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LEASES | 12 Months Ended
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Dec. 31, 2019
LEASES |
LEASES | 7. LEASES The Company has no material leases in which it is the lessor. As lessee, the Company has one finance lease for a hotel and various operating leases for land, casino and office space, equipment, buildings, and signage. The Company’s remaining lease terms, including extensions, range from one month to approximately 38 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent as further discussed below. Operating Leases Silver Slipper Casino Land Lease through April 2058 and Options to Purchase. In 2004, the Company’s subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The land lease includes base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined) in excess of $3.65 million with no scheduled base rent increases through the remaining lease term ending in 2058. We recognized $1.6 million of rent expense, including $0.6 million of contingent rents, during 2019, and $1.5 million of rent expense, including $0.6 million of contingent rents, during 2018. The land lease currently includes an exclusive option to purchase the leased land at any time through October 1, 2027, for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined), for 10 years from the purchase date. In the event that the Company sells or transfers either: (i) substantially all of the assets of Silver Slipper Casino Venture, LLC or (ii) its membership interests in Silver Slipper Casino Venture, LLC in its entirety, the purchase price will increase to $17.1 million, plus the retained interest mentioned above. In either case, the Company also has an option to purchase a four-acre portion from the total 38 acres of leased land for $2.0 million in connection with the development of an owned hotel, which may be exercised at any time and would accordingly reduce the purchase price of the remaining land by $2.0 million. Following a buy-out of the lease, the property would have to purchase or otherwise provide for its drinking water, which is currently provided by the landlord as part of the lease. Bronco Billy’s Lease through January 2035 and Option to Purchase. Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease for $30,000 per month in rent. The lease term includes six renewal options in three-year increments to 2035. In May 2019, Bronco Billy’s exercised its second renewal option to extend the lease term through January 31, 2023, which will increase the monthly rent to $32,500 beginning in February 2021. The lease also contains a $7.6 million purchase option exercisable at any time during the lease term, or as extended, and a right of first refusal on any sale of the property. Christmas Casino at Bronco Billy’s through August 2021 and Option to Purchase. As part of the Bronco Billy’s expansion, the Company leased a closed casino in August 2018 and opened it as the rebranded Christmas Casino in November 2018. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and can be extended an additional two years with annual lease payments of $0.3 million. The Company can also purchase the casino at any time during the lease term, or as extended. The purchase price is $2.6 million if bought by October 31, 2020, increasing by $0.1 million on each anniversary thereafter up to $2.8 million. Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities L.L.C. (“Hyatt”) to operate the Grand Lodge Casino. The lease is collateralized by the Company’s interests under the lease and property (as defined in the lease) and is subordinate to the liens of the Notes (see Note 6). Hyatt currently has an option to purchase our leasehold interest and related operating assets of the Grand Lodge Casino, subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. Commencing January 1, 2018, the monthly rent payment increased from $145,833 to $166,667. We recognized $2.0 million of rent expense related to this lease during 2019 and 2018. Corporate Office Lease through January 2025. In June 2017, the Company leased 4,479 square feet of office space in Las Vegas, Nevada. Annual rent is approximately $0.2 million and the term of the office lease expires in January 2025. Finance Lease Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104‑room hotel at Rising Star Casino Resort. The lease expires on October 1, 2027, and lease payments are as follows: (i) $48,537 per month from April 2016 through March 2017, (ii) $56,537 per month from April 2017 through March 2018; (iii) $57,537 per month from April 2018 through March 2019; and (iv) $63,537 per month from April 2019 through March 2020. Beginning April 1, 2020 through the end of the lease, the scheduled monthly payment will be $54,326. The Company was also required to make certain improvements to the Rising Star Casino Resort of at least $1 million by March 31, 2017, which the Company satisfied. The lease payments include an annual interest rate of 3.5% through September 30, 2017 and 4.5% thereafter. On September 17, 2017, the Company entered into a second amendment to the lease agreement to facilitate construction of the RV park that adjoins the leased hotel. At any time during the lease term, the Company has the option to purchase the hotel at a price based upon the project’s original cost of $7.7 million (see Note 3), reduced by the cumulative principal finance lease payments made by the Company during the lease term. At December 31, 2019, such net amount was $4.3 million. Upon expiration of the lease term in October 2027, (i) the Landlord has the right to sell the hotel to the Company, and (ii) the Company has the option to purchase the hotel. In either case, the purchase price is $1 plus closing costs. The lease agreement is not guaranteed by the parent company or any subsidiary, other than Gaming Entertainment (Indiana) LLC, and has customary provisions in the event of a default. Leases recorded on the balance sheet consist of the following:
(In Thousands) |  |  |  |  |
Leases |  | Balance Sheet Classification |  | December 31, 2019
Assets |  |  |  |  |
Operating lease assets |  | Operating Lease Right-of-Use Assets, Net |  | $ | 19,171
Finance lease assets |  | Property and Equipment, Net(1) |  |  | 5,037
Total lease assets |  |  |  | $ | 24,208
Liabilities |  |  |  |  |
Current |  |  |  |  |
Operating |  | Current Portion of Operating Lease Obligations |  | $ | 2,707
Finance |  | Current Portion of Finance Lease Obligation |  |  | 448
Noncurrent |  |  |  |  |
Operating |  | Operating Lease Obligations, Net of Current Portion |  |  | 16,706
Finance |  | Finance Lease Obligation, Net of Current Portion |  |  | 3,829
Total lease liabilities |  |  |  | $ | 23,690
| (1) |  | Finance lease assets are recorded net of accumulated amortization of $2.7 million as of December 31, 2019.
The components of lease expense are as follows:
(In Thousands) |  |  |  |  |
|  |  |  | Year Ended
Lease Costs |  | Statement of Operations Classification |  | December 31, 2019
Operating leases: |  |  |  |  |
Fixed/base rent |  | Selling, General and Administrative Expenses |  | $ | 3,920
Variable payments |  | Selling, General and Administrative Expenses |  |  | 788
Finance lease: |  |  |  |  |
Amortization of leased assets |  | Depreciation and Amortization |  |  | 158
Interest on lease liabilities |  | Interest Expense, Net |  |  | 206
Total lease costs |  |  |  | $ | 5,072
Maturities of lease liabilities are summarized as follows:
(In Thousands) |  |  |  |  |  |
|  | Operating |  | Financing
Year Ending December 31, |  | Leases(1) |  | Lease(2)
2020 |  | $ | 4,815 |  | $ | 616
2021 |  |  | 4,684 |  |  | 652
2022 |  |  | 4,468 |  |  | 652
2023 |  |  | 2,876 |  |  | 652
2024 |  |  | 1,135 |  |  | 652
Thereafter |  |  | 31,018 |  |  | 1,847
Total future minimum lease payments |  |  | 48,996 |  |  | 5,071
Less: Amount representing interest |  |  | (28,186) |  |  | (794)
Present value of lease liabilities |  |  | 20,810 |  |  | 4,277
Less: Current lease obligations |  |  | (2,707) |  |  | (448)
Long-term lease obligations |  | $ | 18,103 |  | $ | 3,829
| (1) |  | As of December 31, 2019, the Company has an operating lease that has not yet commenced for which the present value of lease payments over the lease term totals $1.4 million. Accordingly, this lease is not recorded on the Consolidated Balance Sheet at December 31, 2019. This operating lease will commence in 2020 with a term of 3.5 years.
| (2) |  | The Company’s only material finance lease is at Rising Star Casino Resort for a 104-room hotel.
Other information related to lease term and discount rate is as follows:
Lease Term and Discount Rate |  | December 31, 2019
Weighted-average remaining lease term |  |  |
Operating leases |  | 20.2 | years
Finance lease |  | 7.8 | years
Weighted-average discount rate |  |  |
Operating leases(1) |  | 9.40 | %
Finance lease |  | 4.50 | %
| (1) |  | Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019.
Supplemental cash flow information related to leases is as follows:
(In Thousands) |  |  |
|  | Year Ended
Cash paid for amounts included in the measurement of lease liabilities: |  | December 31, 2019
Operating cash flows for operating leases |  | $ | 3,933
Operating cash flows for finance lease |  | $ | 206
Financing cash flows for finance lease |  | $ | 544

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