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Fair Value

12 Months Ended

Dec. 31, 2020

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 and 2019:


	December 31, 2020
(In thousands)			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Short-term investments (1)	$	19,973	$	—	$	19,973	$	—
Financial liabilities:
Derivative instruments - interest rate swaps (2)	$	92,521	$	—	$	92,521	$	—


	December 31, 2019
(In thousands)			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Short-term investments (1)	$	59,474	$	—	$	59,474	$	—
Financial liabilities:
Derivative instruments - interest rate swaps (2)	$	65,078	$	—	$	65,078	$	—

____________________

(1)The carrying value of these investment is equal to their fair value due to the short-term nature of the investments as well as their credit quality.

(2)The fair values of our interest rate swap derivative instruments were estimated using advice from a third-party derivative specialist, based on contractual cash flows and observable inputs comprising interest rate curves and credit spreads, which are Level 2 measurements as defined under ASC 820.

The estimated fair values of our financial instruments at December 31, 2020 and 2019 for which fair value is only disclosed are as follows:


	December 31, 2020				December 31, 2019
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Investments in leases - financing receivables (1)	$	2,618,562	$	2,684,955	$	—	$	—
Investments in loans (1)	536,721		538,151		—		—
Cash and cash equivalents	315,993		315,993		1,101,893		1,101,893

Financial liabilities:
Debt (2)
Revolving Credit Facility	$	—	$	—	$	—	$	—
Term Loan B Facility	2,080,974		2,065,875		2,076,962		2,110,500
Second Lien Notes	—		—		498,480		538,358
2025 Notes	740,333		766,875		—		—
2026 Notes	1,233,119		1,296,875		1,231,227		1,287,500
2027 Notes	739,733		763,125		—		—
2029 Notes	985,730		1,070,000		984,894		1,045,000
2030 Notes	985,643		1,045,000		—		—

____________________

(1)These investments represent the (i) JACK Cleveland/Thistledown Lease Agreement and the MTA Properties, and (ii) the Amended and Restated ROV Loan, the Chelsea Piers Mortgage Loan and the Forum Convention Center Mortgage Loan, all of which were made during year ended December 31, 2020. Given the proximity of the date of our investment to the date of the financial statements, we determined that the fair value materially approximates the purchase price of the acquisition of these financial assets.

(2)The fair value of our debt instruments was estimated using quoted prices for identical or similar liabilities in markets that are not active and, as such, these fair value measurements are considered Level 2 of the fair value hierarchy.

Gain Upon Lease Modification in Connection with the Eldorado Transaction

On July 20, 2020, in connection with the Eldorado Transaction and as required under ASC 842, we reassessed the lease classification of the Las Vegas Master Lease Agreement, Regional Master Lease Agreement and Joliet Lease Agreement and determined the leases meet the definition of a sales-type lease, including the land component of Caesars Palace Las Vegas. As a result of the reclassifications of the Caesars Lease Agreements from direct financing and operating leases to sales-type leases, we recorded the investments at their estimated fair values as of the modification date and recognized a net gain equal to the difference in fair value of the asset and its carrying value immediately prior to the modification.

We valued the real estate portfolio using a rent multiple taking into consideration a variety of factors, including (i) asset quality and location, (ii) property and lease-level operating performance and (iii) supply and demand dynamics of each property’s respective market. With respect to certain assets for which were subject to signed sale agreements as of the date of reassessment, and were subject to removal from the Regional Master Lease Agreement upon consummation of such

transactions, which includes Harrah’s Reno, Bally’s Atlantic City and Louisiana Downs, these assets were recorded at fair value using the contract price less costs to sell.

As a result of the re-measurement of the Caesars Lease Agreements to fair value, we recognized a $333.4 million gain upon lease modification in our Statement of Operations during the year ended December 31, 2020.

The following table summarizes our assets measured at fair value on a non-recurring basis in relation to the gain upon modification of the Caesars Lease Agreements on July 20, 2020 the date of modification:


	July 20, 2020
(In thousands)			Fair Value
	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Investments in sales-type leases - Caesars Lease Agreements (1)	$	10,228,465	$	—	$	—	$	10,228,465
Investments in sales-type leases - assets subject to sales agreements (2)	$	55,325	$	—	$	55,325	$	—

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(1) The fair value measurement of the Caesars Lease Agreements excludes the MTA Properties Acquisitions, HLV Additional Rent Acquisition and CPLV Additional Rent Acquisition as these transactions occurred in connection with the Eldorado Transaction and the investments are measured at historical cost.

(2) Represents the Harrah’s Reno, Bally’s Atlantic City and Louisiana Downs assets, which were subject to sales agreements at the date of the modification. The fair value of these investments is based on the contract price and represents a Level 2 measurement as defined in ASC 820.

The following table summarizes the significant unobservable inputs used in non-recurring Level 3 fair value measurements:

(In thousands)

Significant Assumptions

Asset Type

Fair Value(1)

Valuation Technique

Range

Weighted Average(2)

Investment in sales-type lease - Casinos

10,228,465

Rent Multiple

9.75x - 15.50x

13.0x

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(2) Weighted by relative fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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