LEASES

6 Months Ended

Jun. 30, 2022

GLPI Master Lease

In connection with the acquisition of Bally’s Evansville, an affiliate of GLPI has agreed to acquire the real estate associated with Bally’s Evansville from the seller for $340.0 million and lease it to the Company under a master lease agreement (the “Master Lease”). GLPI also agreed to acquire the real estate associated with Bally’s Dover for $144.0 million and lease it back to the Company under the Master Lease. The Master Lease with GLPI has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $40.0 million, subject to escalation. The acquisition of Bally’s Evansville and commencement of the Master Lease occurred on June 3, 2021.

During the second quarter of 2021, the Company sold the real estate associated with Bally’s Dover to GLPI and recorded a gain of $53.4 million representing the difference in the transaction price and the derecognition of assets.

During the second quarter of 2021, the Company recognized a lease liability and corresponding right of use asset of $117.3 million and $276.9 million related to Bally’s Dover and Bally’s Evansville, respectively.

On April 1, 2022, the Company completed the sale of its Bally’s Quad Cities and Bally’s Black Hawk properties to GLPI for $150.0 million, subsequently leasing the properties back under the above-mentioned Master Lease for combined minimum annual payments of $12.0 million, subject to escalation. During the second quarter of 2022, the Company recorded a net gain of $50.8 million, representing the difference in the transaction price and the derecognition of assets, and recorded lease liabilities and corresponding right of use assets of $82.7 million and $21.8 million, respectively.

All leases under the Master Lease are accounted for as operating leases within the provisions of ASC 842, Leases (“ASC 842”), over the lease term or until a re-assessment event occurs.

Operating Leases

In addition to the operating lease components under the Master Lease, the Company is committed under various long-term operating lease agreements primarily related to submerged tidelands, property and equipment at Hard Rock Biloxi, Bally’s Kansas City, Bally’s Shreveport and Bally’s Lake Tahoe. These leases include various renewal options which are included in the lease term when the Company has determined it is reasonably certain of exercising the options. Certain of these leases include percentage rent payments based on property revenues and/or rent escalation provisions determined by increases in the consumer price index (“CPI”). These percentage rent and escalation provisions are treated as variable lease payments and recognized as lease expense in the period in which the obligation for those payments are incurred. Discount rates used to determine the present value of the lease payments are based on a credit-adjusted secured borrowing rate commensurate with the term of the lease.

In the second quarter of 2021, in connection with the acquisition of Bally’s Lake Tahoe, the Company assumed a lease for the real estate and land underlying the operations of Bally’s Lake Tahoe facility. The original term of the lease expires on December 31, 2035, at which point the Company will have five options to renew the lease for additional periods of five years each. The renewal options have not been included in the calculation of the lease liability or right of use asset as the Company is not reasonably certain to exercise the options. The fixed rent due under the lease can escalate each year based on changes in CPI. Additionally, the Company is obligated to pay an annual percentage rent based on property net revenues.

Additionally, certain of the Company’s subsidiaries lease office space, data centers, parking space, memorabilia and equipment under agreements classified as operating leases that expire on various dates through 2030. Variable expenses generally represent the Company’s share of the landlord’s operating expenses, percentage rent and CPI increases. The Company does not have any leases classified as financing leases.

The Company had operating lease liabilities of approximately $668.7 million and $531.0 million as of June 30, 2022 and December 31, 2021, respectively, and right of use assets of approximately $642.9 million and $507.8 million as of June 30, 2022 and December 31, 2021, respectively, which were included in the condensed consolidated balance sheets.

Total lease cost under ASC 842 for the three and six months ended June 30, 2022 and 2021 was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Operating leases:
Operating lease cost	$	17,265	$	6,363	$	32,564	$	7,695
Variable lease cost	2,001		780		3,818		918
Operating lease expense	19,266		7,143		36,382		8,613
Short-term lease expense	4,966		1,769		8,703		2,823
Total lease expense	$	24,232	$	8,912	$	45,085	$	11,436

Supplemental cash flow and other information for the three and six months ended June 30, 2022 and 2021, related to operating leases was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Cash paid for amounts included in the lease liability - operating cash flows from operating leases	$	15,820	$	5,328	$	29,007	$	6,137
Right of use assets obtained in exchange for operating lease liabilities	$	148,759	$	126,235	$	150,122	$	126,623


	June 30, 2022		December 31, 2021
Weighted average remaining lease term	14.4 years		15.3 years
Weighted average discount rate	6.5	%	6.1	%

As of June 30, 2022, future minimum rental commitments under noncancelable operating leases are as follows:


(in thousands)	June 30, 2022
Remaining 2022	$	36,238
2023	68,298
2024	72,251
2025	75,663
2026	74,797
Thereafter	722,172
Total	1,049,419
Less: present value discount	(380,717)
Operating lease liabilities	$	668,702

Future operating lease payments as shown above include $87.7 million related to extension options that are reasonably certain of being exercised.

The Company also has leasing arrangements with third-party lessees at its properties. Leasing arrangements for which the Company acts as a lessor are not deemed material as of June 30, 2022 and December 31, 2021.