Quarterly report pursuant to Section 13 or 15(d)

LEASES

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LEASES
6 Months Ended
Jun. 30, 2024
LEASES  
LEASES

3. LEASES

The Company has no material leases in which it is the lessor. As lessee, the Company has finance leases for a hotel and certain equipment, as well as operating leases for land, casino and office space, equipment, and buildings. The Company’s remaining lease terms, including extensions, range from one month to approximately 98 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land leases at Silver Slipper and American Place do include contingent rent, as further discussed below.

Operating Leases

Waukegan Ground Lease through February 2122 and Option to Purchase. In January 2023, the Company’s subsidiary, FHR-Illinois, LLC, entered into a 99-year ground lease (the “Ground Lease”) for approximately 32 acres of land (the “City-Owned Parcel”) with the City of Waukegan in Illinois (the “City”). The ground lease commenced concurrently with the opening of American Place on February 17, 2023. The City-Owned Parcel and an adjacent 10-acre parcel owned by the Company comprise the location of American Place, including its temporary facility. Annual rent under the Ground Lease is the greater of (i) $3.0 million (the “Annual Guaranteed Minimum Rent”), or (ii) 2.5% of gross gaming revenue (as defined in the lease) generated by American Place.

The Company has the right to purchase the City-Owned Parcel at any time during the term of the Ground Lease for $30 million. If it does so prior to the opening of the permanent American Place facility, then it must continue to pay rent due to the City under the Ground Lease until the permanent casino is open.

Silver Slipper Casino Land Lease through April 2058 and Option to Purchase. In 2004, the Company’s subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. Annual minimum rent is $0.9 million throughout the lease term until 2058, plus contingent rents of 3% of gross gaming revenue (as defined in the lease) in excess of $3.65 million per month. Rent paid through the first half of 2024, including contingent rent, was $0.8 million.

Through October 1, 2027, the Company may buy out the lease 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 following the purchase date.

Bronco Billy’s / Chamonix Lease through January 2035 and Option to Purchase. The Company’s subsidiary, FHR-Colorado LLC, leases certain parcels, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. The Company exercised its fourth renewal option to extend the lease term through January 2029, with current annual lease payments of $0.4 million. Annual minimum rent will increase to $0.5 million starting in February 2026 with adjustments on each anniversary thereafter, based on the consumer price index. The lease 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.

The Company’s related ROU asset and liability balances on its balance sheet factor in all renewal terms through January 2035, as the Company is deemed likely to exercise each renewal unless it exercises its purchase buyout right.

Grand Lodge Casino Lease through December 2024. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease (the “Hyatt Lease”) with Incline Hotel, LLC, the owner of the Hyatt Regency Lake Tahoe Resort (“Hyatt Lake Tahoe”), to operate the Grand Lodge Casino. It 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 4). The lessor has an option to purchase the Company’s leasehold interest and related operating assets of the Grand Lodge Casino at any time prior to lease expiration, 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 12-month period preceding the acquisition (or pro-rated if less than 12 months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property.

The current annual rent of $2.0 million is applicable through December 2024. In July 2024, the lease was further amended to extend the current term through December 31, 2034 and, additionally, permits the lessor to terminate the lease early with six months’ notice for a significant renovation of the property (see Note 9). Accordingly, the Company will remeasure this lease’s related ROU asset and liability balances on its balance sheet upon the effective date of the amendment.

Corporate Office Lease through January 2025. The Company leases 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-guestroom hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel, and approximately 3.01 acres of land on which it resides, at a price based upon the hotel’s original cost of $7.7 million, reduced by the cumulative principal payments made by the Company during the lease term. At June 30, 2024, such potential purchase price was $2.0 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 components of lease expenses are as follows:

(In thousands)

    

    

Three Months Ended

    

Six Months Ended

Classification within

June 30, 

June 30, 

Lease Costs

Statement of Operations

2024

 

2023

2024

 

2023

Operating leases:

 

 

 

Fixed/base rent

 

Selling, General and Administrative Expenses

$

1,964

$

2,170

$

3,927

$

3,962

Short-term payments

Selling, General and Administrative Expenses

22

Variable payments

 

Selling, General and Administrative Expenses

 

316

 

349

 

579

 

654

Finance leases:

 

Amortization of leased assets

 

Depreciation and Amortization

 

374

 

348

 

749

 

701

Interest on lease liabilities

 

Interest Expense, Net

 

70

 

109

 

149

 

220

Total lease costs

$

2,724

$

2,976

$

5,404

$

5,559

Leases recorded on the balance sheet consist of the following:

(In thousands)

June 30, 

December 31, 

Leases

    

Balance Sheet Classification

    

2024

2023

Assets

 

  

 

  

Operating lease assets

   

Operating Lease Right-of-Use Assets, Net

   

$

43,074

$

44,704

Finance lease assets

 

Property and Equipment, Net(1)

 

4,331

 

4,409

Finance lease assets

Finance Lease Right-of-Use Assets, Net(2)

1,647

2,318

Total lease assets

 

  

$

49,052

$

51,431

Liabilities

 

  

Current

 

  

Operating

 

Current Portion of Operating Lease Obligations

$

4,298

$

4,784

Finance

 

Current Portion of Finance Lease Obligations

 

1,768

 

1,694

Noncurrent

 

  

Operating

 

Operating Lease Obligations, Net of Current Portion

 

39,219

 

40,248

Finance

 

Finance Lease Obligations, Net of Current Portion

 

1,801

 

2,705

Total lease liabilities

 

  

$

47,086

$

49,431

__________

(1) Finance lease assets are recorded net of accumulated amortization of $2.8 million for June 30, 2024 and $2.7 million for December 31, 2023.
(2) These finance lease assets are recorded separately from Property and Equipment due to meeting qualifying classification criteria under ASC 842, but ownership of such assets is not expected to transfer to the Company upon term expiration. Additionally, amortization of these assets are expensed over the duration of the lease term or the assets’ estimated useful lives, whichever is earlier.

Maturities of lease liabilities as of June 30, 2024 are summarized as follows:

(In thousands)

    

Operating

    

Finance

Years Ending December 31, 

Leases

Leases

2024 (excluding the six months ended June 30, 2024)

$

3,924

$

978

2025

 

5,722

 

1,721

2026

 

4,864

 

652

2027

 

4,515

 

489

2028

 

4,515

 

Thereafter

 

312,066

 

Total future minimum lease payments

 

335,606

 

3,840

Less: Amount representing interest

 

(292,089)

 

(271)

Present value of lease liabilities

 

43,517

 

3,569

Less: Current lease obligations

 

(4,298)

 

(1,768)

Long-term lease obligations

$

39,219

$

1,801

Other information related to lease term and discount rate is as follows:

June 30, 

December 31, 

Lease Term and Discount Rate

2024

2023

Weighted-average remaining lease term

 

  

  

Operating leases

 

69.8

years

67.9

years

Finance leases

 

2.3

years

2.8

years

Weighted-average discount rate

 

Operating leases

 

10.92

%

10.91

%

Finance leases

 

7.19

%

7.46

%

Supplemental cash flow information related to leases is as follows:

(In thousands)

    

Six Months Ended

June 30, 

Cash paid for amounts included in the measurement of lease liabilities:

2024

2023

Operating cash flows for operating leases

$

3,812

$

3,898

Operating cash flows for finance leases

$

149

$

220

Financing cash flows for finance leases

$

830

$

759