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Acquisitions | 6 Months Ended
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Jun. 30, 2019
Business Combinations [Abstract] |
Acquisitions | Acquisitions Greektown Casino-Hotel On May 23, 2019, the Company acquired all of the membership interests of Greektown Holdings, L.L.C., for a net purchase price of $320.3 million, after working capital and other adjustments, pursuant to a transaction agreement among the Company, VICI Properties L.P., a wholly-owned subsidiary of VICI, and Greektown Mothership LLC (“Greektown Mothership”). In connection with the acquisition, the real estate assets relating to Greektown Casino-Hotel (“Greektown”) were acquired by a subsidiary of VICI for an aggregate sales price of $700.0 million and the Company entered into a triple net lease agreement for the real estate assets used in the operations of Greektown which has an initial annual rent of $55.6 million and an initial term of 15 years, with four five-year renewal options (the “Greektown Lease”). The acquisition of the operations was financed through a combination of cash on hand and incremental borrowings under the Company’s Revolving Credit Facility (as defined in Note 9, “Long-term Debt”). Due to the recent acquisition date of Greektown, 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) | May 23, 2019
Cash and cash equivalents | $ | 31,051 |
Receivables, prepaid expenses, and other current assets | 15,622 |
Property and equipment | 32,330 |
Goodwill (1) | 61,714 |
Other intangible assets |
Gaming license | 166,400 |
Trademark | 24,400 |
Customer relationships | 3,300 |
Operating lease right-of-use assets | 516,099 |
Finance lease right-of-use assets | 4,168 |
Other assets | 228 |
Total assets | $ | 855,312 |
Accounts payable, accrued expenses, and other current liabilities | $ | 14,830 |
Operating lease liabilities | 516,059 |
Finance lease liabilities | 4,168 |
Total liabilities | 535,057 |
Net assets acquired | $ | 320,255 |
(1) | The goodwill has been assigned to our Northeast segment. The entire $61.7 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. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations and furniture and equipment). We determined that the land and buildings subject to the Greektown Lease, which was entered into at the time of the acquisition, represent operating lease ROU assets with a corresponding operating lease liability calculated based on the 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 and a trademark, which are both indefinite-lived intangible assets, and a customer relationship, which is an amortizing intangible asset with an assigned useful life of 2 years. Management valued (i) the gaming license 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; (ii) the trademark using the relief-from-royalty method under the income approach; and (iii) 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 Greektown since the acquisition date, which are included within our unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2019:
(in thousands) | Period from May 23, 2019 through June 30, 2019
Revenues | $ | 34,229 |
Net income | $ | 932 |
Margaritaville Resort Casino On January 1, 2019, the Company acquired the operations of Margaritaville Resort Casino (“Margaritaville”) for a net 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. 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 operating assets, to the Company. In connection with the acquisition, the real estate assets used in the operations of Margaritaville were acquired by VICI for $261.1 million and the Company entered into the Margaritaville Lease which has 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. The Company has not yet finalized its valuation analysis of Margaritaville 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 license | 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. Property and equipment acquired consists of non-REIT assets (e.g., equipment for use in gaming operations and furniture and equipment). We determined that the land and buildings subject to the Margaritaville Lease, which was entered into at the time of the acquisition, represent operating lease ROU assets with a corresponding operating lease liability calculated based on the 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) the gaming license using the Greenfield Method under the income approach and (ii) the customer relationships 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 Margaritaville since the acquisition date, which are included within our unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2019:
(in thousands) | For the three months ended June 30, 2019 |  | For the six months ended June 30, 2019
Revenues | $ | 39,586 |  |  | $ | 81,085 |
Net income | $ | 3,271 |  |  | $ | 8,232 |
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 St. Charles, Ameristar Kansas City, Belterra Resort and Belterra Park, to Boyd Gaming Corporation (BYD:NYSE) (“Boyd”), and GLPI acquired the real estate assets associated with Plainridge Park Casino and concurrently leased back the real estate assets to the Company. 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 six months ended June 30, 2019, we made the following adjustments to the preliminary purchase price allocation:
(in thousands) | Estimated fair value as previously reported (1) |  | Measurement period adjustments |  | Estimated fair value as adjusted
Cash and restricted cash | $ | 124,231 |  |  | $ | — |  |  | $ | 124,231 |
Assets held for sale | 667,036 |  |  | 461 |  |  | 667,497 |
Other current assets | 80,622 |  |  | — |  |  | 80,622 |
Property and equipment - non-Pinnacle Master Lease | 318,856 |  |  | — |  |  | 318,856 |
Property and equipment - Pinnacle Master Lease (2) | 3,984,119 |  |  | (29,200 | ) |  | 3,954,919 |
Goodwill (3) | 219,531 |  |  | 24,534 |  |  | 244,065 |
Other intangible assets |  |  |  |  |  |
Gaming licenses | 1,046,000 |  |  | 21,600 |  |  | 1,067,600 |
Trademarks | 298,000 |  |  | — |  |  | 298,000 |
Customer relationships | 22,400 |  |  | — |  |  | 22,400 |
Other long-term assets | 38,767 |  |  | — |  |  | 38,767 |
Total assets | $ | 6,799,562 |  |  | $ | 17,395 |  |  | $ | 6,816,957 |
Long-term financing obligation, including current portion (4) | $ | 3,427,016 |  |  | $ | 5,517 |  |  | $ | 3,432,533 |
Other current liabilities | 200,547 |  |  | 1,188 |  |  | 201,735 |
Deferred tax liabilities | 339,149 |  |  | 10,690 |  |  | 349,839 |
Other long-term liabilities | 16,635 |  |  | — |  |  | 16,635 |
Total liabilities | 3,983,347 |  |  | 17,395 |  |  | 4,000,742 |
Net assets acquired | $ | 2,816,215 |  |  | $ | — |  |  | $ | 2,816,215 |
(1) | Amounts were initially reported within the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.
(2) | 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.
(3) | See Note 7, “Goodwill and Other Intangible Assets,” for details on the impact to each reportable segment.
(4) | Long-term financing obligation, including current portion represents the financing obligation associated with Pinnacle Master Lease, as amended.
Pro Forma Financial Information - Greektown, Margaritaville, and Pinnacle The following table includes unaudited pro forma consolidated financial information assuming our acquisitions of Greektown and Margaritaville had occurred as of January 1, 2018 and Pinnacle had occurred as of January 1, 2017. 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, Greektown, Margaritaville, 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 June 30, |  | For the six months ended June 30,
(in thousands) | 2019 |  | 2018 |  | 2019 |  | 2018
Revenues | $ | 1,372,682 |  |  | $ | 1,446,724 |  |  | $ | 2,739,259 |  |  | $ | 2,848,996 |
Net income attributable to Penn | $ | 57,296 |  |  | $ | 65,970 |  |  | $ | 111,199 |  |  | $ | 117,093 |

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