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Leases | 12 Months Ended
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Dec. 31, 2019
Leases [Abstract] |
Leases | Note 11—Leases Lessee Master Leases Upon adoption of the new lease standard, components contained within the Master Leases were determined to be 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 of the properties, 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). As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $5.4 million and $2.4 million effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023. As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components. The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Income. 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 Consolidated Statements of Income and the variable expense related to the financing obligation component is included in “Interest expense, net” within our Consolidated Statements of Income. The entire variable expense related to prior years was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840. Total monthly variable expenses were as follows:
| For the year ended December 31,
(in millions) | 2019 |  | 2018 |  | 2017
Variable expenses included in “General and administrative” | $ | 16.4 |  |  | $ | — |  |  | $ | — |
Variable expenses included in “Interest expense, net” | 16.1 |  |  | 48.9 |  |  | 46.8 |
Total variable expenses | $ | 32.5 |  |  | $ | 48.9 |  |  | $ | 46.8 |
Pinnacle Master Lease In connection with the Pinnacle Acquisition, 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 of the properties, 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”). As a result of the annual escalator, the fixed component of rent increased by $1.0 million effective as of May 1, 2019. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020. As a result of the annual escalator, an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease. Operating Leases The Company’s operating leases consist mainly of (i) the Meadows Lease with GLPI, (ii) the Margaritaville Lease with VICI, (iii) the Greektown Lease with VICI, (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. Meadows Lease, Margaritaville Lease, and Greektown Lease In connection with the Pinnacle Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4.0% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, which was determined to be $0.8 million, effective October 1, 2019, an additional operating ROU asset and corresponding operating lease liability of $4.3 million were recognized. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020. 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 (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, 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 first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1. The Greektown 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 Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, 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 (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021. Information related to lease term and discount rate was as follows:
| December 31, 2019
Weighted-Average Remaining Lease Term |
Operating leases | 27.6 years |
Finance leases | 28.6 years |
Financing obligations | 30.4 years |
Weighted-Average Discount Rate |
Operating leases | 6.7 | %
Finance leases | 6.8 | %
Financing obligations | 8.1 | %
The components of lease expense were as follows:
| Classification |  |
(in millions) | Gaming Expense |  | Food, Beverage, Hotel and Other Expense |  | General and Administrative |  | Interest Expense, net |  | Depreciation and Amortization |  | Total for the year ended December 31, 2019
Operating Lease Costs |  |  |  |  |  |  |  |  |  |  |
Rent expense associated with triple net leases classified as operating leases (1) | $ | — |  |  | $ | — |  |  | $ | 366.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 366.4 |
Operating lease cost (2) | 0.4 |  |  | 0.5 |  |  | 16.6 |  |  | — |  |  | — |  |  | 17.5 |
Short-term lease cost | 53.8 |  |  | 1.3 |  |  | 1.5 |  |  | — |  |  | — |  |  | 56.6 |
Variable lease cost (2) | 2.8 |  |  | — |  |  | 1.1 |  |  | — |  |  | — |  |  | 3.9 |
Total | $ | 57.0 |  |  | $ | 1.8 |  |  | $ | 385.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 444.4 |
Finance Lease Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (3) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | — |  |  | $ | 15.4 |
Amortization expense (3) | — |  |  | — |  |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | 7.9 |  |  | $ | 23.3 |
Financing Obligation Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (4) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 394.1 |  |  | $ | — |  |  | $ | 394.1 |
(1) | Pertains to the components contained within the Master Leases (primarily land) determined to be operating leases, 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 continue 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 rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million and $45.4 million for the years ended December 31, 2018 and 2017, respectively. Supplemental cash flow information related to leases was as follows:
(in millions) | For the year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities |
Operating cash flows from finance leases | $ | 15.4 |
Operating cash flows from operating leases | $ | 403.6 |
Financing cash flows from finance leases | $ | 6.2 |
The following is a maturity analysis of our operating leases, finance leases and financing obligations as of December 31, 2019:
(in millions) | Operating Leases |  | Finance Leases |  | Financing Obligations
Years ending December 31: |  |  |  |  |
2020 | $ | 424.0 |  |  | $ | 21.7 |  |  | $ | 374.7 |
2021 | 403.7 |  |  | 21.7 |  |  | 367.3 |
2022 | 400.6 |  |  | 21.6 |  |  | 367.3 |
2023 | 397.5 |  |  | 20.8 |  |  | 367.3 |
2024 | 381.0 |  |  | 16.7 |  |  | 367.3 |
Thereafter | 8,153.3 |  |  | 393.5 |  |  | 9,270.6 |
Total lease payments | 10,160.1 |  |  | 496.0 |  |  | 11,114.5 |
Less: Imputed interest | (5,585.4 | ) |  | (270.1 | ) |  | (6,971.8 | )
Present value of future lease payments | 4,574.7 |  |  | 225.9 |  |  | 4,142.7 |
Less: Current portion of lease obligations | (124.1 | ) |  | (6.5 | ) |  | (40.5 | )
Long-term portion of lease obligations | $ | 4,450.6 |  |  | $ | 219.4 |  |  | $ | 4,102.2 |
During the year ended December 31, 2019, total payments made under the Triple Net Leases were $869.8 million. During the year ended December 31, 2018, total payments made under the Master Leases and Meadows Lease were $537.4 million. During the year ended December 31, 2017, total payments made under the Penn Master Lease were $455.4 million. Lessor The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Income. For the years ended December 31, 2019, 2018, and 2017, the Company recognized $311.0 million, $163.6 million, and $129.9 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 Consolidated Balance Sheets.
Leases | Note 11—Leases Lessee Master Leases Upon adoption of the new lease standard, components contained within the Master Leases were determined to be 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 of the properties, 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). As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $5.4 million and $2.4 million effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023. As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components. The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Income. 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 Consolidated Statements of Income and the variable expense related to the financing obligation component is included in “Interest expense, net” within our Consolidated Statements of Income. The entire variable expense related to prior years was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840. Total monthly variable expenses were as follows:
| For the year ended December 31,
(in millions) | 2019 |  | 2018 |  | 2017
Variable expenses included in “General and administrative” | $ | 16.4 |  |  | $ | — |  |  | $ | — |
Variable expenses included in “Interest expense, net” | 16.1 |  |  | 48.9 |  |  | 46.8 |
Total variable expenses | $ | 32.5 |  |  | $ | 48.9 |  |  | $ | 46.8 |
Pinnacle Master Lease In connection with the Pinnacle Acquisition, 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 of the properties, 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”). As a result of the annual escalator, the fixed component of rent increased by $1.0 million effective as of May 1, 2019. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020. As a result of the annual escalator, an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease. Operating Leases The Company’s operating leases consist mainly of (i) the Meadows Lease with GLPI, (ii) the Margaritaville Lease with VICI, (iii) the Greektown Lease with VICI, (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. Meadows Lease, Margaritaville Lease, and Greektown Lease In connection with the Pinnacle Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4.0% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, which was determined to be $0.8 million, effective October 1, 2019, an additional operating ROU asset and corresponding operating lease liability of $4.3 million were recognized. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020. 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 (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, 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 first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1. The Greektown 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 Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, 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 (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021. Information related to lease term and discount rate was as follows:
| December 31, 2019
Weighted-Average Remaining Lease Term |
Operating leases | 27.6 years |
Finance leases | 28.6 years |
Financing obligations | 30.4 years |
Weighted-Average Discount Rate |
Operating leases | 6.7 | %
Finance leases | 6.8 | %
Financing obligations | 8.1 | %
The components of lease expense were as follows:
| Classification |  |
(in millions) | Gaming Expense |  | Food, Beverage, Hotel and Other Expense |  | General and Administrative |  | Interest Expense, net |  | Depreciation and Amortization |  | Total for the year ended December 31, 2019
Operating Lease Costs |  |  |  |  |  |  |  |  |  |  |
Rent expense associated with triple net leases classified as operating leases (1) | $ | — |  |  | $ | — |  |  | $ | 366.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 366.4 |
Operating lease cost (2) | 0.4 |  |  | 0.5 |  |  | 16.6 |  |  | — |  |  | — |  |  | 17.5 |
Short-term lease cost | 53.8 |  |  | 1.3 |  |  | 1.5 |  |  | — |  |  | — |  |  | 56.6 |
Variable lease cost (2) | 2.8 |  |  | — |  |  | 1.1 |  |  | — |  |  | — |  |  | 3.9 |
Total | $ | 57.0 |  |  | $ | 1.8 |  |  | $ | 385.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 444.4 |
Finance Lease Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (3) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | — |  |  | $ | 15.4 |
Amortization expense (3) | — |  |  | — |  |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | 7.9 |  |  | $ | 23.3 |
Financing Obligation Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (4) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 394.1 |  |  | $ | — |  |  | $ | 394.1 |
(1) | Pertains to the components contained within the Master Leases (primarily land) determined to be operating leases, 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 continue 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 rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million and $45.4 million for the years ended December 31, 2018 and 2017, respectively. Supplemental cash flow information related to leases was as follows:
(in millions) | For the year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities |
Operating cash flows from finance leases | $ | 15.4 |
Operating cash flows from operating leases | $ | 403.6 |
Financing cash flows from finance leases | $ | 6.2 |
The following is a maturity analysis of our operating leases, finance leases and financing obligations as of December 31, 2019:
(in millions) | Operating Leases |  | Finance Leases |  | Financing Obligations
Years ending December 31: |  |  |  |  |
2020 | $ | 424.0 |  |  | $ | 21.7 |  |  | $ | 374.7 |
2021 | 403.7 |  |  | 21.7 |  |  | 367.3 |
2022 | 400.6 |  |  | 21.6 |  |  | 367.3 |
2023 | 397.5 |  |  | 20.8 |  |  | 367.3 |
2024 | 381.0 |  |  | 16.7 |  |  | 367.3 |
Thereafter | 8,153.3 |  |  | 393.5 |  |  | 9,270.6 |
Total lease payments | 10,160.1 |  |  | 496.0 |  |  | 11,114.5 |
Less: Imputed interest | (5,585.4 | ) |  | (270.1 | ) |  | (6,971.8 | )
Present value of future lease payments | 4,574.7 |  |  | 225.9 |  |  | 4,142.7 |
Less: Current portion of lease obligations | (124.1 | ) |  | (6.5 | ) |  | (40.5 | )
Long-term portion of lease obligations | $ | 4,450.6 |  |  | $ | 219.4 |  |  | $ | 4,102.2 |
During the year ended December 31, 2019, total payments made under the Triple Net Leases were $869.8 million. During the year ended December 31, 2018, total payments made under the Master Leases and Meadows Lease were $537.4 million. During the year ended December 31, 2017, total payments made under the Penn Master Lease were $455.4 million. Lessor The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Income. For the years ended December 31, 2019, 2018, and 2017, the Company recognized $311.0 million, $163.6 million, and $129.9 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 Consolidated Balance Sheets.
Leases | Note 11—Leases Lessee Master Leases Upon adoption of the new lease standard, components contained within the Master Leases were determined to be 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 of the properties, 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). As a result of the annual escalator, the fixed component of rent increased by $5.5 million, $5.4 million and $2.4 million effective as of November 1, 2019, 2018 and 2017, respectively. Additionally, effective November 1, 2018, the Penn Percentage Rent reset resulted in an annual rent reduction of $11.3 million, which will be in effect until the next Penn Percentage Rent reset, occurring on November 1, 2023. As a result of the annual escalator effective November 1, 2019, an additional ROU asset and corresponding lease liability of $34.4 million were recognized associated with operating lease components and an additional ROU asset and corresponding lease liability of $3.1 million were recognized associated with finance lease components. The acquisition of Greektown on May 23, 2019 activated a competition clause within the Penn Master Lease, which introduced a rent floor specific to Toledo. As a result, an additional ROU asset and corresponding lease liability of $151.2 million were recognized associated with operating lease components. Lease payments resulting from the rent floor associated with components determined to continue to be financing obligations are included in “Interest expense, net” within our Consolidated Statements of Income. 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 Consolidated Statements of Income and the variable expense related to the financing obligation component is included in “Interest expense, net” within our Consolidated Statements of Income. The entire variable expense related to prior years was included in “Interest expense, net” pursuant to the failed sale-leaseback accounting treatment under ASC 840. Total monthly variable expenses were as follows:
| For the year ended December 31,
(in millions) | 2019 |  | 2018 |  | 2017
Variable expenses included in “General and administrative” | $ | 16.4 |  |  | $ | — |  |  | $ | — |
Variable expenses included in “Interest expense, net” | 16.1 |  |  | 48.9 |  |  | 46.8 |
Total variable expenses | $ | 32.5 |  |  | $ | 48.9 |  |  | $ | 46.8 |
Pinnacle Master Lease In connection with the Pinnacle Acquisition, 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 of the properties, 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”). As a result of the annual escalator, the fixed component of rent increased by $1.0 million effective as of May 1, 2019. The next Pinnacle Percentage Rent reset is scheduled to occur on May 1, 2020. As a result of the annual escalator, an additional ROU asset and corresponding lease liability of $3.8 million were recognized associated with operating lease components of the Pinnacle Master Lease. Operating Leases The Company’s operating leases consist mainly of (i) the Meadows Lease with GLPI, (ii) the Margaritaville Lease with VICI, (iii) the Greektown Lease with VICI, (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. Meadows Lease, Margaritaville Lease, and Greektown Lease In connection with the Pinnacle Acquisition, we assumed the Meadows Lease, originally effective September 9, 2016. Upon assumption of the Meadows Lease, there were eight years remaining of the initial ten-year term, with three subsequent, five-year renewal options followed by one four-year renewal option on the same terms and conditions, exercisable at the Company’s option. The payment structure under the Meadows Lease includes a fixed component (“Meadows Base Rent”), which is subject to an annual escalator of up to 5% for the initial term or until the lease year in which Meadows Base Rent plus Meadows Percentage Rent (as defined below) is a total of $31.0 million, subject to certain adjustments, and up to 2% thereafter, subject to an Adjusted Revenue to Rent Ratio (as defined in the Meadows Lease) of 2.0:1. The “Meadows Percentage Rent” is based on performance, which is prospectively adjusted for the next two-year period equal to 4.0% of the average annual net revenues of the property during the trailing two-year period. As a result of the annual escalator, which was determined to be $0.8 million, effective October 1, 2019, an additional operating ROU asset and corresponding operating lease liability of $4.3 million were recognized. The next Meadows Percentage Rent reset is scheduled to occur on October 1, 2020. 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 (“Margaritaville Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Margaritaville Lease) of 1.9:1, 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 first Margaritaville Percentage Rent reset is scheduled to occur on February 1, 2021. On February 1, 2020, the Margaritaville Lease was amended to provide for a change in the measurement of the annual escalator. Under the amendment, the Margaritaville Base Rent is subject to an annual escalator of up to 2% subject to a minimum ratio of net revenue to rent of 6.1:1. The Greektown 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 Greektown Lease includes a fixed component (“Greektown Base Rent”), which is subject to an annual escalator of up to 2% subject to an Adjusted Revenue to Rent Ratio (as defined in the Greektown Lease) of 1.85:1, 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 (“Greektown Percentage Rent”). The first Greektown Percentage Rent reset is scheduled to occur on June 1, 2021. Information related to lease term and discount rate was as follows:
| December 31, 2019
Weighted-Average Remaining Lease Term |
Operating leases | 27.6 years |
Finance leases | 28.6 years |
Financing obligations | 30.4 years |
Weighted-Average Discount Rate |
Operating leases | 6.7 | %
Finance leases | 6.8 | %
Financing obligations | 8.1 | %
The components of lease expense were as follows:
| Classification |  |
(in millions) | Gaming Expense |  | Food, Beverage, Hotel and Other Expense |  | General and Administrative |  | Interest Expense, net |  | Depreciation and Amortization |  | Total for the year ended December 31, 2019
Operating Lease Costs |  |  |  |  |  |  |  |  |  |  |
Rent expense associated with triple net leases classified as operating leases (1) | $ | — |  |  | $ | — |  |  | $ | 366.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 366.4 |
Operating lease cost (2) | 0.4 |  |  | 0.5 |  |  | 16.6 |  |  | — |  |  | — |  |  | 17.5 |
Short-term lease cost | 53.8 |  |  | 1.3 |  |  | 1.5 |  |  | — |  |  | — |  |  | 56.6 |
Variable lease cost (2) | 2.8 |  |  | — |  |  | 1.1 |  |  | — |  |  | — |  |  | 3.9 |
Total | $ | 57.0 |  |  | $ | 1.8 |  |  | $ | 385.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 444.4 |
Finance Lease Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (3) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | — |  |  | $ | 15.4 |
Amortization expense (3) | — |  |  | — |  |  | — |  |  | — |  |  | 7.9 |  |  | 7.9 |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 15.4 |  |  | $ | 7.9 |  |  | $ | 23.3 |
Financing Obligation Costs |  |  |  |  |  |  |  |  |  |  |
Interest expense (4) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 394.1 |  |  | $ | — |  |  | $ | 394.1 |
(1) | Pertains to the components contained within the Master Leases (primarily land) determined to be operating leases, 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 continue 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 rent expense under all operating lease agreements pursuant to the accounting treatment under ASC 840 was $58.1 million and $45.4 million for the years ended December 31, 2018 and 2017, respectively. Supplemental cash flow information related to leases was as follows:
(in millions) | For the year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities |
Operating cash flows from finance leases | $ | 15.4 |
Operating cash flows from operating leases | $ | 403.6 |
Financing cash flows from finance leases | $ | 6.2 |
The following is a maturity analysis of our operating leases, finance leases and financing obligations as of December 31, 2019:
(in millions) | Operating Leases |  | Finance Leases |  | Financing Obligations
Years ending December 31: |  |  |  |  |
2020 | $ | 424.0 |  |  | $ | 21.7 |  |  | $ | 374.7 |
2021 | 403.7 |  |  | 21.7 |  |  | 367.3 |
2022 | 400.6 |  |  | 21.6 |  |  | 367.3 |
2023 | 397.5 |  |  | 20.8 |  |  | 367.3 |
2024 | 381.0 |  |  | 16.7 |  |  | 367.3 |
Thereafter | 8,153.3 |  |  | 393.5 |  |  | 9,270.6 |
Total lease payments | 10,160.1 |  |  | 496.0 |  |  | 11,114.5 |
Less: Imputed interest | (5,585.4 | ) |  | (270.1 | ) |  | (6,971.8 | )
Present value of future lease payments | 4,574.7 |  |  | 225.9 |  |  | 4,142.7 |
Less: Current portion of lease obligations | (124.1 | ) |  | (6.5 | ) |  | (40.5 | )
Long-term portion of lease obligations | $ | 4,450.6 |  |  | $ | 219.4 |  |  | $ | 4,102.2 |
During the year ended December 31, 2019, total payments made under the Triple Net Leases were $869.8 million. During the year ended December 31, 2018, total payments made under the Master Leases and Meadows Lease were $537.4 million. During the year ended December 31, 2017, total payments made under the Penn Master Lease were $455.4 million. Lessor The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Food, beverage, hotel and other revenues” within our Consolidated Statements of Income. For the years ended December 31, 2019, 2018, and 2017, the Company recognized $311.0 million, $163.6 million, and $129.9 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 Consolidated Balance Sheets.

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