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Real Estate Portfolio (Tables)
 6 Months Ended
Jun. 30, 2020
Real Estate [Abstract]  
Schedule Real Estate Portfolio
The following is a summary of the balances of our real estate portfolio as of June 30, 2020 and December 31, 2019:
(In thousands)June 30, 2020December 31, 2019
Minimum lease payments receivable under direct financing and sales-type leases (1)
$31,006,569  $31,460,712  
Estimated residual values of leased property (not guaranteed)2,525,469  2,525,469  
Gross investment in direct financing and sales-type leases33,532,038  33,986,181  
Unamortized initial direct costs42,712  42,819  
Less: Unearned income(22,846,758) (23,294,755) 
Less: Allowance for credit losses(355,336) —  
Investments in leases - direct financing and sales-type, net10,372,656  10,734,245  
Investments in leases - operating1,086,658  1,086,658  
Investments in leases - financing receivables, net812,636  —  
Total investments in leases, net12,271,950  11,820,903  
Investments in loans, net49,876  —  
Land94,711  94,711  
Total Real estate portfolio$12,416,537  $11,915,614  
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(1) Minimum lease payments do not include contingent rent, as discussed below, that may be received under the Lease Agreements.
Schedule of Components of Direct Financing and Operating Leases
The following table details the components of our income from direct financing, sales-type and operating leases and lease financing receivables:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2020201920202019
Income from direct financing and sales-type leases, excluding contingent rent (1)
$223,809  $201,549  $448,004  $397,299  
Income from operating leases (2)
10,913  10,914  21,826  21,827  
Income from lease financing receivables (1) (3)
15,924  —  27,944  —  
Total revenue, excluding contingent rent 250,646  212,463  497,774  419,126  
Contingent rent (1)
86  —  143  —  
Total lease revenue250,732  212,463  497,917  419,126  
Non-cash adjustment (4)
3,809  (2,277) 7,063  (4,789) 
     Total contractual lease revenue$254,541  $210,186  $504,980  $414,337  
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(1) At lease inception (or upon modification), we determine the minimum lease payments under ASC 842 (or ASC 840), which exclude amounts determined to be contingent rent. Contingent rent is generally amounts in excess of our specified floors or the variable rent portion of our leases. The minimum lease payments are recognized on an effective interest basis at a constant rate of return over the life of the lease and the contingent rent portion of the lease payments are recognized as earned, both in accordance with ASC 842. As of June 30, 2020, we have only recognized contingent rent on our Margaritaville Lease Agreement in relation to the variable rent portion of the lease. Refer to the Lease Overview section below for information regarding contingent rent on each lease.
(2) Represents the portion of land separately classified and accounted for under the operating lease model associated with our investment in Caesars Palace Las Vegas and certain operating land parcels contained in the Non-CPLV Lease Agreement. Upon the consummation of the Eldorado Transaction on July 20, 2020, the land component of Caesars Palace Las Vegas and certain operating land parcels were reassessed for lease classification and determined to be a sales-type lease. Accordingly, subsequent to July 20, 2020, such income will be recognized as Income from sales-type leases.
(3) Represents the JACK Cleveland/Thistledown Lease Agreement which, in accordance with ASC 842, was determined to meet both the definition of a sales-type lease and sale leaseback transaction and, as a result, is accounted for as a financing under ASC 310.
(4) Amounts represent the non-cash adjustment to the minimum lease payments from direct financing leases, sales-type leases and lease financing receivables in order to recognize income on an effective interest basis at a constant rate of return over the term of the leases.
Schedule of Future Minimum Lease Payments for Operating and Capital Leases
At June 30, 2020, minimum lease payments owed to us for each of the five succeeding years under direct financing, sales-type and operating leases, as well as leases accounted for as financing receivables, are as follows:
Minimum Lease Payments (1) (2)
Investments in Leases
(In thousands)Direct Financing and Sales-TypeOperatingFinancing Receivables
Total
2020 (remaining)$456,152  $21,827  $32,940  $510,919  
2021916,720  43,653  66,484  1,026,857  
2022927,351  43,653  67,149  1,038,153  
2023942,285  43,653  68,128  1,054,066  
2024954,569  43,653  68,212  1,066,434  
2025954,765  43,653  68,212  1,066,630  
Thereafter25,854,727  1,171,362  1,983,840  29,009,929  
Total$31,006,569  $1,411,454  $2,354,965  $34,772,988  
Weighted Average Lease Term (2)
32.532.334.632.7
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(1) Minimum lease payments do not include contingent rent, as discussed below, that may be received under the Lease Agreements.
(2) The minimum lease payments and weighted average remaining lease term assumes the exercise of all tenant renewal options, consistent with our conclusions under ASC 842 and ASC 310. Upon the consummation of the Eldorado Transaction, the lease term was extended by three years and as such, subsequent to June 30, 2020, the weighted average lease term will increase accordingly, as applicable.
Schedule of Lease Agreements
The following is a summary of the material lease provisions of our Caesars Lease Agreements (both prior and subsequent to the modifications that occurred on July 20, 2020 as a result of the consummation of the Eldorado Transaction):
($ In thousands)Non-CPLV Lease Agreement and Joliet Lease AgreementRegional Master Lease Agreement and Joliet Lease AgreementCPLV Lease AgreementHLV Lease AgreementLas Vegas Master Lease Agreement
Lease Provision (1)
Prior to AmendmentAs AmendedPrior to AmendmentPrior to AmendmentAs Amended
Initial Term (2)
15 years18 years15 years15 years18 years
Initial Term maturity (2)
10/31/20327/31/203510/31/203212/31/20327/31/2035
Renewal Terms
Four, five-year terms
Four, five-year terms
Four, five-year terms
Four, five-year terms
Four, five-year terms
Current annual rent (3)
$508,534$662,534$207,745$89,157$395,401
Escalator (4)
Lease years 2-5 - 1.5%
Lease years 6-15 - Consumer price index (“CPI”) subject to 2% floor
Lease years 2-5 - 1.5%
Lease years 6-end of term - CPI subject to 2.0% floor
> 2% / Change in CPI
Lease years 2-5 - 1%
Lease years 6-15 - > 2% floor / change in CPI
> 2% / change in CPI
EBITDAR to Rent Ratio floor (5)
1.2x commencing lease year 8
None
1.7x commencing lease year 8
1.6x commencing lease year 6
None
Variable Rent adjustment
Year 8: 70% base rent / 30% variable rent
Year 11: 80% base rent / 20% variable rent
Year 8: 70% base rent / 30% variable rent
Years 11 & 16: 80% base rent / 20% variable rent
Years 8 & 11: 80% base rent / 20% variable rent
Year 8 & 11: 80% base rent / 20% variable rent
Years 8, 11 & 16: 80% base rent / 20% variable rent
Variable Rent adjustment calculation (6)
4% of revenue increase/decrease:
Year 8: Avg. of years 5-7 less avg. of years 0-2
Year 11: Avg. of years 8-10 less avg. of years 5-7
4% of revenue increase/decrease:
Year 8: Avg. of years 5-7 less avg. of years 0-2
Year 11: Avg. of years 8-10 less avg. of years 5-7
Year 16: Avg. of years 13-15 less avg. of years 8-10
4% of revenue increase/decrease:
Year 8: Avg. of years 5-7 less avg. of years 0-2
Year 11: Avg. of years 8-10 less avg. of years 5-7
4% of revenue increase/decrease:
Year 8: Avg. of years 5-7 less avg. of years 0-2
Year 11: Avg. of years 8-10 less avg. of years 5-7
4% of revenue increase/decrease:
Year 8: Avg. of years 5-7 less avg. of years 0-2
Year 11: Avg. of years 8-10 less avg. of years 5-7
Year 16: Avg. of years 13-15 less avg. of years 8-10
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(1) All capitalized terms used without definition herein have the meanings detailed in the applicable Caesars Lease Agreements.
(2) Upon the consummation of the Eldorado Transaction, the Caesars Lease Agreements were extended such that each lease will have a full 15-year initial lease term remaining.
(3) Prior to amendment, with respect to the Non-CPLV Lease Agreement, Joliet Lease Agreement and CPLV Lease Agreement, the amount represents the current annual base rent payable for the current lease year which is the period from November 1, 2019 through October 31, 2020. In relation to the HLV Lease Agreement, the amount represents current annual base rent payable for the current lease year which is the period from January 1, 2020 through December 31, 2020. Subsequent to the consummation of the Eldorado Transaction and the amendments in connection therewith, (i) with respect to the Regional Master Lease Agreement, the amounts represent the current annual base rent payable for the current lease year, inclusive of the additional rent associated with the MTA Properties and (ii) with respect to the Las Vegas Master Lease Agreement, the amounts represent the current annual base rent payable for the current lease year, inclusive of the CPLV Additional Rent Acquisition and HLV Additional Rent Acquisition.
(4) Any amounts representing rents in excess of the CPI floors specified above are considered contingent rent in accordance with GAAP. No such rent has been recognized for the three months ended June 30, 2020 and 2019.
(5) The coverage floors, which coverage floors would have served to reduce the rent escalators under the Caesars Lease Agreements in the event that the “EBITDAR to Rent Ratio” coverage was below the stated floor, were removed upon execution of the amendments to the Caesars Lease Agreements upon the consummation of the Eldorado Transaction.
(6) Variable Rent is not subject to the Escalator.
The following is a summary of the material lease provisions of our Penn National Lease Agreements:
($ In thousands)
Lease ProvisionMargaritaville Lease AgreementGreektown Lease Agreement
Initial term15 years15 years
Renewal terms
Four, five-year terms
Four, five-year terms
Current annual rent (1)
$23,544$55,556
Escalation commencement (2)
Lease year two
Lease year four
Escalation
2% of Building base rent, subject to the net revenue to rent ratio floor
2% of Building base rent, subject to the net revenue to rent ratio floor
Performance to rent ratio floor (2)
6.1x net revenue commencing lease year two
Net revenue ratio to be mutually agreed upon prior to the commencement of lease year four
Percentage rent (3)
$3,000 (fixed for lease year one and two)
$6,384 (fixed for lease year one and two)
Percentage rent reset
Lease year three and each and every other lease year thereafter
Lease year three and each and every other lease year thereafter
Percentage rent multiplier
The product of (i) 4% and (ii) the excess (if any) of (a) the average annual net revenue of a trailing two-year period preceding such reset year over (b) a threshold amount (defined as 50% of LTM net revenues prior to acquisition)
The product of (i) 4% and (ii) the excess (if any) of (a) the average annual net revenue of a trailing two-year period preceding such reset year over (b) a threshold amount (defined as 50% of LTM net revenues prior to acquisition)
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(1) In relation to the Margaritaville Lease Agreement, the amount represents current annual base rent payable for the current lease year which is the period from February 1, 2020 through January 31, 2021. In relation to the Greektown Lease Agreement, the amount represents current annual base rent payable for the current lease year which is the period from May 23, 2019 through May 31, 2020.
(2) In the event that the net revenue to rent ratio coverage, as applicable, is below the stated floor, the escalation will be reduced to such amount to achieve the stated net revenue to rent ratio coverage, as applicable, provided that the amount shall never result in a decrease to the prior year’s rent. In relation to the Greektown Lease Agreement, in May 2020, the lease was adjusted to remove the escalation for lease years 2 and 3 and to provide for a net revenue to rent ratio coverage floor to be mutually agreed upon by both parties prior to the commencement of lease year four.
(3) Percentage rent is subject to the percentage rent multiplier. After the percentage rent reset in lease year three, any amounts related to percentage rent are considered contingent rent in accordance with GAAP. During the three and six months ended June 30, 2020, we recognized approximately $0.1 million and $0.1 million, respectively, in contingent rent in relation to the Margaritaville Lease Agreement escalation. No such rent has been recognized for the three and six months ended June 30, 2019. In relation to the Greektown Lease Agreement, no such rent has been recognized for the three and six months ended June 30, 2020 and 2019.
The following is a summary of the material lease provisions of our Hard Rock Cincinnati Lease Agreement:
($ In thousands)
Lease ProvisionTerm
Initial term15 years
Renewal terms
Four, five-year terms
Current base rent (1)
$42,750
Escalator commencement
Lease year two
Escalator (2)
Lease years 2-4 - 1.5%
Lease years 5-15 - The greater of 2% or the change in CPI unless the change in CPI is less than 0.5%, in which case there is no escalation in rent for such lease year
Variable rent commencement/reset
Lease year 8
Variable rent split (3)
80% base rent and 20% variable rent
Variable rent percentage (3)
4%
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(1) The amount represents the current annual base rent payable for the current lease year which is the period from September 20, 2019 through September 30, 2020.
(2) Any amounts representing rents in excess of the CPI floors specified above are considered contingent rent in accordance with GAAP. No such rent has been recognized for the three and six months ended June 30, 2020 and 2019.
(3) Variable rent is not subject to the escalator and is calculated as an increase or decrease of the average of net revenues for lease years 5 through 7 compared to the average net revenue for lease years 1 through 3, multiplied by the Variable rent percentage.
The following is a summary of the material lease provisions of our Century Portfolio Lease Agreement:
($ In thousands)
Lease ProvisionTerm
Initial term15 years
Renewal terms
Four, five-year terms
Current annual rent (1)
$25,000
Escalator commencement
Lease year two
Escalator (2)
Lease years 2-3 - 1.0%
Lease years 4-15 - The greater of 1.25% or the change in CPI
Net revenue to rent ratio floor
7.5x commencing lease year six - if the coverage ratio is below the stated amount the escalator will be reduced to 0.75%
Variable rent commencement/reset
Lease year 8 and 11
Variable rent split (3)
80% Base Rent and 20% Variable Rent
Variable rent percentage (3)
4%
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(1) The amount represents the current annual base rent payable for the current lease year which is the period from December 6, 2019 through December 31, 2020.
(2) Any amounts representing rents in excess of the CPI floors specified above are considered contingent rent in accordance with GAAP. No such rent has been recognized for the three and six months ended June 30, 2020 and 2019.
(3) Variable rent is not subject to the escalator and is calculated for lease year 8 as an increase or decrease of the average of net revenues for lease years 5 through 7 compared to the average net revenue for lease years 1 through 3 and for lease year 11 as an increase or decrease of the average of net revenues for lease years 8 through 10 compared to the average net revenue for lease years 5 through 7, in each case multiplied by the Variable rent percentage.
The following is a summary of the material lease provisions of our JACK Cleveland/Thistledown Lease Agreement, as amended on July 16, 2020:
($ In thousands)
Lease ProvisionTerm
Initial term20 years
Renewal terms
Three, five-year terms
Current annual rent (1)
$65,880
Escalator commencement
Lease year three
Escalator (2)
Lease years 3-4 - 1.0%
Lease years 5-7 - 1.5%
Lease years 8-15 - The greater of 1.5% or the change in CPI capped at 2.5%
Net revenue to rent ratio floor
4.9x in any lease year (commencing in lease year 6) - if the coverage ratio is below the stated amount, there is no escalation in rent for such lease year
Variable rent commencement/reset
Lease year 8, 11 and 16
Variable rent split (3)
80% Base Rent and 20% Variable Rent
Variable rent percentage (3)
4%
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(1) The amount represents the current annual base rent payable for the current lease year which is the period from January 24, 2020 through January 31, 2021.
(2) Any amounts representing rents in excess of the CPI floors specified above are considered contingent rent in accordance with GAAP. No such rent has been recognized for the three and six months ended June 30, 2020 and 2019.
(3) Variable rent is not subject to the escalator and is calculated (i) for lease year 8 as an increase or decrease of the average of net revenues for lease years 5 through 7 compared to the average net revenue for lease years 1 through 3, (ii) for lease year 11 as an increase or decrease of the average of net revenues for lease years 8 through 10 compared to the average net revenue for lease years 5 through 7, and (iii) for lease year 16 as an increase or decrease of the average of net revenues for lease years 13 through 15 compared to the average net revenue for lease years 8 through 10, in each case multiplied by the Variable rent percentage.
Schedule Of Capital Expenditure Requirements Under Lease Agreements
The following table summarizes the capital expenditure requirements of the respective tenants under the Caesars Lease Agreements, as amended following the consummation of the Eldorado Transaction, which amendments increased the existing capital expenditure requirements in proportion to the overall increase in the tenant’s net revenue arising from the MTA Properties:
ProvisionRegional Master Lease Agreement and Joliet Lease AgreementLas Vegas Master Lease Agreement
Yearly minimum expenditure
1% of net revenues (1)
1% of net revenues for CPLV (commencing in 2022 with respect to HLV) (1)
Rolling three-year minimum (2)
$334 million$84 million
Initial minimum capital expenditureN/A
$171 million (2017 - 2021) (with respect solely to HLV)
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(1) The lease agreements require a $120.9 million floor on annual capital expenditures for CPLV, Joliet and the Regional Lease properties in the aggregate. Additionally, annual building & improvement capital improvements must be equal to or greater than 1% of prior year net revenues.
(2) CEOC is required to spend $427.7 million on capital expenditures (excluding gaming equipment) over a rolling three-year period, with $333.6 million allocated to the regional assets, $84.0 million allocated to CPLV and the remaining balance of $10.1 million to facilities covered by any Formation Lease Agreement in such proportion as CEOC may elect. Additionally, CEOC is required to expend a minimum of $598.4 million on capital expenditures (including gaming equipment) across certain of its affiliates and other assets, together with the $427.7 million requirement.
The following table summarizes the capital expenditure requirements of the respective tenants under the Penn National Lease Agreements, Hard Rock Cincinnati Lease Agreement, Century Portfolio Lease Agreement and JACK Cleveland/Thistledown Lease Agreement:
ProvisionPenn National Lease AgreementsHard Rock Cincinnati Lease AgreementCentury Portfolio Lease AgreementJACK Cleveland/Thistledown Lease Agreement
Yearly minimum expenditure
1% of net revenues based on rolling four-year basis
1% of net revenues
1% of net gaming revenues (1)
Initial minimum of $30 million (2)
Thereafter - 1% of net revenues on a rolling three-year basis
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(1) Minimum of 1% of net gaming revenue on a rolling three-year basis for each individual facility and 1% of net gaming revenues per fiscal year for the facilities collectively. In May 2020, in connection with the ongoing COVID-19 pandemic and its impact on operations and financial performance, we agreed to waive Century’s capital expenditure requirements for 2020 and defer to not later than December 31, 2021 certain other expenditures contemplated in connection with the underwriting of the acquired casino properties, conditioned upon (i) Century’s timely payment of rent obligations under the Century Portfolio Lease Agreement during the compliance period set forth in the amendment and (ii) no tenant event of default occurring under the Century Portfolio Lease Agreement during the compliance period set forth in the amendment. If Century fails to satisfy any of the foregoing conditions, Century will be required to satisfy the capital expenditure obligations set forth in the Century Portfolio Lease Agreement or, in certain cases, to deposit amounts in respect thereof into a capital expenditure reserve for expenditure in accordance with the amendment.
(2) Initial minimum required to be spent from the period commencing April 1, 2019 through December 31, 2022, which shall include $18.0 million to be advanced by us and expended by JACK Entertainment for the construction of the new gaming patio amenity at JACK Thistledown Racino.