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Spin-Off of Real Estate Assets through a Real Estate Investment Trust | 12 Months Ended
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Dec. 31, 2015
Spin-Off of Real Estate Assets through a Real Estate Investment Trust |
Spin-Off of Real Estate Assets through a Real Estate Investment Trust | 2. Spin-Off of Real Estate Assets through a Real Estate Investment Trust On November 1, 2013, the Company completed its plan to separate its gaming operating assets from its real property assets by creating a newly formed, publicly traded real estate investment trust ("REIT"), known as Gaming and Leisure Properties, Inc. ("GLPI"), through a tax free spin-off (the "Spin-Off"). Penn effected the Spin-Off by distributing one share of common stock of GLPI to the holders of Penn common stock and Series C Convertible Preferred Stock ("Series C Preferred Stock") for every share of Penn common stock and every 1/1000th of a share of Series C Preferred Stock that they held at the close of business on October 16, 2013, the record date for the Spin-Off. See Note 14 for further information on the Series C Preferred Stock. Peter M. Carlino and the PMC Delaware Dynasty Trust dated September 25, 2013, a trust for the benefit of Mr. Carlino's children, also received 882,129 additional shares of GLPI common stock, in exchange for 2,167,393 shares of Penn common stock that they transferred to Penn immediately prior to the Spin-Off. Based on the closing price of the GLPI common stock on October 30, 2013, the aggregate consideration transferred totaled $39.1 million. On that same date, based on the closing price of Penn common stock, the aggregate consideration received totaled $28.4 million. As a result, the consideration transferred exceeded the amount received by approximately $10.7 million. This excess was accounted for as a transaction cost associated with the Spin-Off within general and administrative expenses with the value of the Penn shares acquired as the cost of the treasury stock. Mr. Carlino also exchanged certain options to acquire Penn common stock for options to acquire GLPI common stock having the same aggregate intrinsic value. Penn engaged in these exchanges with Mr. Carlino and his related trust to ensure that each member of the Carlino family beneficially owns 9.9% or less of the outstanding shares of Penn common stock following the Spin-Off, so that GLPI can qualify to be taxed as a REIT for United States ("U.S.") federal income tax purposes. In addition, on November 1, 2013, Penn entered into a Master Lease with GLPI in which it spun-off certain real property assets which was accounted for as a financing obligation (see Note 4 to the consolidated financial statements), and contributed the assets and liabilities of Hollywood Casino Baton Rouge and Hollywood Casino Perryville, which are referred to as the "TRS Properties." The assets and liabilities were contributed to GLPI based on their historical carrying values. The impact of the spin-off to stockholders' equity (deficit) is shown below. This amount excludes $2.0 billion of property and equipment, net that was not derecognized due to the failed spin-off-leaseback (in thousands):
Cash and cash equivalents |  | $ | 240,202 |
Current deferred income tax assets |  |  | 6,157 |
Other current assets |  |  | 3,116 |
Property and equipment, net |  |  | 115,731 |
Goodwill |  |  | 75,521 |
Other intangible assets |  |  | 9,577 |
Debt issuance costs |  |  | 39,862 |
Other assets |  |  | 36,378 |
Accounts payable and accrued expenses |  |  | (16,055 | )
Income taxes |  |  | (5,296 | )
Other current liabilities |  |  | (12,312 | )
Long-term debt |  |  | (2,350,000 | )
Long-term deferred income tax liabilities |  |  | (4,248 | )
​ | ​ | ​ | ​ | ​
Sub total |  |  | (1,861,367 | )
Adjustment for GLPI financing obligation |  |  | 3,516,210 |
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Net impact of Spin-Off |  | $ | 1,654,843 |
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​ | ​ | ​ | ​ | ​
As a result of the Spin-Off, GLPI owns substantially all of Penn's former real property assets and leases back those assets (other than the TRS Properties) to Penn for use by its subsidiaries, under a "triple net" master lease agreement (the "Master Lease") (which has a fifteen-year initial term that can be extended at Penn's option for up to four five-year renewal terms), as well as owns and operates the TRS Properties. Penn continues to operate the leased gaming facilities and hold the associated gaming licenses with these facilities. On November 1, 2013, Penn entered into a Tax Matters Agreement with GLPI, which governs the respective rights, responsibilities and obligations of the two companies after the Spin-Off with respect to payment of tax liabilities, entitlement of refunds, and filing of tax returns and sets forth certain covenants and indemnities. Pursuant to the Tax Matters Agreement, Penn was required to prepare and file a federal consolidated income tax return for 2013, which included a combination of Penn and GLPI legal entities for the activity prior to the Spin-Off, with any adjustments for the impact of the final consolidated income tax return recorded to either shareholders' equity or the statement of income depending on the specific item giving rise to the adjustment. In conjunction with the filing of the final 2013 federal consolidated income tax return with the Internal Revenue Service, Penn recorded a decrease to shareholders' equity of $2.5 million during the year ended December 31, 2014. The Company incurred transaction costs of $0.9 million, and $39.5 million for the years ended December 31, 2014 and 2013, respectively, associated with the Spin-Off, which were included in general and administrative expenses within the consolidated statements of operations. The Company received a private letter ruling from the Internal Revenue Service relating to the tax treatment of the separation and the qualification of GLPI as a REIT. The private letter ruling is subject to certain qualifications and based on certain representations and statements made by the Company and certain of its shareholders. If such representations and statements are untrue or incomplete in any material respect (including as a result of a material change in the transaction or other relevant facts), the Company may not be able to rely on the private letter ruling. The Company received opinions from outside counsel regarding certain aspects of the transaction that are not covered by the private letter ruling.

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