Acquisitions

3 Months Ended

Mar. 31, 2019

Margaritaville Resort Casino

On January 1, 2019, the Company acquired the operations of Margaritaville Resort Casino for an aggregate purchase price of $119.9 million, after working capital and other adjustments, pursuant to (i) an agreement and plan of merger (the “Margaritaville Merger Agreement”) among the Company, VICI, Bossier Casino Venture (HoldCo), Inc. (“Holdco”), and Silver Slipper Gaming, LLC, and (ii) a membership interest purchase agreement (the “MIPA”) among VICI and the Company.

Pursuant to the Margaritaville Merger Agreement, a subsidiary of VICI merged with and into Holdco with Holdco surviving the merger as a wholly-owned subsidiary of VICI (the “Merger”) and owner of the real estate assets relating to Margaritaville Resort Casino. Pursuant to the MIPA, immediately following the consummation of the Merger, HoldCo sold its interests in its sole direct subsidiary and owner of the Margaritaville Resort Casino operating assets, to the Company. On the closing date, we entered into the Margaritaville Lease with VICI having an initial annual rent of $23.2 million and an initial term of 15 years, with four five-year renewal options. The acquisition of the operations was financed through incremental borrowings under the Company’s Revolving Credit Facility (as defined in Note 9, “Long-term Debt”) and the acquisition of the real estate assets of Margaritaville Resort Casino was financed through VICI in the amount of $261.1 million.

Due to the recent acquisition date of Margaritaville Resort Casino, the Company has not yet finalized its valuation analysis and is in the process of evaluating key assumptions that derive the fair value of the assets acquired and liabilities assumed. The following table reflects the preliminary allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed, with the excess recorded as goodwill:



(in thousands)	January 1, 2019
Cash and cash equivalents	$	10,756
Receivables, prepaid expenses, and other current assets	7,058
Property and equipment	21,731
Goodwill⁽¹⁾	39,457
Other intangible assets
Gaming licenses	48,100
Customer relationships	2,300
Operating lease right-of-use assets	196,212
Total assets	$	325,614

Accounts payable, accrued expenses, and other current liabilities	$	9,511
Operating lease liabilities	196,212
Total liabilities	205,723
Net assets acquired	$	119,891


(1)	The goodwill has been assigned to our South segment. The entire $39.5 million goodwill amount is deductible for tax purposes.

The Company used the income, market, or cost approach (or a combination thereof) for the valuation, as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. For certain items, the carrying amount was determined to be a reasonable approximation of fair value based on information available to the Company. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations and furniture and equipment). Upon adoption of the new lease standard, we determined the land and buildings to be operating leases, which are accounted for as operating lease right-of-use assets with a corresponding operating lease liability calculated based on the net present value of the future lease payments at the acquisition date. Management determined the fair value of its office equipment, computer equipment and slot machine gaming devices based on the market approach and other property based on the cost approach, supported where available by observable market data, which includes consideration of obsolescence.

Acquired identifiable intangible assets consist of a gaming license, which is an indefinite-lived intangible asset, and a customer relationship, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) gaming licenses using the Greenfield Method under the income approach, which estimates the fair value of the gaming license using a discounted cash flow model assuming the Company built a casino with similar utility to that of the existing facility and assumes a theoretical start-up company going into business without any assets other than the intangible asset being valued; and (ii) customer relationships (rated player databases) using the with-and-without method of the income approach. All valuation methods are forms of the income approach supported by observable market data for peer casino operator companies.

The following table includes the financial results of the Margaritaville Resort Casino since the acquisition date which is included within our unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2019:



(in thousands)	Period from January 1, 2019 through March 31, 2019
Revenues	$	41,499
Net income	$	4,961

Pinnacle Acquisition

On October 15, 2018, the Company acquired all of the outstanding shares of Pinnacle, for a total purchase price of $2,816.2 million, which consisted of (i) a cash payment of $20.00 per share of Pinnacle common stock, totaling $1,252.2 million; (ii) issuance of Penn common stock in the amount of $749.7 million; and (iii) the retirement of $814.3 million of Pinnacle debt obligations (the “Pinnacle Acquisition”). In conjunction with the Pinnacle Acquisition, the Company divested the membership interests of certain Pinnacle subsidiaries which operated the casinos known as Ameristar Casino Resort St. Charles, Ameristar Casino Hotel Kansas City, Belterra Casino Resort and Belterra Park, to Boyd Gaming Corporation (“Boyd”); GLPI acquired the real estate assets associated with the Plainridge Park Casino, and concurrently leased back the real estate assets to the Company; and a subsidiary of Boyd acquired the real estate assets associated with Belterra Park from a subsidiary of GLPI. Additionally, as a part of the transaction, the Pinnacle Master Lease was assumed and amended by the Company. For more information on the Pinnacle Master Lease and related amendment, see Note 4, “Leases.”

Due primarily to the scale and complexity of the Pinnacle Acquisition, the Company has not yet finalized its valuation analysis and is in the process of evaluating key assumptions that derive the fair value of the assets acquired and liabilities assumed, including the income tax balances. Therefore, the allocation of the purchase price is preliminary and subject to change. During the three months ended March 31, 2019, we made the following adjustments to the preliminary purchase price allocation:



(in thousands)	Increase/(Decrease)
Property and equipment - Pinnacle Master Lease⁽¹⁾	$	(29,200	)
Goodwill⁽²⁾	11,617
Other intangible assets
Gaming licenses	21,600
Total assets	$	4,017

Long-term financing obligation, including current portion⁽³⁾	$	5,517
Deferred tax liabilities	(1,500		)
Total liabilities	4,017
Net assets acquired	$	—


(1)	Includes buildings, boats, vessels, barges, and implied land and land use rights. Land use rights represent the intangible value of the Company’s ability to utilize and access land associated with long term ground lease agreements that give the Company the exclusive rights to operate the casino gaming facilities associated with such agreements.


(2)	See Note 7, “Goodwill and Other Intangible Assets,” for details on the impact to each reportable segment.


(3)	Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended.

Pro Forma Financial Information - Margaritaville Resort Casino and Pinnacle

The following table includes unaudited pro forma consolidated financial information assuming our acquisitions of Margaritaville Resort Casino and Pinnacle had occurred as of January 1, 2018, and January 1, 2017, respectively. The pro forma financial information does not represent the anticipated future results of the combined company. The pro forma amounts include the historical operating results of Penn, Margaritaville Resort Casino, and Pinnacle, prior to the acquisition, with adjustments directly attributable to the acquisitions, inclusive of adjustments for acquisition costs. The below pro forma results do not include any adjustments related to synergies.



	For the three months ended March 31,
(in thousands)	2019		2018
Revenues	$	1,282,571	$	1,323,247
Net income attributable to Penn National Gaming, Inc.	$	43,426	$	47,144

Greektown Casino-Hotel

On November 14, 2018, the Company announced that it had entered into a definitive agreement to acquire the operations of Greektown Casino-Hotel in Detroit, Michigan for approximately $300 million in cash. Simultaneous with the closing of the transaction, the Company will enter into a triple net lease agreement with VICI for the real estate assets used in the operations of the property. The lease will have an initial annual rent of $55.6 million and an initial term of 15 years, with four five-year renewal options. The transaction will be financed with a combination of cash on hand and debt. The transaction, which is

expected to close by the end of May 2019, is subject to approval of the Michigan Gaming Control Board and other customary closing conditions.