The majority of the gaming facilities used in the Company’s operations are subject to triple net master leases; the most significant of which are the Penn Master Lease and the Pinnacle Master Lease. As discussed in Note 3, “Summary of Significant Accounting Policies,” the Company’s Master Leases are accounted for as financing obligations. Contingent rental payments, such as escalators and the percentage rents not considered to be fixed at lease inception under the Penn Master Lease and the Pinnacle Master Lease are recorded as interest expense as incurred.

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 20 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 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 facilities, which is prospectively adjusted (i) every five years by an amount equal to 4% of the average change in net revenues of all facilities under the Penn Master Lease compared to a contractual baseline (other than Hollywood Casino Columbus and Hollywood Casino Toledo) during the preceding five years (“Penn Percentage Rent”) and (ii) monthly by an amount equal to 20% of the revenues of Hollywood Casino Columbus and Hollywood Casino Toledo in excess of a contractual baseline.

In April 2014, we entered into an amendment to the Penn Master Lease in order to revise certain provisions relating to our former Argosy Casino Sioux City property. In accordance with that amendment, upon the cessation of gaming operations at Argosy Casino Sioux City on July 30, 2014, due to the termination of its gaming license, the annual payment to GLPI was reduced by $6.2 million. In addition, with the openings of Hollywood Gaming at Dayton Raceway and Hollywood Gaming at Mahoning Valley Race Course in September 2014, our annual payment increased by $19 million, which approximated 10% of the real estate construction costs paid for by GLPI related to these facilities.

In connection with the acquisitions of 1^stJackpot Casino Tunica and Resorts Casino Tunica in May 2017, the Company’s Penn Master Lease financing obligation increased by $82.6 million, which was the price paid by GLPI for the casinos’ underlying real estate assets. As a result of the addition of these two properties to the Penn Master Lease, the annual rent payment increased by $9.0 million.

The Company has incurred annual escalators under the Penn Master Lease, which resulted in increases to the Company’s annual payment of $5.4 million, $2.4 million and $4.5 million commencing on November 1, 2018, 2017 and 2016, 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.



	For the year ended December 31,
(in thousands)	2018		2017		2016
Reduction of financing obligation	$	60,061	$	57,859	$	50,548
Interest expense attributable to financing obligation	401,483		397,580		391,738
Total lease payments under the Penn Master Lease	$	461,544	$	455,439	$	442,286

The interest expense recognized for the years ended December 31, 2018, 2017 and 2016 includes $48.9 million, $46.8 million and $43.8 million, respectively, from contingent payments associated with the monthly variable components for Hollywood Casino Columbus and Hollywood Casino Toledo.

In connection with the Pinnacle Acquisition, the Company assumed a triple net master lease with GLPI, originally effective April 28, 2016 (“Pinnacle Master Lease”). Concurrent with the closing of the Pinnacle Acquisition on October 15, 2018, the Company entered into an amendment to the Pinnacle Master Lease to, among other things, (i) remove Ameristar Casino Resort St. Charles, Ameristar Casino Hotel Kansas City and Belterra Casino Resort, which were sold to Boyd, and (ii) add Plainridge

Park Casino, whose real estate assets were sold to GLPI and concurrently leased back to the Company for a fixed annual rent of $25.0 million. Further, the rent payment under the Pinnacle Master Lease was increased by a fixed annual amount of $13.9 million to adjust the rent to reflect current market conditions. Reflecting this amendment, the Company leases real estate assets associated with twelve of the gaming facilities used in the Company’s operations from GLPI.

Upon assumption of the Pinnacle Master Lease, as amended, there were 7.5 years remaining of the initial 10-year term, with five subsequent, five-year renewal periods exercisable at the Company’s option. The payment structure under the Pinnacle Master Lease includes a fixed component, 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 facilities, which is prospectively adjusted every two years by an amount equal to 4% of the average change in net revenues of all facilities under the Pinnacle Master Lease compared to a contractual baseline during the preceding two years (“Pinnacle Percentage Rent”). The next Pinnacle Percentage Rent reset will occur effective May 1, 2020.



(in thousands)	For the Year Ended December 31, 2018
Reduction of financing obligation	$	7,351
Interest expense attributable to financing obligation	62,993
Total lease payments under the Pinnacle Master Lease⁽¹⁾	$	70,344



(in thousands)	Penn Master Lease			Pinnacle Master Lease			Total
Year ending December 31:
2019	$	347,384		$	329,245		$	676,629
2020	347,384			308,067			655,451
2021	347,384			297,478			644,862
2022	347,384			297,478			644,862
2023	347,384			297,478			644,862
Thereafter	8,626,711			8,131,064			16,757,775
Total minimum lease payments	10,363,631			9,660,810			20,024,441
Less: Amounts representing interest	(7,100,050		)	(7,285,956		)	(14,386,006		)
Plus: Residual values	215,179			1,294,801			1,509,980
Present value of future minimum lease payments	3,478,760			3,669,655			7,148,415
Less: Current portion of financing obligation	(21,114		)	(46,663		)	(67,777		)
Long-term portion of financing obligation	$	3,457,646		$	3,622,992		$	7,080,638

The Company is liable under numerous operating leases for various assets, including, but not limited to ground leases, the Meadows Lease (as defined and discussed below), automobiles, and other equipment. Total rental expense under all operating lease agreements was $58.1 million, $45.4 million and $40.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.

In connection with the Pinnacle Acquisition, the Company assumed a triple net lease of the real estate assets used in the operation of Meadows Racetrack and Casino, originally effective September 9, 2016 (the “Meadows Lease”), with GLPI as the landlord. The Meadows Lease is accounted for as an operating lease.

Upon assumption of the Meadows Lease, there were 8.0 years remaining of the initial 10-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 (see 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 the performance of the facilities, which is prospectively adjusted for the next two-year period equal to 4% of the average annual net revenues during the trailing two-year period. The next Meadows Percentage Rent reset will occur effective October 1, 2020.