5.9		5.7
Greektown Lease	13.9		—
Total	$	223.8	$	207.9

Supplemental cash flow information related to leases was as follows:



	For the three months ended March 31,
(in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	3.9	$	3.8
Operating cash flows from operating leases	$	108.2	$	90.6
Financing cash flows from finance leases	$	1.6	$	1.6

Lessor