Ballys Corp

17. LEASES

Operating Leases

The Company is committed under various operating lease agreements for real estate and property used in operations. Certain 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 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 the Company’s incremental borrowing rate commensurate with the term of the lease.

The Company had total operating lease liabilities of $1.20 billion and $836.1 million as of December 31, 2023 and 2022, respectively, and right of use assets of $1.16 billion and $808.9 million as of December 31, 2023 and 2022, respectively, which were included in the consolidated balance sheets.

GLPI Leases

As of December 31, 2023, the Company’s Bally’s Evansville, Bally’s Dover, Bally’s Quad Cities, Bally’s Black Hawk, Bally’s Tiverton and Hard Rock Biloxi properties are leased under the terms of a master lease agreement (the “Master Lease”) with GLPI. All GLPI leases are accounted for as operating leases within the provisions of ASC 842, over the lease term or until a re-assessment event occurs. The Master Lease has an initial term of 15 years and includes four, five-year options to renew and requires combined minimum annual payments of $100.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. The renewal options are not reasonably certain of exercise as of December 31, 2023.

In connection with the sale of the real estate for Bally’s Dover in the second quarter of 2021, the Company received proceeds of $144.0 million and recognized a net gain of $53.4 million. In connection with the sale of the real estate for Bally’s Quad Cities and Bally’s Black Hawk during the second quarter of 2022, the Company received proceeds of $150.0 million and recognized a gain of $50.8 million. The gains recorded on the transactions represent the difference in the respective transaction prices and the derecognition of assets and are recorded within “Gain from sale-leaseback, net” in the consolidated statements of operations.

On January 3, 2023, the Company completed a transaction with GLP Capital, L.P., the operating partnership of GLPI, related to the land and real estate assets of Bally’s Tiverton and Hard Rock Biloxi for total consideration of $625.4 million. The transaction was structured as a tax-free capital contribution and a substantial portion of the proceeds was used to reduce the Company’s debt. These properties were added to the Master Lease, increasing minimum annual payments by $48.5 million. An advance deposit of $200.0 million was received in the third quarter of 2022 in connection with this agreement, which was recorded within “Accrued liabilities” in the consolidated balance sheets as of December 31, 2022. During the year ended December 31, 2023, the Company recorded a gain of $374.3 million representing the difference in the transaction price and the derecognition of assets. This gain is reflected as “Gain from sale-leaseback, net” in the consolidated statements of operations.

In addition to the properties under the Master Lease explained above, the Company also entered into a lease with GLPI for the land associated with Tropicana Las Vegas, which the Company acquired during the third quarter of 2022. This lease has an initial term of 50 years (with a maximum term of 99 years with renewal options) at annual rent of $10.5 million, subject to minimum 1% annual escalation or greater escalation dependent on CPI. The renewal options are not reasonably certain of exercise as of December 31, 2023.

Components of lease expense included within “General and administrative” for operating leases during the years ended December 31, 2023, 2022 and 2021 are as follows:

Supplemental cash flow and other information related to operating leases for the year ended December 31, 2023 and 2022, are as follows:

As of December 31, 2023, future minimum lease payments under noncancelable operating leases are as follows:

Future minimum lease payments disclosed in the table above include $87.7 million related to extension options that are reasonably certain of being exercised.

Financing Obligation

Bally’s Chicago Operating Company, LLC., an indirect wholly-owned subsidiary of the Company, entered into a ground lease for the land on which Bally’s Chicago will be built, which is accounted for as a financing obligation in accordance with ASC 470, Debt, as the transaction did not qualify as a sale under ASC 842. The lease commenced November 18, 2022 and has a 99-year term followed byten separate 20-year renewals at the Company’s option.

The Company recorded land within “Property and equipment, net” of $200.0 million with a corresponding liability within “Long-term portion of financing obligation” of $200.0 million on its consolidated balance sheets as of December 31, 2023 and 2022. All lease payments are recorded as interest expense and there is no reduction to the financing obligation over the lease term. Bally’s Chicago made cash payments, and recorded corresponding interest expense, of $17.4 million and $2.0 million during the years ended December 31, 2023 and 2022, respectively.

Lessor

The Company leases its hotel rooms to patrons and records the corresponding lessor revenue in “Non-gaming revenue” within our consolidated statements of operations. For the years ended December 31, 2023, 2022, and 2021, the Company recognized $200.7 million, $153.8 million and $95.4 million of lessor revenues related to the rental of hotel rooms, respectively. Hotel leasing arrangements vary in duration, but are short-term in nature.