424B5
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Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-210423

 

This preliminary prospectus supplement relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 2018

Preliminary Prospectus Supplement

(to the Prospectus dated March 28, 2016)

 

 

LOGO

GLP Capital, L.P.

GLP Financing II, Inc.

$                % Senior Notes due 2029

$                5.250% Senior Notes due 2025

GLP Capital, L.P. (the “Operating Partnership”) and GLP Financing II, Inc. (“Capital Corp.” and, together with the Operating Partnership, the “Issuers”) are offering $                 aggregate principal amount of    % senior notes due 2029 (the “2029 notes”) and $                 aggregate principal amount of 5.250% senior notes due 2025 (the “new 2025 notes” and, together with the 2029 notes, the “notes”).

The new 2025 notes offered hereby will become part of the same series as our outstanding 5.250% senior notes due June 1, 2025, $500.0 million aggregate principal amount of which were originally issued on May 21, 2018 (the “initial 2025 notes”), and the term “2025 notes” refers to the new 2025 notes offered hereby together with the initial 2025 notes, except where the context otherwise requires. The 2029 notes offered hereby are a new issue of securities.

The new 2025 notes will be treated as a single series with the initial 2025 notes for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, and will have substantially identical terms and conditions as those of the initial 2025 notes (other than issue date and issue price). Upon the consummation of this offering, the aggregate outstanding principal amount of our 5.250% senior notes due June 1, 2025 will be $                . Further, the new 2025 notes are expected to have the same CUSIP number as, and to be fungible for trading purposes with, the initial 2025 notes.

We will pay interest on the 2029 notes semi-annually in arrears on                and                 of each year, commencing                , 2019. Interest on the 2029 notes will accrue from                , 2018. We will pay interest on the new 2025 notes semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2018. Interest on the new 2025 notes will be deemed to accrue from May 21, 2018, the date the initial 2025 notes were issued. The 2029 notes will mature on                , 2029 and the new 2025 notes will mature on June 1, 2025.

This offering is part of the financing for the:

 

   

acquisition by Gaming and Leisure Properties, Inc. (“GLPI”) and its subsidiaries from Tropicana Entertainment Inc. (“Tropicana”) of substantially all the real property assets of five gaming facilities owned by Tropicana, comprised of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge, and the proposed acquisition by Eldorado Resorts, Inc. (“ERI”) from Tropicana of substantially all the real property assets of Lumière Place, by way of a proposed mortgage loan by GLPI and/or one or more of its subsidiaries (such transactions, collectively, the “Tropicana Transactions”), all pursuant to (a) the Purchase and Sale Agreement, dated April 15, 2018 (the “Original Tropicana Real Estate Purchase Agreement”), by and among the Operating Partnership and Tropicana, (b) the proposed amendment and joinder to the Original Tropicana Real Estate Purchase Agreement, (the “Tropicana Purchase Agreement Amendment” and, together with the Original Tropicana Real Estate Purchase Agreement, the “Tropicana Real Estate Purchase Agreement”), by and among the Operating Partnership, Tropicana and ERI, (c) the proposed Loan Agreement (the “Lumière Loan”), by and among GLPI and/or one or more of its subsidiaries to ERI and/or one or more of its subsidiaries and (d) the Agreement and Plan of Merger, dated April 15, 2018 (the “Tropicana Merger Agreement”), by and among the Operating Partnership, ERI, Delta Merger Sub, Inc., a wholly owned subsidiary of ERI, and Tropicana; and

 

   

acquisition by GLPI and/or its subsidiaries from Penn National Gaming, Inc. (“Penn”) of the real property assets of Plainridge Park Casino and the proposed acquisition by Boyd Gaming Corporation (“Boyd Gaming”) from Pinnacle Entertainment, Inc. (“Pinnacle”) of the real property assets of Belterra Park Gaming & Entertainment Center, by way of a proposed secured mortgage loan by GLPI and/or one or more of its subsidiaries (such transactions, collectively, the “Plainridge Park/Belterra Transactions”), all pursuant to (a) the Purchase and Sale Agreement, dated December 17, 2017 (the “Original Plainridge Park/Belterra Real Estate Purchase Agreement”) by and between Gold Merger Sub, LLC, a wholly owned subsidiary of GLPI, and Penn and (b) the proposed novation and amendment to the Original Plainridge Park/Belterra Real Estate Purchase Agreement (the “Plainridge Park/Belterra Real Estate Purchase Agreement Amendment” and together with the Original Plainridge Park/Belterra Real Estate Purchase Agreement, the “Plainridge Park/Belterra Real Estate Purchase Agreement”), all in connection with the proposed acquisition of Pinnacle by Penn, as described in this prospectus supplement under “Prospectus Supplement Summary — Overview of the proposed Acquisition Transactions.”

The Tropicana Transactions and the Plainridge Park/Belterra Transactions are collectively referred to as the “Acquisition Transactions.” This offering is not conditioned upon the consummation of the Acquisition Transactions.

If however, (i) the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith) are not completed on or prior to January 15, 2019; provided such date shall be extended to the latest of: (v) January 31, 2019, if the Closing


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Date (as defined in the Tropicana Merger Agreement) is deferred pursuant to Section 1.3 of the Tropicana Merger Agreement (a “Closing Date Deferral”), (w) April 15, 2019 (if the Outside Date (as defined in the Tropicana Merger Agreement) has been extended to twelve (12) months from the date of the Tropicana Merger Agreement pursuant to Section 8.1(d) of the Tropicana Merger Agreement) (the “Twelve Month Extension”); (x) April 30, 2019, if the Twelve Month Extension and a Closing Date Deferral occur; (y) July 15, 2019 (if the Outside Date (as defined in the Tropicana Merger Agreement) has been extended to fifteen (15) months from the date of the Tropicana Merger Agreement pursuant to Section 8.1(d) of the Tropicana Merger Agreement) (the “Fifteen Month Extension”) and (z) July 31, 2019, if the Fifteen Month Extension and a Closing Date Deferral occur (such date, as extended, if applicable, as described above, the “Outside Date”) or (ii) prior to the Outside Date, we notify the trustee in writing that the Tropicana Merger Agreement has been terminated or that we will not pursue the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith), the 2029 notes will be subject to a special mandatory redemption at a redemption price equal to 101% of the aggregate issue price of the 2029 notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The new 2025 notes are not subject to a special mandatory redemption and will remain outstanding even if the Tropicana Transactions are not consummated, and, in such case, we intend to use the remaining net proceeds from this offering, together with cash on hand and/or borrowings under our revolving credit facility, to finance the Plainridge Park/Belterra Transactions or, if the Plainridge Park/Belterra Transactions are not consummated, we intend to use the remaining net proceeds from this offering for general corporate purposes. If we complete the Tropicana Transactions, but do not complete the Plainridge Park/Belterra Transactions, we intend to use any net proceeds from this offering not applied to the financing of the Tropicana Transactions for general corporate purposes. See “Description of the 2029 Notes — Redemption — Special Mandatory Redemption of 2029 Notes” and “Use of Proceeds.”

We may redeem all or part of either series of notes at any time prior to the date that is 90 days prior to the maturity date of the applicable series of notes (the “Par Call Date”), at our option at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium. At any time on or following the applicable Par Call Date, we may redeem all or part of either series of notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. See “Description of the 2029 Notes — Redemption — Optional Redemption” and “Description of the New 2025 Notes — Redemption — Optional Redemption.”

If we experience a change of control accompanied by a decline in the rating of either series of notes, we must give the holders of such series of notes the opportunity to sell us their notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. See “Description of the 2029 Notes — Repurchase at the Option of Holders — Change of Control and Rating Decline” and “Description of the New 2025 Notes — Repurchase at the Option of Holders — Change of Control and Rating Decline.”

In addition, the notes will be subject to redemption requirements imposed by gaming laws and regulations of gaming authorities in jurisdictions in which we conduct gaming operations. See “Description of the 2029 Notes — Redemption — Gaming Redemption” and “Description of the New 2025 Notes — Redemption — Gaming Redemption.”

The notes will be guaranteed on a senior unsecured basis by GLPI, but will not initially be guaranteed by or be obligations of any subsidiary of the Issuers. Capital Corp., a wholly owned subsidiary of the Operating Partnership, is nominally capitalized and does not have any material assets or significant operations, other than with respect to acting as co-issuer for the notes offered hereby, as well as for certain other debt obligations of the Operating Partnership.

The notes will rank pari passu in right of payment with all of our existing and future senior indebtedness, including our existing senior unsecured notes and borrowings under our senior unsecured credit facilities, and senior in right of payment to all of our future subordinated indebtedness, without giving effect to collateral arrangements. The notes will be effectively subordinated to all of our future secured indebtedness to the extent of the value of the assets securing such indebtedness. The notes will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries.

The notes will be issued only in registered form in denominations of $2,000 and integral multiples of $1,000 thereafter.

Investing in the notes involves risks. See “Risk Factors”, beginning on page S-21 of this prospectus supplement and on page 22 of our Annual Report on Form 10-K for the year ended December 31, 2017, page 41 of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018, and page 46 of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, each of which is incorporated herein by reference.

 

       Price to Public      Underwriting
Discount(1)
     Proceeds to Us, Before
Expenses

Per 2029 note

         %(2)          %          %

Per 2025 note

         %(3)          %          %
Total      $                      $                      $                

(1) Excludes an aggregate structuring fee of $500,000, payable to Merrill Lynch, Pierce, Fenner & Smith Incorporated. See “Underwriting.”

(2) Plus accrued interest from                    , 2018.

(3) Plus interest deemed to have accrued from May 21, 2018.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

No gaming or regulatory agency has approved or disapproved of these securities, or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.


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We expect delivery of the notes will be made to investors in book-entry form through The Depository Trust Company on or about                 , 2018.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch      Wells Fargo Securities   J.P. Morgan

 

Citizens Capital Markets      Fifth Third Securities    SunTrust Robinson Humphrey

 

Siebert Cisneros Shank & Co., L.L.C.      Credit Agricole CIB  

Goldman Sachs & Co. LLC

 

     Barclays  

The date of this prospectus supplement is                 , 2018.


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TABLE OF CONTENTS

Prospectus Supplement

 

     Page  

ABOUT THIS PROSPECTUS SUPPLEMENT

     S-ii  

BASIS OF PRESENTATION

     S-iii  

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION

     S-iv  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     S-v  

PROSPECTUS SUPPLEMENT SUMMARY

     S-1  

RISK FACTORS

     S-21  

USE OF PROCEEDS

     S-29  

CAPITALIZATION

     S-30  

RATIO OF EARNINGS TO FIXED CHARGES

     S-31  

UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS

     S-32  

DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

     S-40  

DESCRIPTION OF THE 2029 NOTES

     S-42  

DESCRIPTION OF THE NEW 2025 NOTES

     S-68  

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     S-94  

UNDERWRITING

     S-112  

LEGAL MATTERS

     S-117  

EXPERTS

     S-117  

WHERE YOU CAN FIND MORE INFORMATION

     S-117  

INFORMATION INCORPORATED BY REFERENCE

     S-118  

Prospectus

 

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     6  

WHERE YOU CAN FIND MORE INFORMATION

     7  

INFORMATION INCORPORATED BY REFERENCE

     8  

USE OF PROCEEDS

     9  

DESCRIPTION OF DEBT SECURITIES

     10  

DESCRIPTION OF CAPITAL STOCK OF GLPI

     12  

DESCRIPTION OF STOCK PURCHASE CONTRACTS OF GLPI

     19  

DESCRIPTION OF DEPOSITARY SHARES OF GLPI

     20  

DESCRIPTION OF WARRANTS OF GLPI

     23  

DESCRIPTION OF UNITS OF GLPI

     25  

CERTAIN PROVISIONS OF PENNSYLVANIA LAW AND GLPI’S ARTICLES OF INCORPORATION AND BYLAWS AND OTHER GOVERNANCE DOCUMENTS

     28  

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     32  

SELLING SECURITY HOLDERS

     58  

PLAN OF DISTRIBUTION

     59  

LEGAL MATTERS

     65  

EXPERTS

     65  

 

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of the offering and also adds to and updates information in the accompanying prospectus and the documents incorporated by reference therein. The second part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. You should read this entire document, including this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and therein. In the event that the description of this offering varies between this prospectus supplement and the accompanying prospectus or any document incorporated by reference herein or therein filed prior to the date of this prospectus supplement, you should rely on the information contained in this prospectus supplement; provided that if any statement in one of these documents is inconsistent with a statement in another document having a later date, the statement in the document having the later date modifies or supersedes the earlier statement. The accompanying prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission (the “SEC”) using a shelf registration statement. Under the shelf registration process, from time to time, we may offer and sell securities in one or more offerings.

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and any “free writing prospectus” we authorize to be delivered to you. We have not and the underwriters have not authorized anyone to provide you with any information other than information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and any “free writing prospectus” we have authorized for use in connection with this offering. If anyone provides you with different or additional information, you should not rely on it. This prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and any authorized “free writing prospectus” are not an offer to sell or the solicitation of an offer to buy any securities other than the notes to which this prospectus supplement relates, nor is this prospectus supplement, the accompanying prospectus, including the documents incorporated by reference herein and therein, or any authorized “free writing prospectus” an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should assume that the information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and any authorized “free writing prospectus” is accurate only as of their respective dates regardless of the time of delivery of this prospectus supplement, the accompanying prospectus and any authorized “free writing prospectus.” Our business, financial condition, results of operations and prospects may have changed since those dates.

It is important for you to read and consider all information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and any authorized “free writing prospectus,” in making your investment decision. See “Where You Can Find More Information” and “Information Incorporated by Reference” in this prospectus supplement and in the accompanying prospectus.

This prospectus supplement and the accompanying prospectus contain, or incorporate by reference, forward-looking statements. Such forward-looking statements should be considered together with the cautionary statements and important factors included or referred to in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein or therein. See “Cautionary Statement Regarding Forward-Looking Statements” in this prospectus supplement and in the accompanying prospectus.

The unaudited pro forma consolidated combined financial information contained in this prospectus supplement gives effect to the Transactions (as defined under “Basis of Presentation”) as if the Transactions occurred on June 30, 2018 for balance sheet purposes and January 1, 2017 for all other purposes. The unaudited pro forma consolidated combined financial information contained in this prospectus supplement

 

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is for illustrative purposes only, is based on various adjustments and assumptions, and is not necessarily an indication of our financial condition or the results of our operations that would have been achieved had the Transactions been completed as of the dates indicated or that may be achieved in the future. See “Prospectus Supplement Summary — Summary Historical Consolidated and Summary Unaudited Pro Forma Consolidated Combined Financial Information,” “Risk Factors — Risks related to the Acquisition Transactions” and “Unaudited Pro Forma Consolidated Combined Financial Statements.”

BASIS OF PRESENTATION

Except as otherwise indicated or required by the context, references in this prospectus supplement to:

 

   

“Acquisition Transactions” refers to the Plainridge Park/Belterra Transactions and the Tropicana Transactions;

 

   

“Belterra Loan” refers to the proposed loan by GLPI and/or one or more of its subsidiaries to Boyd Gaming and/or one or more of its subsidiaries secured by a mortgage on Belterra Park;

 

   

“Boyd Gaming” refers to Boyd Gaming Corporation, a Nevada corporation;

 

   

“Capital Corp.” refers to GLP Financing II, Inc., a Delaware corporation and wholly owned subsidiary of the Operating Partnership;

 

   

“Credit Facility” means the Operating Partnership’s senior unsecured credit facility, which consists of a $1,100.0 million revolving credit facility (the “Revolver”) and a $525.0 million Term Loan A-1 Facility (“Term Loan A-1”), pursuant to the Credit Agreement, dated as of October 28, 2013 (as amended from time to time prior to the date hereof), among the Operating Partnership, as borrower thereunder and as successor-by-merger to GLP Financing, LLC, each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent;

 

   

“ERI” refers to Eldorado Resorts, Inc., a Nevada corporation;

 

   

“ERI-Tropicana Merger” refers to the proposed acquisition of the operating business of Tropicana by ERI pursuant to the Tropicana Merger Agreement;

 

   

“GLPI” refers to Gaming and Leisure Properties, Inc., a Pennsylvania corporation and a guarantor of the notes offered hereby, and, unless the context otherwise requires, none of its subsidiaries;

 

   

“Issuers” refer to the Operating Partnership and Capital Corp. and none of their consolidated subsidiaries;

 

   

“Lumière Loan” refers to the proposed two-year loan by GLPI and/or one or more of its subsidiaries to ERI and/or one or more of its subsidiaries secured by a mortgage on Lumière Place for one year (on the one-year anniversary of the Lumière Loan, the mortgage and the related deed of trust on the Lumière Place property will terminate and the Lumière Loan will no longer be secured by this property);

 

   

“Operating Partnership” refers to GLP Capital, L.P., a Pennsylvania limited partnership and wholly owned subsidiary of GLPI through which GLPI owns substantially all of its real estate assets;

 

   

“Original Plainridge Park/Belterra Real Estate Purchase Agreement” refers to the Purchase and Sale Agreement, dated December 17, 2017, by and between Gold Merger Sub, LLC, a wholly owned subsidiary of GLPI, and Penn;

 

   

“Original Tropicana Real Estate Purchase Agreement” refers to the Purchase and Sale Agreement, dated April 15, 2018, by and between the Operating Partnership and Tropicana;

 

   

“Penn” refers to Penn National Gaming, Inc., a Pennsylvania corporation, and, unless the context otherwise requires, its subsidiaries;

 

   

“Penn-Pinnacle Merger” refers to the proposed acquisition of Pinnacle by Penn, which was publicly announced on December 17, 2017;

 

   

“Penn Spin-Off” refers to Penn’s contribution on November 1, 2013 to GLPI of substantially all of the assets and liabilities associated with Penn’s real property interests and real estate development

 

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business, as well as the assets and liabilities of Louisiana Casino Cruises, Inc. and Penn Cecil Maryland, Inc., which are referred to as the “TRS Properties,” and the subsequent spin-off of GLPI to holders of Penn’s common and preferred stock in a tax-free distribution;

 

   

“Pinnacle” refers to Pinnacle Entertainment, Inc., a Delaware corporation;

 

   

“Plainridge Park/Belterra Real Estate Purchase Agreement” refers to the Original Plainridge Park/Belterra Real Estate Purchase Agreement, as amended by the proposed Plainridge Park/Belterra Real Estate Purchase Agreement Amendment;

 

   

“Plainridge Park/Belterra Real Estate Purchase Agreement Amendment” refers to the proposed novation and amendment to the Original Plainridge Park/Belterra Real Estate Purchase Agreement;

 

   

“Plainridge Park/Belterra Transactions” refers to the proposed acquisition by the Operating Partnership of Plainridge Park Casino from Penn and the proposed Belterra Loan, each in connection with the Penn-Pinnacle Merger and related transactions;

 

   

“Transactions” refer collectively to: (1) the issuance of the notes offered hereby, (2) the use of the net proceeds from this offering, together with $         million in borrowings under our Revolver, to finance the consummation of the Acquisition Transactions, (3) the payment of estimated transaction fees and expenses associated with the foregoing, and (4) the pro forma use of $144.5 million in cash and $12.0 million in borrowings under our Revolver to finance the redemption of all of our outstanding 4.375% senior unsecured notes due November 2018 (the “2018 Notes”);

 

   

“Tropicana” refers to Tropicana Entertainment Inc., a Delaware corporation;

 

   

“Tropicana Merger Agreement” refers to the Agreement and Plan of Merger, dated April 15, 2018, by and among the Operating Partnership, ERI, Delta Merger Sub, Inc., a wholly owned subsidiary of ERI, and Tropicana, as such agreement may be amended or modified;

 

   

“Tropicana Real Estate Purchase Agreement” refers to the Original Tropicana Real Estate Purchase Agreement, as amended by the proposed Tropicana Real Estate Purchase Agreement Amendment;

 

   

“Tropicana Real Estate Purchase Agreement Amendment” refers to the proposed amendment and joinder to the Original Tropicana Real Estate Purchase Agreement, by and among the Operating Partnership, Tropicana and ERI;

 

   

“Tropicana Transactions” refers to (1) the proposed acquisition by the Operating Partnership of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge from Tropicana, pursuant to the Tropicana Merger Agreement and the Tropicana Real Estate Purchase Agreement and (2) the Lumière Loan; and

 

   

“We,” “our,” “us” and the “Company” refer to GLPI and its consolidated subsidiaries; provided that with respect to the discussion of the terms of the notes on the cover page of this prospectus supplement, in the section entitled “Prospectus Supplement Summary — The Offering,” and in the sections entitled “Description of the 2029 Notes” and “Description of the New 2025 Notes,” references to “we,” “our” and “us” refer only to the Issuers and none of their subsidiaries.

PRESENTATION OF NON-GAAP FINANCIAL INFORMATION

Funds From Operations (“FFO”), Adjusted Funds From Operations (“AFFO”) and Adjusted EBITDA, which are presented in this prospectus supplement, are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). We use these non-GAAP financial measures as performance measures for benchmarking against our peers and as internal measures of business operating performance, which is used as a bonus metric. We believe FFO, AFFO and Adjusted EBITDA provide a meaningful perspective of the underlying operating performance of our current business. This is especially true since these measures exclude real estate depreciation and we believe that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a

 

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straight-line basis over time. In addition, in order for GLPI to qualify as a REIT, it must distribute 90% of its REIT taxable income annually. We adjust AFFO accordingly to provide our investors an estimate of the taxable income available for this distribution requirement.

FFO is a non-GAAP financial measure that is considered a supplemental measure for the real estate industry and a supplement to GAAP measures. Consistent with the definition used by the National Association of Real Estate Investment Trusts, we define FFO as net income (computed in accordance with GAAP), excluding (gains) or losses from sales of property and adding back real estate depreciation. We define AFFO as FFO excluding stock based compensation expense, debt issuance costs amortization, other depreciation, amortization of land rights, straight-line rent adjustments, direct financing lease adjustments, losses on debt extinguishment and retirement costs, reduced by maintenance capital expenditures. Finally, we define Adjusted EBITDA as net income excluding interest, taxes on income, depreciation, (gains) or losses from sales of property, stock based compensation expense, straight-line rent adjustments, direct financing lease adjustments, the amortization of land rights, losses on debt extinguishment and retirement costs.

FFO, AFFO and Adjusted EBITDA are not recognized terms under GAAP. Because certain companies do not calculate FFO, AFFO and Adjusted EBITDA in the same way and certain other companies may not perform such calculation, those measures as used by other companies may not be consistent with the way we calculate such measures and should not be considered as alternative measures of operating profit or net income. Our presentation of these measures does not replace the presentation of our financial results in accordance with GAAP.

For reconciliations of our net income to FFO, AFFO and Adjusted EBITDA, see the section entitled “Prospectus Supplement Summary — Summary Historical Consolidated and Summary Unaudited Pro Forma Consolidated Combined Financial Information.”

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, and in any “free writing prospectus” that we have authorized for use in connection with this offering, may constitute “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements include information concerning our business strategy, plans, goals and objectives.

Forward-looking statements included or incorporated by reference in this prospectus supplement and the accompanying prospectus include, but are not limited to, statements regarding our ability to grow our portfolio of gaming facilities and to secure additional avenues of growth beyond the gaming industry, information concerning the Acquisition Transactions, and our expectations with respect to the Penn-Pinnacle Merger and the impact on our business and results of operations. In addition, statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “may increase,” “may fluctuate” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors could affect future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

   

the availability of, and the ability to identify, suitable and attractive acquisition and development opportunities and the ability to acquire and lease the respective properties on favorable terms;

 

   

the degree and nature of our competition;

 

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the ultimate timing and outcome (including the possibility that the proposed transaction may not be completed or that completion may be unduly delayed) of the Penn-Pinnacle Merger and the related transactions with Boyd Gaming;

 

   

our increased reliance on Penn as our largest tenant following the closing of the Penn-Pinnacle Merger;

 

   

the ultimate timing and outcome (including the possibility that the proposed transaction may not be completed or that completion may be unduly delayed) of the Acquisition Transactions and the ERI-Tropicana Merger;

 

   

the ability to receive, or delays in obtaining, the regulatory approvals required to own and/or operate our properties, or other delays or impediments to completing our planned acquisitions or projects;

 

   

the effects of the Acquisition Transactions on us, including the impact of integrating the assets to be acquired by us in the Acquisition Transactions and the post-acquisition impact on our financial condition, operating results, strategy and plans, including our potential inability to achieve the estimated annual rental revenue we currently expect to achieve from the acquired properties;

 

   

our ability to maintain our status as a real estate investment trust (“REIT”), given the highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for which only limited judicial and administrative authorities exist, where even a technical or inadvertent violation could jeopardize REIT qualification and where requirements may depend in part on the actions of third parties over which we have no control or only limited influence;

 

   

the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis in order for us to maintain our elected REIT status;

 

   

the ability and willingness of our tenants, operators and other third parties to meet and/or perform their obligations under their respective contractual arrangements with us, including, in some cases, their obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;

 

   

the ability of our tenants and operators to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation to satisfy obligations under their existing credit facilities and other indebtedness;

 

   

the ability of our tenants and operators to comply with laws, rules and regulations in the operation of our properties, to deliver high quality services, to attract and retain qualified personnel and to attract customers;

 

   

the ability to generate sufficient cash flows to service our outstanding indebtedness;

 

   

the access to debt and equity capital markets, including for acquisitions or refinancings due to maturities;

 

   

adverse changes in our credit rating;

 

   

fluctuating interest rates;

 

   

the impact of global or regional economic conditions;

 

   

the availability of qualified personnel and our ability to retain our key management personnel;

 

   

GLPI’s duty to indemnify Penn in certain circumstances if the Penn Spin-Off, as further described in GLPI’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 16, 2018, as amended by GLPI’s Annual Report on Form 10-K/A, filed with the SEC on May 4, 2018 and incorporated herein by reference (our “2017 10-K”), fails to be tax-free;

 

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changes in the U.S. tax law and other state, federal or local laws, whether or not specific to real estate, real estate investment trusts or to the gaming, lodging or hospitality industries;

 

   

changes in accounting standards;

 

   

the impact of weather events or conditions, natural disasters, acts of terrorism and other international hostilities, war or political instability;

 

   

other risks inherent in the real estate business, including potential liability relating to environmental matters and illiquidity of real estate investments; and

 

   

additional factors discussed in the section entitled “Risk Factors” in this prospectus supplement and the accompanying prospectus and in the sections entitled “Risk Factors and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 10-K and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, respectively (our “2018 10-Qs”), as well as in our other filings with the SEC that are incorporated by reference into this prospectus supplement and the accompanying prospectus.

Other unknown or unpredictable factors may also cause actual results to differ materially from those projected by the forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should consider the areas of risk described above in connection with considering any forward-looking statements that may be made by us generally and any forward-looking statements that are included or incorporated by reference herein or in the accompany prospectus supplement specifically. We do not undertake any obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required to do so by law.

 

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PROSPECTUS SUPPLEMENT SUMMARY

This summary highlights selected information contained elsewhere in this prospectus supplement, in the accompanying prospectus and in the documents incorporated by reference herein and therein and does not contain all of the information that may be important to you. You should carefully read this entire prospectus supplement, the accompanying prospectus and the documents incorporated herein and therein by reference, including the section entitled “Risk Factors” beginning on page S-21 of this prospectus supplement and in our 2017 10-K and our 2018 10-Qs, before making an investment decision regarding the notes.

About our company

We are a self-administered and self-managed Pennsylvania REIT focused on acquiring, financing, and owning real estate properties primarily leased to gaming operators in triple-net lease arrangements. We own a large, diversified high-quality real estate portfolio. Our current geographically diversified portfolio consists of 38 gaming and related facilities in 14 states, which contain approximately 15.2 million of rentable square feet. As of June 30, 2018, our properties were 100% occupied. GLPI was incorporated on February 13, 2013 as a wholly owned subsidiary of Penn. On November 1, 2013, through a series of transactions with Penn, Penn contributed to us substantially all of the assets and liabilities associated with its real property interests and real estate development business. As a result, we own substantially all of Penn’s former real property assets and lease back those assets to Penn for use by its subsidiaries under a unitary triple-net lease with an initial term of 15 years with no purchase option, followed by four 5-year renewal options (exercisable by Penn) on the same terms and conditions (the “Penn Master Lease”) as described under “— Master lease summaries — Penn Tenant; Penn Master Lease.” Since 2013, we have continued to grow our portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators under prudent terms.

On April 28, 2016, we acquired substantially all of the real estate assets of Pinnacle for approximately $4.8 billion. We lease these assets back to Pinnacle, under a unitary triple-net lease with an initial term of 10 years with no purchase option, followed by five 5-year renewal options (exercisable by Pinnacle) on the same terms and conditions (the “Pinnacle Master Lease” and, together with the Penn Master Lease, the “Master Leases”).

On September 9, 2016, we acquired the real property assets of the Meadows Racetrack and Casino (the “Meadows”) from Cannery Casino Resorts (“CCR”). Concurrent with our purchase of the Meadows’ real estate assets, Pinnacle purchased the entities holding the Meadows’ gaming and racing licenses and operating assets from CCR. GLPI leases the Meadows’ real property assets to Pinnacle under a triple-net lease (the “Pinnacle Meadows Lease”) separate from the Pinnacle Master Lease with an initial term of 10 years with no purchase option and the option to renew for three successive 5-year terms and one 4-year term, at Pinnacle’s option.

On December 17, 2017, we entered into agreements pursuant to which we will purchase Plainridge Park Casino from Penn and act as mortgagee on a loan to Boyd Gaming (which will be secured by a mortgage on Belterra Park Gaming & Entertainment Center), in connection with the proposed Penn-Pinnacle Merger, and on April 15, 2018, we entered into a definitive agreement pursuant to which we will acquire the real estate assets of five casino properties from Tropicana and act as mortgagee on a loan to ERI with respect to Lumière Place (which loan will be secured by a mortgage on the Lumière Place property for one year; on the one-year anniversary of the Lumière Loan, the mortgage and the related deed of trust on the Lumière Place property will terminate and the Lumière Loan will no longer be secured by this property). As discussed further under “— Overview of the proposed Acquisition Transactions” below, each of these transactions, which are collectively referred to herein as the Acquisition Transactions, is expected to close in the fourth quarter of 2018, subject to regulatory approval. The offering of the notes is not conditioned on the consummation of the Acquisition Transactions. Upon consummation, the Acquisition Transactions would provide us with enhanced scale and geographic diversification. After giving effect to the Acquisition



 

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Transactions, our portfolio would consist of 46 gaming and related facilities in 16 states. Our pro forma AFFO for the year ended December 31, 2017 and the six months ended June 30, 2018 was $748.6 million and $377.5 million, respectively. Our pro forma Adjusted EBITDA for the year ended December 31, 2017 and the six months ended June 30, 2018 was $1.0 billion and $524.4 million, respectively, representing increases to Adjusted EBITDA achieved by GLPI on a standalone basis of more than 17% for both periods. The combined business, on a pro forma basis, would constitute the third largest publicly traded triple-net REIT based on Adjusted EBITDA for the year ended December 31, 2017, reaffirming our position as a leading, gaming-focused REIT. For definitions of Adjusted EBITDA and AFFO and reconciliations to our net income, see “Presentation of Non-GAAP Financial Information” and “Prospectus Supplement Summary — Summary Historical Consolidated and Summary Unaudited Pro Forma Consolidated Combined Financial Information.”

After giving effect to the Acquisition Transactions, all of our rental properties, with the exception of the real property associated with the Casino Queen in East St. Louis, Illinois and the Meadows Racetrack and Casino in Washington, Pennsylvania, will be subject to separate long-term master lease agreements with Penn, ERI or Boyd Gaming. Each of these tenants is an established gaming provider with strong historical financial performance.

Our history

 

 

LOGO

 

November 2013 Penn national completes spin- off of GLPIApril 2016 Closes acquisition of substantially all of Pinnacle's real estate assets May 2017 Close acquisition of the real estate assets of Bally's Casino Tunica & Resorts Casino Tunica for $83 million Fourth Quarter 2018 Planned acquisition of Plainridge Park Casino and Belterra Park for $250 million and Belterra Park mortgage January 2014 Closes acquisition of the real estate assets of casino Queen for $ 140 million September 2016 Closes acquisition of Meadows Racetrack $ Casino Fourth Quarter 2018 Planned acquisition Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge from Tropicana for $964 million and Lumiere Place mortgage201320142015201620172018

 



 

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Overview of the proposed Acquisition Transactions

Plainridge Park/Belterra Transactions

On December 17, 2017, we entered into agreements in connection with the proposed Penn-Pinnacle Merger to purchase from Penn the real property assets of Plainridge Park Casino for $250.0 million and the real property assets of Belterra Park Gaming & Entertainment Center for $64.8 million (subject to adjustment at closing based on the property’s historical performance), each exclusive of transaction fees and taxes. As part of requirements for the regulatory approval of the Plainridge Park/Belterra Transactions, we intend to enter into the Plainridge Park/Belterra Real Estate Purchase Agreement Amendment. Pursuant to the Plainridge Park/Belterra Real Estate Purchase Agreement Amendment we intend to make a loan to Boyd Gaming, in connection with its acquisition of Belterra Park Gaming & Entertainment Center, which will be secured by a mortgage. Subject to and concurrently with the completion of the Penn-Pinnacle Merger, we have agreed to, among other things, amend our master lease with Pinnacle to allow for the sale by Pinnacle to Boyd Gaming of the operating assets at Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort and to enter into a new master lease agreement with Boyd Gaming (the “Boyd Master Lease”) on terms similar to our existing leases. See “— Master lease summaries — Boyd Tenant; Boyd Master Lease” below. Our acquisition of Plainridge Park Casino and entry into the new Boyd Master Lease is expected to add additional annual rental revenue of approximately $38.9 million (including $13.9 million of additional rent) upon closing, as reflected in our pro forma consolidated combined financial information.

In connection with regulatory approval of the Penn-Pinnacle Merger, we have proposed to enter into a loan and act as mortgagee in the financing of Boyd Gaming’s acquisition of Pinnacle’s Belterra Park Gaming & Entertainment Center property (“Belterra Park”), collecting interest payments from Boyd Gaming, which will operate this property following completion of the merger and related transactions. We and Boyd Gaming have agreed to structure the Belterra Loan in a manner that approximates the economics of the previously contemplated GLPI acquisition and lease of the Belterra Park property. Annual Belterra Loan payments are expected to be derived from the underlying annual lease payments received by Boyd for the Belterra Park property which, based on historical operating performance, would equate to annual interest of approximately $7.2 million and an interest rate of approximately 11.1% per annum, as reflected in our pro forma consolidated combined financial statements. Actual annual interest rates and interest received by us on the Belterra Loan will vary based on actual rent received by Boyd Gaming in connection with its lease of the Belterra Park property. As of the date of this prospectus supplement, the terms of the Belterra Loan are not final and are subject to change.

The Plainridge Park/Belterra Transactions remain subject to certain regulatory approvals and are expected to close in the fourth quarter of 2018.

Tropicana Transactions

On April 15, 2018, we entered into the Tropicana Merger Agreement and the Original Tropicana Real Estate Purchase Agreement pursuant to which we will acquire the real estate assets of five casino properties from Tropicana for $964.0 million, exclusive of transaction fees and taxes. As part of the requirements for regulatory approval of the Tropicana Transactions, we intend to enter into the Tropicana Real Estate Purchase Agreement Amendment pursuant to which we will make a loan to ERI and/or one or more of its subsidiaries in connection with its acquisition of an additional Tropicana casino property, which will be secured by a mortgage for one year (on the one-year anniversary of the Lumière Loan, the mortgage and the related deed of trust on the Lumière Place property will terminate and the Lumière Loan will no longer be secured by this property). The assets we intend to acquire are Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge, and we intend to



 

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make a mortgage loan to ERI and/or one or more of its subsidiaries in the amount of $246.0 million to fund its acquisition of Tropicana’s Lumière Place property. The combined properties, including Lumière Place, include 350,000 casino square feet, 7,416 slot machines, 237 table games and 4,993 hotel rooms.

Concurrent with our acquisition of the real estate assets of the five Tropicana casino properties, ERI will acquire the operating assets of these properties and lease the real estate from us through a new master lease with a 15-year initial term, with the option (of ERI) to renew for four successive 5-year renewal periods (the “ERI Master Lease”). Initial annual rent is expected to be $87.6 million and initial annual interest from the Lumière Loan is expected to be $22.4 million, as reflected in our pro forma consolidated combined financial statements. Terms of the new ERI Master Lease are similar to our existing master leases, except the escalator is guaranteed for the first five years of the lease so long as the escalator increase does not create an event of default. See “— Master lease summaries — ERI Tenant; ERI Master Lease” below. The Lumière Loan is expected to bear interest at a rate equal to (i) 9.09% until the 1-year anniversary of the closing of the loan and (ii) 9.27% until the second anniversary of the closing, when it is expected to mature. The Lumière Loan will be secured for one year by the Lumière Place property; on the one-year anniversary of the Lumière Loan, the mortgage and the related deed of trust on the Lumière Place property will terminate and the Lumière Loan will no longer be secured by this property. It is anticipated that the Lumière Loan will be fully repaid on or prior to maturity by way of substitution of one or more additional ERI properties acceptable to ERI and us, which will be transferred to us and added to the ERI Master Lease. Specifically, pursuant to the terms of the Lumière Loan, ERI would be required to use its commercially reasonable efforts to identify another property owned or acquired by ERI that is reasonably equivalent to the Lumière Place property to transfer to us in order to replace the Lumière Place property under the ERI Master Lease. As of the date of this prospectus supplement, the terms of Lumière Loan are not final and are subject to change.

The Tropicana Transactions remain subject to regulatory approval and are expected to close in the fourth quarter of 2018.

Our competitive strengths

High quality geographically diverse portfolio

As of June 30, 2018, on a stand-alone basis, our portfolio consisted of 38 gaming and related facilities. Our portfolio is comprised of approximately 15.4 million of property square footage and over 5,200 acres of owned and leased land and is broadly diversified by location across 14 states. After giving effect to the Acquisition Transactions, our portfolio would consist of 46 gaming and related facilities, comprising approximately 23.4 million of property square footage and over 5,500 acres of owned and leased land (excluding Lumière Place and Belterra Park). With our acquisition of Tropicana Atlantic City in New Jersey and Plainridge Park in Massachusetts, our properties will be located in 16 states across the United States. We believe that our properties represent some of the top revenue-producing casinos in leading U.S. regional gaming markets.



 

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Map of our properties on a pro forma basis

 

 

LOGO

 

Strong operating company tenants

As of June 30, 2018, and after giving effect to the Acquisition Transactions and the Penn-Pinnacle Merger, the majority of our real estate properties were leased to Penn and approximately 80% of our collective rental income, excluding deferrals and land lease gross-ups, were derived from tenant leases with Penn. As of June 30, 2018, after giving effect to the Acquisition Transactions, approximately 20% of our collective rental income, excluding deferrals and land lease gross-ups, were derived from Tenant leases with Casino Queen, ERI and Boyd Gaming. Each of Penn, ERI and Boyd Gaming are leading, diversified, multi-jurisdictional owners and managers of gaming and pari-mutuel properties and established gaming providers with strong financial performance records. These three tenants have each operated casinos as public companies, with each of Penn and Boyd Gaming having done so for several decades. As derived from their respective quarterly reports on Form 10-Q filed with the SEC for the quarter ended June 30, 2018, Penn, Boyd Gaming and ERI generated approximately $826.9 million, $616.8 million and $456.8 million of net revenues, respectively, for the three months ended June 30, 2018. The Company has not independently verified this information and is providing this data for informational purposes and Penn’s, Boyd Gaming’s and ERI’s respective quarterly reports on Form 10-Q for the quarter ended June 30, 2018 are not incorporated by reference into, and do not constitute a part of, this prospectus supplement or the accompanying prospectus. Each of these three tenants has historically exhibited sufficient liquidity and ability to satisfy their rent obligations. Additionally, the regional markets where they have historically operated casinos have generally proven more profitable and stable during economic cycles than the Las Vegas gaming market.

Stable cash flows

Our real estate properties are leased under long-term triple-net leases guaranteed by our tenants, pursuant to which the tenant is responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.



 

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Penn and Pinnacle are, and upon consummation of the Acquisition Transactions, Boyd Gaming and ERI will be, subject to such long-term cross-collateralized master lease agreements. The Penn Master Lease has an initial 15-year term (with four 5-year extensions), and the Pinnacle Master Lease has an initial 10-year term (with five 5-year extensions). There are approximately 10 years and 7.5 years left under the initial term of the Penn and Pinnacle Master Leases, respectively and each includes a fixed building rent component with a set annual rent escalator (subject to minimum rent coverage of 1.8x). The Penn and Pinnacle Master Leases provide, and we expect the Boyd Master Lease and the ERI Master Lease will provide, steady in-place organic rent growth. As of June 30, 2018, on a stand-alone basis, approximately 83% of our revenue from rental properties was fixed and would remain at 83% after giving pro forma effect to the Acquisition Transactions, excluding deferrals and land lease gross-ups. This provides protection from fluctuations in the economy or regional gaming markets. See “— Master lease summaries” for a description of these lease agreements.

Balance sheet positioned for future growth

We believe there is a large market opportunity to acquire additional casino and other leisure properties and that our balance sheet is well-positioned to support such growth. Our moderate leverage, which is in line with our triple-net peers, provides us with the ability to pursue either internal or external growth opportunities. Furthermore, our well-laddered debt maturity profile and capital structure provides further flexibility that we believe will enable us to better take advantage of potential opportunities as they arise.

Proven and experienced management team

Our management team boasts leading industry experience, while maintaining a prudent management approach. Peter M. Carlino, our chief executive officer, has more than 30 years of experience in the acquisition and development of gaming facilities and other real estate projects. Steven T. Snyder, our interim chief financial officer, is a finance professional with more than 20 years of experience in the gaming industry. Through years of public company experience, our management team also has extensive experience accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure. We believe that our management team will be able to leverage their strong long-term gaming industry, real estate, investment banking, and lending relationships to source and finance future acquisitions.

Our business and growth strategies

Master leases have escalators and percentage rent components

The Penn Master Lease, the Pinnacle Master Lease and the Casino Queen lease have a substantial fixed rent component, representing 83% of our aggregate revenues from rental properties for the quarter ended June 30, 2018. Approximately 80% of the fixed rent is subject to annual rent escalators of 2% based on certain rent coverage metrics. Since our formation in 2013, the annual escalation opportunities contained in both the Penn Master Lease and the Pinnacle Master Lease have been either fully or partially received. These master leases generate steady growth in revenues from rental properties and provide a benchmark with which we can implement similar rent growth measures for properties that might be acquired in the future. The Pinnacle Meadows Lease also contains an annual escalator provision for up to 5% of the base rent. The escalator remains at 5% for ten years or until total rent is $31 million, at which point the escalator will be reduced to 2% annually thereafter. The ERI Master Lease will contain an escalator provision for up to 2% of the base rent, which will be guaranteed for the first five anniversaries of the lease so long as the escalator increase does not create an event of default. The Boyd Master Lease will also contain an escalator provision for up to 2% of the base rent.



 

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Attractive financing alternative for private or public single or multi-site operators

We have the flexibility to operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held by the Operating Partnership or by subsidiaries of the Operating Partnership. Conducting business through the Operating Partnership allows us flexibility in the manner in which we structure and acquire properties. In particular, an UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other assets to us. As a result, this structure potentially may facilitate our acquisition of assets in a more efficient manner and may allow us to acquire assets that the owner would otherwise be unwilling to sell because of tax considerations. We believe that this flexibility will provide us with an advantage in seeking future acquisitions. Further, we could purchase a property outright and roll the acquired asset into an existing master lease agreement with one of our current operators. Additionally, we may be able to partner with other third-party operators to diversify our tenant base.

Sale-leaseback and acquisitions in the gaming space

As the first publicly traded triple-net lease REIT focused on gaming, we believe we are well positioned to partner with gaming operators looking to monetize their real estate assets. To capitalize on this, we intend to explore future potential sale-leaseback opportunities with various regional gaming operators looking to shed real estate assets in an effort to focus on gaming operations. Sale-leasebacks continue to be highly attractive to gaming operators who have a need or a desire to receive immediate cash flow, while maintaining the use of the gaming facilities through long-term leases. We believe that the use of sale-leasebacks will help us grow our portfolio and, in turn, will provide shareholders with more stable and diversified revenue streams and reliable cash flows in the future.

Potential to expand outside of gaming

We believe that our focus on triple-net lease structures will provide us with flexibility to diversify our tenant base in the future. The triple-net lease tenant universe spans virtually every real estate sector, including gaming, leisure, retail, and many others. The diverse array of triple-net opportunities may provide potential tenant and industry diversification avenues for us over time. Further, we have a proven business model that supports scale across various markets and industries, and, we believe, will allow us to quickly expand by acquiring large portfolios.

Our portfolio

GLPI properties

As of June 30, 2018, after giving pro forma effect to the Acquisition Transactions, our diversified high-quality real estate portfolio consisted of 46 gaming and related facilities, comprised of approximately 23.4 million of square footage and over 5,500 acres of owned and leased land (excluding Lumière Place and Belterra Park), and was broadly diversified by location across 16 states. As of June 30, 2018, after giving pro forma effect to the Acquisition Transactions, our portfolio was 100% occupied.



 

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The following table presents selected statistical and other information concerning our properties as of June 30, 2018, after giving pro forma effect to the Acquisition Transactions.

 

Tenants

 

Location

  Type of Facility     Property
Sq.
Ft.(1)
    Owned
Acreage
    Leased
Acreage(2)
    Hotel
Rooms
 

Hollywood Casino Lawrenceburg

  Lawrenceburg, IN     Dockside gaming       634,000       73.1       32.1       295  

Hollywood Casino Aurora

  Aurora, IL     Dockside gaming       222,189       0.4       1.7        

Hollywood Casino Joliet

  Joliet, IL     Dockside gaming       322,446       276.4             100  

Argosy Casino Alton

  Alton, IL     Dockside gaming       124,569       0.2       3.6        

Hollywood Casino Toledo

  Toledo, OH     Land-based gaming       285,335       42.3              

Hollywood Casino Columbus

  Columbus, OH     Land-based gaming       354,075       116.2              

Hollywood Casino at Charles Town Races

  Charles Town, WV    
Land-based gaming/
Thoroughbred racing
 
 
    511,249       298.6             153  

Hollywood Casino at Penn National Race Course

  Grantville, PA    
Land-based gaming/
Thoroughbred racing
 
 
    451,758       573.7              

M Resort

  Henderson, NV     Land-based gaming       910,173       83.5             390  

Hollywood Casino Bangor

  Bangor, ME    
Land-based gaming/
Harness racing
 
 
    257,085       6.4       37.9       152  

Zia Park Casino(3)

  Hobbs, NM    
Land-based gaming/
Thoroughbred racing
 
 
    109,067       317.4              

Hollywood Casino Gulf Coast

  Bay St. Louis, MS     Land-based gaming       425,920       578.7             291  

Argosy Casino Riverside

  Riverside, MO     Dockside gaming       450,397       37.9             258  

Hollywood Casino Tunica

  Tunica, MS     Dockside gaming       315,831             67.7       494  

Boomtown Biloxi

  Biloxi, MS     Dockside gaming       134,800       1.5       1.0        

Hollywood Casino St. Louis

  Maryland Heights, MO     Land-based gaming       645,270       247.8             502  

Hollywood Gaming at Dayton Raceway

  Dayton, OH    
Land-based gaming/
Standardbred racing
 
 
    191,037       119.7              

Hollywood Gaming at Mahoning Valley Race Course

  Youngstown, OH    
Land-based gaming/
Thoroughbred racing
 
 
    177,448       193.4              

Resorts Casino Tunica

  Tunica, MS     Dockside gaming       319,823             86.6       201  

1st Jackpot Casino (formerly known as Bally’s Casino Tunica)

  Tunica, MS     Dockside gaming       78,941       52.9       93.8        

Casino Queen

  East St. Louis, IL     Land-based gaming       330,502       67.2             157  

Ameristar Black Hawk

  Black Hawk, CO     Land-based gaming       775,744       104.1             535  

Ameristar East Chicago

  East Chicago, IN     Dockside gaming       509,867             21.6       288  

Belterra Casino Resort(3)

  Florence, IN     Dockside gaming       733,751       167.1       148.5       608  

Belterra Park Gaming & Entertainment Center(5)

  Cincinnati, OH    
Land-based gaming/
Thoroughbred racing
 
 
    372,650       160              

Ameristar Council Bluffs(3)

  Council Bluffs, IA     Dockside gaming       312,047       36.2       22.6       160  

L’Auberge Baton Rouge

  Baton Rouge, LA     Dockside gaming       436,461       99.1             205  

Boomtown Bossier City

  Bossier City, LA     Dockside gaming       281,747       21.8             187  

L’Auberge Lake Charles

  Lake Charles, LA     Dockside gaming       1,014,497             234.5       995  

Boomtown New Orleans

  New Orleans, LA     Dockside gaming       278,227       53.6             150  

Ameristar Vicksburg

  Vicksburg, MS     Dockside gaming       298,006       74.1             149  

Ameristar Kansas City

  Kansas City, MO     Dockside gaming       763,939       224.5       31.4       184  

Ameristar St. Charles

  St. Charles, MO     Dockside gaming       1,272,938       241.2             397  

River City Casino and Hotel

  St. Louis, MO     Dockside gaming       431,226             83.4       200  

Jackpot Properties(4)

  Jackpot, NV     Land-based gaming       419,800       79.5             416  

The Meadows Racetrack and Casino

  Washington, PA     Land-based gaming       417,921       155.5              

Tropicana Atlantic City

  Atlantic City, NJ     Land-based gaming       4,232,018       11.5             2,346  

Tropicana Evansville

  Evansville, IN     Dockside gaming       754,833       18.4       10.2       338  

Lumière Place(5)

  St. Louis, MO     Land-based gaming       1,020,782       18.5             494  

Tropicana Laughlin

  Laughlin, NV     Land-based gaming       936,453       93.6             1,487  

Trop Casino Greenville

  Greenville, MS     Dockside gaming       94,017             7.6       40  

Belle of Baton Rouge

  Baton Rouge, LA     Dockside gaming       386,398       13.1       5.2       288  

Plainridge Park Casino

  Plainville, MA    
Land-based gaming/
Harness racing
 
 
    196,473       90.1              
     

 

 

   

 

 

   

 

 

   

 

 

 
        23,191,710       4,749.2       889.4       12,460  
     

 

 

   

 

 

   

 

 

   

 

 

 

TRS Properties

         

Hollywood Casino Baton Rouge

  Baton Rouge, LA     Dockside gaming       120,517       24.1              

Hollywood Casino Perryville

  Perryville, MD     Land-based gaming       97,961       36.4              
     

 

 

   

 

 

   

 

 

   

 

 

 
      218,478       60.5              
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

        23,410,188       4,809.7       889.4       12,460  
     

 

 

   

 

 

   

 

 

   

 

 

 


 

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(1)

Square footage is approximated and includes air conditioned space and excludes parking garages and barns.

 

(2)

Leased acreage reflects land subject to leases with third parties and includes land on which certain of the current facilities and ancillary supporting structures are located as well as parking lots and access rights.

 

(3)

These properties include hotels that we do not own. Square footage and rooms associated with these properties that we do not own are excluded from the table.

 

(4)

Encompasses two gaming properties in Jackpot, Nevada, Cactus Pete’s and The Horseshu.

 

(5)

The Issuers financed the purchase of these properties by their respective owner-operators through mortgage loans to the owner-operators. Square footage and rooms associated with these properties that we do not own are included in this table.

Master lease summaries

Penn Tenant; Penn Master Lease

Penn Tenant

Penn is a leading, diversified, multi-jurisdictional owner and manager of gaming and pari-mutuel properties, and an established gaming provider with strong financial performance. Penn is a publicly traded company that is subject to the informational filing requirements of the Exchange Act, and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. These reports are not incorporated by reference into, and do not constitute a part of, this prospectus supplement or the accompanying prospectus.

Penn Master Lease

The Penn Master Lease provides for the lease of land, buildings, structures and other improvements on the land, easements and similar appurtenances to the land and improvements relating to the operation of the leased properties. The obligations under the Penn Master Lease are guaranteed by Penn and by all Penn subsidiaries that occupy and operate the facilities leased under the Penn Master Lease, or that own a gaming license, other license or other material asset necessary to operate any portion of the facilities. A default by Penn or its subsidiaries with regard to any facility will cause a default with regard to the entire Penn portfolio.

The Penn Master Lease provides for an initial term of 15 years with no purchase option. There are approximately 10 years left under the initial term of the Penn Master Lease. At Penn’s option, the Penn Master Lease may be extended for up to four five-year renewal terms beyond the initial term, on the same terms and conditions. If Penn elects to renew the term of the Penn Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Penn Master Lease, provided that each renewal option shall only be exercisable with respect to any of the barge-based facilities following an independent third party expert’s review of the total useful life of the applicable barged-based facility measured from the beginning of the initial term. If the exercise of any renewal term would cause the aggregate term to exceed 80% of the estimated useful life of any facility, such facility shall be included in such five-year renewal only for the period of time that is within 80% of the estimated useful life of such facility. In the event that a barge-based facility is not included in all or any portion of the final five-year renewal term, such property shall cease to be subject to the Penn Master Lease at the end of such partial period and will no longer be occupied by Penn absent the entry by GLPI and Penn into a new lease.

Penn does not have the ability to terminate its obligations under the Penn Master Lease prior to its expiration without the lessor’s consent. If the Penn Master Lease is terminated prior to its expiration other than with lessor’s consent, Penn may be liable for damages and incur charges such as continued payment of rent through the end of the lease term and maintenance costs for the property.

The Penn Master Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, Penn is required to pay the following: (1) all facility maintenance, (2) all insurance required in connection



 

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with the leased properties, and the business conducted on the leased properties, including coverage of the landlord’s interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. Penn makes the rent payment in monthly installments.

Pinnacle Tenant; Pinnacle Master Lease

Pinnacle

Pinnacle is an owner, operator and developer of casinos, a racetrack and related hospitality and entertainment facilities. As of the date of this prospectus supplement, Pinnacle operates 15 gaming properties, 14 of which are subject to the Pinnacle Master Lease and one subject to the Pinnacle Meadows Lease. In addition to these properties, Pinnacle owns and operates a live and televised poker tournament series under the trade name Heartland Poker Tour and owns and operates the Belterra Park property outside of a tenant lease. Pinnacle is a publicly traded company that is subject to the informational filing requirements of the Exchange Act and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. These reports are not incorporated by reference into, and do not constitute a part of, this prospectus supplement or the accompanying prospectus.

Pinnacle Tenant; Pinnacle Master Lease

Pinnacle MLS, LLC, one of Pinnacle’s wholly owned subsidiaries (“Pinnacle Tenant”), leases the real property assets from the Company. The obligations of Pinnacle Tenant under the Pinnacle Master Lease are guaranteed by Pinnacle and all subsidiaries of Pinnacle Tenant that operate the facilities leased under the Pinnacle Master Lease, or that own a gaming license, other license or other material asset or permit necessary to operate any portion of the facilities. A default by Pinnacle Tenant with regard to any facility will cause a default with regard to the entire portfolio.

The Pinnacle Master Lease provides for an initial term of 10 years with no purchase option. There are approximately 7.5 years left under the initial term of the Pinnacle Master Lease. At Pinnacle Tenant’s option, the Pinnacle Master Lease may be extended for up to five five-year renewal terms beyond the initial ten-year term, on the same terms and conditions. If Pinnacle Tenant elects to renew the term of the Pinnacle Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Pinnacle Master Lease.

The Pinnacle Master Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, Pinnacle Tenant is required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties, and the business conducted on the leased properties, including coverage of the landlord’s interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the Landlord) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Pinnacle Meadows Lease

The Pinnacle Meadows Lease provides for an initial term of 10 years with no purchase option. There are approximately 8.0 years left under the initial term of the Pinnacle Meadows Lease. At Pinnacle Meadows Tenant’s option, the Pinnacle Meadows Lease may be extended for up to three five-year renewal terms and one four year renewal term beyond the initial ten-year term, on the same terms and conditions.

The Pinnacle Meadows Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, Pinnacle Tenant is required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties, and the business conducted on the leased properties, including



 

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coverage of the landlord’s interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the Landlord) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Boyd Tenant; Boyd Master Lease

Boyd Gaming

Boyd Gaming is a leading geographically diversified operator of gaming entertainment properties and an established gaming provider with strong financial performance. Boyd Gaming is a publicly traded company that is subject to the informational filing requirements of the Exchange Act, and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. These reports are not incorporated by reference into, and do not constitute a part of, this prospectus supplement or the accompanying prospectus.

Boyd Tenant; Boyd Master Lease

BOYD TCIV, LLC, one of Boyd Gaming’s wholly owned subsidiaries (“Boyd Tenant”), will lease the real property assets from us. The obligations of Boyd Tenant under the Boyd Master Lease will be guaranteed by the subsidiaries of Boyd Tenant that operate the facilities leased under the Boyd Master Lease, or that own a gaming license, other license or other material asset or permit necessary to operate any portion of the facilities. A default by Boyd Tenant with regard to any facility will cause a default with regard to the entire portfolio.

The Boyd Master Lease provides for an initial term of approximately 7.5 years. Boyd Tenant does not have a purchase option under the Boyd Master Lease. However, Boyd Tenant has the right to purchase the fee interest in any portion of the leased premises that is subject to a ground lease in the event the Company does not exercise its option to purchase the fee that may be granted to us under such ground lease. At Boyd Tenant’s option, the Boyd Master Lease may be extended for up to five five-year renewal terms beyond the initial term, on the same terms and conditions. If Boyd Tenant elects to renew the term of the Boyd Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the Boyd Master Lease.

The Boyd Master Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, Boyd Tenant is required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties, and the business conducted on the leased properties, including coverage of the landlord’s interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the Landlord) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

ERI Tenant; ERI Master Lease

ERI

ERI is a leading casino entertainment company that owns and operates properties across several states. ERI is a publicly traded company that is subject to the informational filing requirements of the Exchange Act, and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. These reports are not incorporated by reference into, and do not constitute a part of, this prospectus supplement or the accompanying prospectus.

ERI Tenant; ERI Master Lease

Tropicana Entertainment Inc. and Tropicana Atlantic City Corp. (together, the “ERI Tenant”), which will be wholly owned subsidiaries of ERI following the completion of the ERI-Tropicana Merger, will lease the real property assets from us. The obligations of ERI Tenant under the ERI Master Lease will be



 

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guaranteed by ERI and the subsidiaries of the ERI Tenant that operate the facilities leased under the ERI Master Lease, or that own a gaming license, other license or other material asset or permit necessary to operate any portion of the facilities. A default by ERI Tenant with regard to any facility will cause a default with regard to the entire portfolio.

The ERI Master Lease provides for an initial term of 15 years and there is no purchase option except following a final unstayed decision of the New Jersey Casino Control Commission or the New Jersey Division of Gaming Enforcement requiring us to divest our interest in any portion of the leased premises located in New Jersey. At ERI Tenant’s option, the ERI Master Lease may be extended for up to four five-year renewal terms beyond the initial term, on the same terms and conditions. If ERI Tenant elects to renew the term of the ERI Master Lease, the renewal will be effective as to all, but not less than all, of the leased property then subject to the ERI Master Lease.

The ERI Master Lease is commonly known as a triple-net lease. Accordingly, in addition to rent, ERI Tenant is required to pay the following: (1) all facility maintenance, (2) all insurance required in connection with the leased properties, and the business conducted on the leased properties, including coverage of the landlord’s interests, (3) taxes levied on or with respect to the leased properties (other than taxes on the income of the Landlord) and (4) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.

Tax status

We elected on our 2014 U.S. federal income tax return to be treated as a REIT and intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to shareholders. As a REIT, we generally will not be subject to federal income tax on income that we distribute as dividends to our shareholders. If we fail (or have failed) to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our shareholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders and holders of notes. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

Our TRS Properties are able to engage in activities resulting in income that is not qualifying income for a REIT. As a result, certain activities of the Company which occur within our TRS Properties are subject to federal and state income taxes.

Corporate information

Our principal executive offices are located at 845 Berkshire Blvd., Suite 200, Wyomissing, Pennsylvania 19610, and our telephone number is (610) 401-2900. Our website address is www.glpropinc.com. Information found on, or accessible through, our website is not a part of, and is not incorporated into, this prospectus supplement or the accompanying prospectus, and you should not consider it part of this prospectus supplement or the accompanying prospectus. For additional information, see “Where You Can Find More Information” in this prospectus supplement and the accompanying prospectus and “Information Incorporated by Reference” in this prospectus supplement and in the accompanying prospectus.



 

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The Offering

The following is a brief summary of some of the terms of this offering. For a more complete description of the terms of the notes, see the sections entitled “Description of the 2029 Notes” and “Description of the New 2025 Notes” in this prospectus supplement and “Description of Debt Securities” in the accompanying prospectus. In this section, “we”, “our”, and “us” refer only to the Issuers and none of their subsidiaries.

 

Issuers

GLP Capital, L.P. and GLP Financing II, Inc.

 

Securities

$        aggregate principal amount of     % Senior Notes due 2029 and $        aggregate principal amount of 5.250% Senior Notes due 2025.

 

  The new 2025 notes will be treated as a single series with our outstanding $500.0 million aggregate principal amount of 5.250% senior notes due 2025 (the “initial 2025 notes”) for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, and will have substantially identical terms and conditions as those of the initial 2025 notes (other than issue date and issue price). Upon the consummation of this offering, the aggregate outstanding principal amount of our 5.250% senior notes due 2025 will be $        . Further, the new 2025 notes are expected to have the same CUSIP number as, and to be fungible for trading purposes with, the initial 2025 notes.

 

Maturity

The 2029 notes will mature on                 , 2029. The new 2025 notes will mature on June 1, 2025.

 

Interest Rate

Interest on the 2029 notes will be payable in cash and will accrue at a rate of     % per annum. Interest on the new 2025 notes will be payable in cash and will accrue at a rate of 5.250% per annum.

 

Interest Payment Dates

We will pay interest on the 2029 notes semi-annually in arrears on                  and                 of each year, commencing                     , 2019. Interest on the 2029 notes will accrue from                     , 2018. We will pay interest on the new 2025 notes semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2018. Interest on the new 2025 notes will be deemed to accrue from May 21, 2018, the date that the initial 2025 notes were issued.

 

Guarantees

The notes will be guaranteed on a senior unsecured basis by GLPI. The notes will not be guaranteed by any of our subsidiaries; provided that, in the event that $100 million principal amount or more of certain of our existing or future debt securities are guaranteed or co-issued by any of the Operating Partnership’s subsidiaries (other than Capital Corp.), such subsidiaries will be required to guarantee the notes.

 

Ranking

The notes and GLPI’s guarantee of the notes will be our and GLPI’s general senior unsecured obligations and will:

 

   

rank equally in right of payment with all of our and GLPI’s existing and future senior unsecured indebtedness, including



 

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our existing senior unsecured notes and Credit Facility and GLPI’s guarantees thereof;

 

   

rank senior in right of payment to all of our and GLPI’s future subordinated indebtedness;

 

   

be effectively subordinated to all of our and GLPI’s future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and

 

   

be structurally subordinated to all indebtedness and other liabilities of any of GLPI’s subsidiaries that is not an Issuer.

 

  Unless and until our subsidiaries become guarantors of the notes, creditors of our subsidiaries and holders of any of our debt that is guaranteed by any of our subsidiaries will have a prior claim, ahead of the notes, on all of such subsidiaries’ assets. Our subsidiaries had approximately $50.5 million of liabilities (excluding intercompany liabilities) as of June 30, 2018.

 

  As of June 30, 2018, after giving pro forma effect to the Transactions, GLPI and its subsidiaries on a consolidated basis would have had approximately $                 of long-term indebtedness, net of unamortized issuance costs, including $                 representing the notes offered hereby, approximately $3.9 billion in existing senior unsecured notes, approximately $525 million outstanding under Term Loan A-1 and approximately $         million outstanding under the Revolver. As of June 30, 2018, on a pro forma basis after giving effect to the Transactions, we would have had $         million available for borrowing under our Revolver (including $0.4 million of contingent obligations under letters of credit).

 

Optional Redemption

The Issuers may redeem all or part of either series of notes at any time at their option at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium, as described under the section entitled “Description of the 2029 Notes — Redemption — Optional Redemption” and “Description of the New 2025 Notes — Redemption — Optional Redemption.”

 

Special Mandatory Redemption

If (i) the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith) are not completed on or prior to the Outside Date or (ii) prior to the Outside Date, we notify the trustee in writing that the Tropicana Merger Agreement has been terminated or that we will not pursue the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith) (each, a “Special Mandatory Redemption Trigger”), the 2029 notes will be subject to a special



 

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mandatory redemption no later than 30 calendar days following the date we deliver the notice of redemption (the “Special Mandatory Redemption Date”), at a redemption price equal to 101% of the aggregate issue price of the 2029 notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption. The form and terms of the Tropicana Transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith without the consent of the holders of the notes offered hereby and any such modification or amendment would not constitute a Special Mandatory Redemption Trigger.

 

  The 2025 notes are not subject to a special mandatory redemption and will remain outstanding. See “Description of the 2029 Notes — Redemption — Special Mandatory Redemption of 2029 Notes” and “Use of Proceeds.”

 

Redemption Based upon Gaming Laws

The notes will be subject to redemption requirements imposed by gaming laws and regulations of gaming authorities in jurisdictions in which we conduct gaming operations. See “Description of the 2029 Notes — Redemption — Gaming Redemption” and “Description of the New 2025 Notes — Redemption — Gaming Redemption.”

 

Change of Control Offer

If we experience a change of control accompanied by a decline in the ratings (to or within a below investment grade rating) of a series of the notes offered hereby, we must give holders of such series of notes the opportunity to sell us their notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the repurchase date. See “Description of the 2029 Notes — Repurchase at the Option of Holders — Change of Control and Rating Decline” and “Description of the New 2025 Notes — Repurchase at the Option of Holders — Change of Control and Rating Decline.”

 

Certain Indenture Provisions

The indenture governing the notes will contain covenants limiting, among other things:

 

   

the ability of the Issuers and their subsidiaries to incur additional indebtedness and use their assets to secure indebtedness;

 

   

the ability of the Issuers to amend or terminate the Penn Master Lease; and

 

   

the ability of the Issuers to merge, consolidate or transfer all or substantially all of our and our subsidiaries’ assets, taken as a whole.

 

  These covenants are subject to a number of important and significant limitations, qualifications and exceptions. See “Description of the 2029 Notes — Certain Covenants” and “Description of the New 2025 Notes — Certain Covenants.”


 

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No Prior Market

The new 2025 notes offered hereby will become part of the same series as our outstanding initial 2025 notes, $500.0 million aggregate principal amount of which were originally issued on May 21, 2018, for all purposes. The 2029 notes will be new securities for which there is currently no market. Although certain of the underwriters have informed us that they intend to make a market in the notes, they are not obligated to do so, and they may discontinue market making activities at any time without notice. Accordingly, we cannot assure you that a liquid market for the notes will develop or be maintained.

 

Use of Proceeds

We estimate that the net proceeds from this offering, after deducting underwriting discounts, the structuring fee and our estimated expenses, will be approximately $                 million (assuming the notes will be issued at par and not including interest deemed to have accrued on the new 2025 notes to the closing date of this offering to be paid by purchasers of the new 2025 notes offered hereby).

 

  We intend to use the net proceeds from this offering, together with $         million in borrowings under our Revolver, to finance the closing of the Acquisition Transactions and to pay the estimated transaction fees and expenses associated with the foregoing.

 

  If we do not consummate the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith), we will redeem the 2029 notes at a redemption price equal to 101% of the aggregate issue price of all of the 2029 notes pursuant to a special mandatory redemption, and we intend to use the remaining net proceeds from this offering, together with cash on hand and/or borrowings under the Revolver, to finance the Plainridge Park/Belterra Transactions or, if the Plainridge Park/Belterra Transactions are not consummated, we intend to use the remaining net proceeds from this offering for general corporate purposes.

 

  If we complete the Tropicana Transactions, but do not complete the Plainridge Park/Belterra Transactions, we intend to use any net proceeds from this offering not applied to the financing of the Tropicana Transactions for general corporate purposes. See “Overview of the proposed Acquisition Transactions” and “Use of Proceeds.”

 

  For a discussion of the pro forma application of the net proceeds from this offering, cash on hand and borrowings under our Revolver in connection with the Transactions as of June 30, 2018, see “Unaudited Pro Forma Consolidated Combined Financial Statements.”


 

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Risk Factors

In analyzing an investment in the notes being offered pursuant to this prospectus supplement, you should carefully consider, along with other matters included or incorporated by reference in this prospectus supplement or the accompanying prospectus, the information set forth under the section entitled “Risk Factors” beginning on page S-21 of this prospectus supplement and in our 2017 10-K and our 2018 10-Qs.


 

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Summary Historical Consolidated and Summary Unaudited Pro Forma Consolidated Combined Financial Information

The following summary historical consolidated financial and operating data for the three-year period ended December 31, 2017, and the summary historical consolidated balance sheet data as of the years ended December 31, 2017 and 2016 have been derived from, and should be read together with, our audited consolidated financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included in our 2017 10-K, which is incorporated by reference into this prospectus supplement. See “Information Incorporated by Reference” in this prospectus supplement.

The summary historical consolidated financial information for each of the six-month periods ended June 30, 2018 and 2017, and the balance sheet data as of June 30, 2018 have been derived from, and should be read together with, our unaudited consolidated financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each of which is included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is incorporated by reference into this prospectus supplement. In our view, the unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information for the interim periods. Interim results for the six months ended and as of June 30, 2018 are not necessarily indicative of, and are not projections for, the results to be expected for any future period, including the fiscal year ending December 31, 2018 or any subsequent interim period.

The following summary unaudited pro forma consolidated combined financial information as of and for the periods presented in the tables below have been derived from, and should be read together with, our unaudited pro forma consolidated combined financial statements and related notes included in the section entitled “Unaudited Pro Forma Consolidated Combined Financial Statements” in this prospectus supplement. The summary unaudited pro forma consolidated combined financial information is provided for informational purposes only and does not purport to represent what our actual consolidated results of operations or consolidated financial position would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position. Future results may vary significantly from the results reflected because of various factors, including those discussed in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” We therefore caution you not to place undue reliance on the summary unaudited pro forma consolidated combined financial information.



 

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The pro forma financial statements have been prepared using the acquisition method of accounting using the accounting guidance for asset acquisitions in ASC 805. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing pro forma financial statements, and are subject to revision based on a final determination of fair value as of the respective dates of the Acquisition Transactions. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the unaudited pro forma consolidated combined financial statements and related notes, the summary unaudited pro forma consolidated combined financial information below and the combined company’s future results of operations and financial position.

 

    Historical     Pro Forma  
    For the Years Ended
December 31,
    For the Six
Months Ended
June 30,
    For the
Year Ended
December 30,
    For the Six
Months Ended
June 30,
 
    2017     2016     2015     2018     2017     2017     2018  
    (in thousands)  

Income Statement Data:

             

Total revenues

  $ 971,307     $ 828,255     $ 575,053     $ 498,271     $ 486,104     $ 1,176,263     $ 600,886  

Total operating expenses

    365,789       347,632       317,638       193,179       183,402       509,143       264,933  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    605,518       480,623       257,415       305,092       302,702       667,120       335,953  

Total other expenses

    215,133       183,773       121,851       113,224       107,655       293,311       152,314  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    390,385       296,850       135,564       191,868       195,047       373,809       183,639  

Income tax expense

    9,787       7,545       7,442       3,098       4,722       9,787       3,098  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 380,598     $ 289,305     $ 128,122     $ 188,770     $ 190,325     $ 364,022     $ 180,541  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

  $ 1.80     $ 1.62     $ 1.12     $ 0.88     $ 0.91     $ 1.72     $ 0.84  

Diluted earnings per common share

  $ 1.79     $ 1.60     $ 1.08     $ 0.88     $ 0.90     $ 1.71     $ 0.84  

Other Operating Data:

             

FFO(1)

  $ 481,704     $ 384,924     $ 223,818     $ 238,744     $ 240,430     $ 581,529     $ 288,716  

AFFO(1)

  $ 669,490     $ 542,120     $ 321,789     $ 337,936     $ 333,624     $ 748,603     $ 377,492  

Adjusted EBITDA(1)

  $ 884,562     $ 721,403     $ 440,019     $ 446,473     $ 441,215     $ 1,040,479     $ 524,432  

 

     Historical      Pro Forma  
     As of December 31,      As of
June 30,
     As of
June 30,
 
     2017      2016      2018      2018  
     (in thousands)  

Balance Sheet Data:

           

Cash and cash equivalents

   $ 29,054      $ 36,556      $ 144,472      $  

Real estate investments, net

     3,662,045        3,739,091        3,612,095        7,414,568  

Investment in direct financing lease, net

     2,637,639        2,710,711        2,608,400         

Total assets

     7,246,882        7,369,330        7,288,560        8,696,058  

Long-term debt, net of unamortized debt issuance costs

     4,442,880        4,664,965        4,506,744        5,914,242  

Shareholders’ equity

     2,458,247        2,433,869        2,378,768        2,378,768  

 

(1)

For a discussion of and definitions for FFO, AFFO and Adjusted EBITDA, see “Presentation of Non-GAAP Financial Information.”



 

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The reconciliation of our net income to FFO, AFFO and Adjusted EBITDA for the periods presented is as follows:

 

    Historical     Pro Forma  
    For the Years Ended
December 31,
    For the Six
Months Ended
June 30,
    For the
Year Ended
December 30,
    For the Six
Months Ended
June 30,
 
    2017     2016     2015     2018     2017     2017     2018  
    (in thousands)  

Net income

  $ 380,598     $ 289,305     $ 128,122     $ 188,770     $ 190,325     $ 364,022     $ 180,541  

Losses (gains) from dispositions of property

    530       (455     185       225       94       530       225  

Real estate depreciation

    100,576       96,074       95,511       49,749       50,011       216,977       107,950  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

  $ 481,704     $ 384,924     $ 223,818     $ 238,744     $ 240,430     $ 581,529     $ 288,716  

Straight-line rent adjustments

    65,971       58,673       55,825       33,233       32,738       115,509       50,645  

Direct financing lease adjustments(a)

    73,072       48,533             29,239       35,845              

Other depreciation

    12,904       13,480       14,272       5,728       6,669       12,904       5,728  

Amortization of land rights(b)

    10,355       6,163             5,455       4,900       11,803       6,179  

Amortization of debt issuance costs(c)

    13,026       15,146       14,016       6,296       6,513       14,400       6,983  

Stock based compensation

    15,636       18,312       16,811       4,603       8,256       15,636       4,603  

Losses on debt extinguishment

                      3,473                   3,473  

Retirement costs

                      13,149                   13,149  

Maintenance CAPEX

    (3,178     (3,111     (2,953     (1,984     (1,727     (3,178     (1,984
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted funds from operations

  $ 669,490     $ 542,120     $ 321,789     $ 337,936     $ 333,624     $ 748,603     $ 377,492  

Interest, net

    215,133       183,773       121,851       109,751       107,655       293,311       148,841  

Income tax expense

    9,787       7,545       7,442       3,098       4,722       9,787       3,098  

Maintenance CAPEX

    3,178       3,111       2,953       1,984       1,727       3,178       1,984  

Amortization of debt issuance costs(c)

    (13,026     (15,146     (14,016     (6,296     (6,513     (14,400     (6,983
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 884,562     $ 721,403     $ 440,019     $ 446,473     $ 441,215     $ 1,040,479     $ 524,432  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

Represents cash rental payments received from tenants and applied against the direct financing lease receivable on our balance sheet under ASC 840.

 

(b)

Such amortization represents a non-cash expense related to our below market ground leases.

 

(c)

Such amortization is a non-cash component included in interest, net.



 

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RISK FACTORS

An investment in the notes involves risk. In addition to the other information included in, or incorporated by reference into, this prospectus supplement, you should carefully consider the risk factors incorporated by reference in this prospectus supplement and the accompanying prospectus from our 2017 10-K and our 2018 10-Qs, as well as the risks, uncertainties and additional information set forth in our 2017 10-K and our 2018 10-Qs generally and in other documents we file with the SEC that are incorporated by reference in this prospectus supplement and the accompanying prospectus, when determining whether or not to purchase the notes offered under this prospectus supplement. See the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” in this prospectus supplement and the accompanying prospectus. The risks and uncertainties we discuss in this prospectus supplement, the accompanying prospectus and in the documents incorporated by reference in this prospectus supplement are those that we currently believe may materially affect our company. Additional risks not presently known or that are currently deemed immaterial could also materially and adversely affect our financial condition, results of operations, business and prospects. You may lose all or a part of your investment.

Risks Related to this Offering and the Notes

We have a material amount of indebtedness that involves debt service obligations, exposes us to interest rate fluctuations and exposes us to the risk of default under our debt obligations.

We have a material amount of indebtedness and debt service requirements. As of June 30, 2018, as adjusted to give effect to the Transactions, we would have had approximately $5.9 billion in long-term indebtedness, net of unamortized debt issuance costs, consisting of:

 

   

approximately $         of total indebtedness outstanding under our Credit Facility, and approximately $         million available for borrowing under our Revolver (including $0.4 million of contingent obligations under letters of credit);

 

   

$         of outstanding senior unsecured notes; and

 

   

approximately $1.2 million of capital lease obligation related to certain assets.

Our material indebtedness could have important consequences to you, including the following:

 

   

it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, acquisitions, debt service requirements and general corporate or other purposes;

 

   

a material portion of our cash flows will be dedicated to the payment of principal and interest on our indebtedness, including indebtedness we may incur in the future, and will not be available for other purposes, including to make acquisitions;

 

   

it could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and place us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged;

 

   

it could make us more vulnerable to downturns in general economic or industry conditions or in our business, or prevent us from carrying out activities that are important to our growth;

 

   

it could increase our interest expense if interest rates in general increase because our indebtedness under the Credit Facility bears interest at floating rates;

 

   

it could limit our ability to take advantage of strategic business opportunities; and

 

   

it could make it more difficult for us to satisfy our obligations with respect to our indebtedness, including under the notes, and any failure to comply with the obligations of any of our debt instruments, including any financial and other restrictive covenants, could result in an event of default under the indenture governing the notes or under the agreements governing our other

 

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indebtedness which, if not cured or waived, could result in the acceleration of our indebtedness under the Credit Facility, under the existing senior unsecured notes and under the notes.

We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our Credit Facility or from other debt financing, in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets or seeking to raise additional capital, including by issuing equity securities or securities convertible into equity securities. Our ability to restructure or refinance our indebtedness will depend on the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. Our inability to generate sufficient cash flow to satisfy our debt service requirements or to refinance our obligations on commercially reasonable terms would have an adverse effect, which could be material, on our business, financial position and results of operations. To the extent that we will incur additional indebtedness or such other obligations, the risks associated with our leverage, including our possible inability to service our debt, would increase.

Our indebtedness imposes restrictive covenants on us that could limit our operations and lead to events of default if we do not comply.

The Credit Facility requires us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value, a minimum fixed charge coverage ratio and a minimum tangible net worth covenant. In addition, the Credit Facility restricts, among other things, our ability to grant liens on our assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and pay dividends and other restricted payments.

Further, the indenture governing our existing senior unsecured notes restricts and the indenture relating to the notes will restrict, among other things, the Issuers’ and their subsidiaries’ ability to incur additional indebtedness and use their respective assets to secure indebtedness, our ability to amend or terminate the Penn Master Lease, and our ability to consummate a merger, consolidation or transfer of all or substantially all of our and our subsidiaries’ assets, taken as a whole. A failure to comply with the restrictions contained in the Credit Facility, the indenture governing our existing senior unsecured notes or the indenture governing the notes offered hereby could lead to an event of default thereunder, which could result in an acceleration of such indebtedness and an event of default under our other debt.

To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Credit Facility in amounts sufficient to enable us to fund our liquidity needs, including with respect to the notes and our other indebtedness. In addition, if we consummate significant acquisitions in the future, our cash requirements may increase significantly. As we are required to, or expected to be required to, satisfy amortization requirements as other debt matures, we may also need to raise funds to refinance all or a portion of our debt. We cannot assure you that we will be able to refinance any of our debt, including our Credit Facility or our existing senior unsecured notes, on attractive terms, on commercially reasonable terms or at all. Our future operating performance and our ability to service or refinance the notes and to service, extend or refinance our other debt, including our Credit Facility and our existing senior unsecured notes, will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

 

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The notes are unsecured. Therefore, our future secured creditors, if any, would have a priority claim, ahead of the notes, on our assets.

The notes are unsecured. As a result, upon any distribution to our creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our property, the holders of our future secured debt, if any, will be entitled to be paid in full from our assets securing that secured debt before any payment may be made with respect to the notes. In addition, if we fail to meet our payment or other obligations under any such secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on the notes. As a result you may lose a portion of or the entire value of your investment in the notes. As of June 30, 2018 and on a pro forma basis for the Transactions, GLPI and the Issuers (not including any of their subsidiaries) would have had no secured debt outstanding.

Because the notes are not guaranteed by any of our subsidiaries, the creditors of our subsidiaries have a priority claim, ahead of the notes, on all of our subsidiaries’ assets.

We have no material direct operations and no material assets other than ownership of the stock of our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations, including payments of principal and interest on the notes.

Unless and until our subsidiaries become guarantors of the notes, creditors of our subsidiaries (including potentially lenders under our Credit Facility, as certain of our subsidiaries may in the future elect to guarantee our Credit Facility without triggering a guarantee obligation with respect to the notes) and holders of any of our debt that is guaranteed by any of our subsidiaries will have a prior claim, ahead of the notes, on all of such subsidiaries’ assets. In addition, our subsidiaries have no obligation, contingent or otherwise, to pay amounts due under the notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments. In the event of a bankruptcy, liquidation, reorganization or other winding up of any of our subsidiaries, holders of indebtedness and trade creditors of our subsidiaries will generally be entitled to payment of their claims from the assets of our subsidiaries before any assets are made available for distribution to us. Accordingly, there may be insufficient funds to satisfy claims of noteholders. Our subsidiaries had approximately $50.5 million of liabilities (excluding intercompany liabilities) as of June 30, 2018.

Legal and contractual restrictions in agreements governing current and future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may further limit our ability to obtain cash from our subsidiaries. In addition, the earnings of our subsidiaries, covenants contained in our and our subsidiaries’ debt agreements (including the Credit Facility, the indenture governing the existing senior unsecured notes and the indenture governing the notes offered hereby), covenants contained in other agreements to which we or our subsidiaries are or may become subject, business and tax considerations, and applicable law, including laws regarding the payment of dividends and distributions, may further restrict the ability of our subsidiaries to make distributions to us. We cannot assure you that our subsidiaries will be able to provide us with sufficient dividends, distributions or loans to fund the interest and principal payments on the notes when due.

GLPI has no material assets other than its investment in the Operating Partnership.

GLPI will fully and unconditionally guarantee all payments due on the notes. However, GLPI has no material assets other than its investment in the Operating Partnership. GLPI’s guarantee of the notes will rank equally in right of payment with all of GLPI’s senior unsecured indebtedness, including GLPI’s guarantee of our Credit Facility and our existing senior unsecured notes, will rank senior in right of payment to all of GLPI’s subordinated indebtedness, and will be effectively subordinated to all of GLPI’s secured indebtedness to the extent of the value of the collateral securing such indebtedness. Furthermore, GLPI’s guarantee of the notes will be structurally subordinated to all existing and future liabilities and

 

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preferred equity of its subsidiaries that are not Issuers of the notes. The liabilities of our subsidiaries currently consist primarily of payables, deferred taxes, intercompany debt and other ordinary course liabilities. As a result, the guarantee by GLPI provides little, if any, additional credit support for the notes.

GLPI is not subject to most of the covenants in the indenture.

GLPI will guarantee the notes, but is not directly subject to most of the covenants in the indenture governing the notes. For example, the indenture does not restrict the ability of GLPI to incur additional debt (secured or unsecured). Transactions undertaken by GLPI could have a material adverse effect on the ability of GLPI to make payments in respect of its guarantee of the notes.

We may not have the ability to raise the funds necessary to finance a change of control offer required by the indenture relating to the notes or the terms of our other indebtedness. In addition, under certain circumstances, we may be permitted to use the proceeds from debt to effect merger payments in compliance with the indenture.

Upon the occurrence of certain change of control transactions, a default could occur in respect of our Credit Facility, and when such change of control transaction is accompanied by a decline in the rating of the notes, we may be required to make an offer to purchase all outstanding notes and all of our existing senior unsecured notes at purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. If such a change of control triggering event were to occur, we cannot assure you that we would have sufficient funds to pay the purchase price for all the notes and existing senior unsecured notes tendered. See “Description of the 2029 Notes — Re purchase at the Option of Holders — Change of Control and Rating Decline” and “Description of the New 2025 Notes — Repurchase at the Option of Holders — Change of Control and Rating Decline.”

The Credit Facility contains, and any future agreements relating to indebtedness to which we become a party may contain, provisions restricting our ability to purchase notes (upon a change of control coupled with a ratings decline) or providing that an occurrence of a change of control constitutes an event of default, or otherwise requiring payment of amounts borrowed under those agreements. If such a change of control triggering event occurs at a time when we are prohibited from purchasing the notes, we could seek the consent of our then existing lenders and other creditors to the purchase of the notes or could attempt to refinance the indebtedness that contains the prohibition. If we do not obtain such consent or repay such indebtedness, we would remain prohibited from purchasing the notes. In that case, our failure to purchase tendered notes would constitute a default under the terms of the indenture governing the notes and any other indebtedness that we may enter into from time to time with similar provisions.

You may be required to sell your notes if any gaming authority finds you unsuitable to hold them or otherwise requires us to redeem or repurchase the notes from you.

In the event that any of the applicable regulatory agencies or authorities requires a holder (including a beneficial holder) of the notes to be licensed, qualified or found suitable under the applicable gaming or racing laws, and such holder fails to apply for a license, qualification or finding of suitability within 30 days after being requested to do so or if such holder is denied such license or qualification or is not found suitable or if any of the applicable regulatory agencies or authorities otherwise require that the notes held by such holder be redeemed, we will have the right, at our option, to redeem or require such holder to dispose of such holder’s notes. See “Description of the 2029 Notes — Redemption — Gaming Redemption” and “Description of the New 2025 Notes — Redemption — Gaming Redemption.”

Illiquidity and an absence of a public market for the notes could cause purchasers of the notes to be unable to resell the notes.

The 2029 notes constitute a new issue of securities for which there is no established trading market. Although the new 2025 notes will become part of the same series as the initial 2025 notes ($500.0 million

 

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aggregate principal amount of which are outstanding prior to giving effect to the $        aggregate principal amount of the new 2025 notes offered hereby), we cannot assure you that there will be an active trading market for the new 2025 notes. We do not intend to apply for listing of the notes on any securities exchange or for quotation of the notes on any automated dealer quotation system. An active trading market for the notes may not develop or, if such market develops, it could be very illiquid. We have been informed by certain of the underwriters that they intend to make a market in the notes after the offering is completed. However, they are not obligated to do so and may cease their market-making at any time without notice. Accordingly, we cannot assure you that a liquid market for the notes will develop or be maintained.

Holders of the notes may experience difficulty in reselling, or an inability to sell, the notes. If no active trading market develops, the market price and liquidity of the notes may be adversely affected, and you may not be able to resell your notes at their fair market value, at the initial offering price or at all. If a market for the notes develops, any such market may be discontinued at any time. If a trading market develops for the notes, future trading prices of the notes will depend on many factors, including, among other things, prevailing interest rates, our operating results, liquidity of the issue, the market for similar securities and other factors, including our financial condition and prospects and the financial condition and prospects for companies in our industry.

Changes in our credit rating could adversely affect the market price or liquidity of the notes.

Credit rating agencies continually revise their ratings for the companies that they follow, including us. The credit rating agencies also evaluate our industry as a whole and may change their credit ratings for us based on their overall view of our industry. We cannot be sure that credit rating agencies will maintain their ratings on the notes. A negative change in our ratings could have an adverse effect on the price of the notes.

Under certain conditions, we will be required to redeem the 2029 notes. If we are required to redeem the 2029 notes, you may not obtain your expected return on the notes.

The completion of this offering is not contingent upon the consummation of the Acquisition Transactions. However, if (i) the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith) are not completed on or prior to the Outside Date or (ii) prior to the Outside Date, we notify the trustee in writing that the Tropicana Merger Agreement has been terminated or that we will not pursue the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith), then we will be required to redeem the 2029 notes at a redemption price equal to 101% of the aggregate issue price of the 2029 notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. See “Description of the 2029 Notes — Redemption — Special Mandatory Redemption of 2029 Notes.” If your 2029 notes are redeemed, you may not obtain your total expected return on the 2029 notes and may not be able to reinvest the proceeds from a special mandatory redemption in an investment that results in a comparable return. Your decision to invest in the 2029 notes is made at the time of the offering of the 2029 notes. Changes in our business or financial condition between the closing of this offering and the closing of the Tropicana Transactions, or changes to the terms of the Tropicana Transactions, will have no effect on your rights as a purchaser of the 2029 notes. Additionally, you may suffer a loss on your investment if you purchase notes at a price greater than the issue price of the 2029 notes.

The new 2025 notes are not subject to a special mandatory redemption and will remain outstanding even if the Tropicana Transactions are not consummated at any time.

 

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We are not obligated to place the net proceeds of the offering of the notes in escrow prior to the closing of the Acquisition Transactions and, as a result, we may not be able to repurchase the 2029 notes upon a special mandatory redemption.

We are not obligated to place the proceeds of this offering of notes in escrow prior to the closing of the Acquisition Transactions or to provide a security interest in those proceeds, and the indenture governing the notes offered hereby imposes no other restrictions on our use of the proceeds during that time. Accordingly, the source of funds for a special mandatory redemption of the 2029 notes would be the proceeds that we have voluntarily retained or other sources of liquidity, including available cash, or borrowings under our Revolver. We may not be able to satisfy our obligation to redeem the 2029 notes upon a special mandatory redemption because we may not have sufficient financial resources to pay the aggregate redemption price on the 2029 notes. Our failure to redeem or repurchase the 2029 notes as required by the indenture governing the 2029 notes offered hereby would result in a default under such indenture, which could result in defaults under our other debt agreements and have material adverse consequences for us and the holders of the notes. In addition, our ability to redeem or repurchase the notes for cash may be limited by law or the terms of other agreements relating to our indebtedness outstanding at the time.

Federal and state statutes allow courts, under specific circumstances, to void the notes, the guarantees and certain other transfers, to require holders of the notes to return payments or other value received from us or GLPI (as guarantor) and to otherwise cancel transfers, and to take other actions detrimental to the holders of the notes.

Our creditors or the creditors of GLPI could challenge the issuance of the notes or GLPI’s issuance of its guarantee as fraudulent conveyances or on other grounds. Under the U.S. federal bankruptcy law and similar provisions of state fraudulent transfer and conveyance laws, the issuance of the notes or the delivery of the guarantees could be voided if a court determined that we, at the time we issued the notes, or GLPI, at the time it delivered the guarantee (in some jurisdictions, a court may focus on when payment became due under the notes or a guarantee):

 

   

issued the notes or provided the guarantee, as the case may be, with the intent of hindering, delaying or defrauding any present or future creditor; or

 

   

received less than reasonably equivalent value or fair consideration for issuing the notes or providing such guarantee, as the case may be, and (1) was insolvent or rendered insolvent by reason of such incurrence, (2) was engaged in a business or transaction for which our or such guarantor’s remaining assets constituted unreasonably small capital, or (3) intended to incur, or believed that it would incur, debts beyond our or such guarantor’s ability to pay such debts as they matured.

A court would likely find that we or GLPI did not receive reasonably equivalent value or fair consideration for the notes or the guarantees if we or GLPI did not substantially benefit directly or indirectly from the notes issuance. If the notes or guarantees were voided or limited as a fraudulent conveyance, holders of the notes would cease to be our creditors or creditors of GLPI, would likely have no source from which to recover amounts due under the notes and any claim you may make against us or GLPI for amounts payable on the notes or guarantees would be unenforceable to the extent of such voidance or limitation. Under certain circumstances, a court might direct you to repay amounts received on account of the notes or the guarantees or otherwise take actions detrimental to the holders of the notes on equitable or other grounds.

The test for determining solvency for purposes of these fraudulent transfer laws will vary depending on the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, a court would consider the issuer or a guarantor insolvent if:

 

   

the sum of its debts, including contingent and unliquidated liabilities, was greater than the value of its property, at a fair valuation;

 

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the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its debts as they become due.

The indenture governing the notes offered hereby contains a “savings clause” intended to limit GLPI’s liability under its guarantee to the maximum amount without causing the incurrence of obligations under its guarantee to be a fraudulent transfer under applicable law. This provision, however, may not be effective to protect the guarantees from being voided under applicable fraudulent transfer laws. In certain bankruptcy court cases, such clause was found to be ineffective to protect the guarantee.

The unaudited pro forma consolidated combined financial information contained in this prospectus supplement may not be representative of our results of operations or financial condition as a combined company.

The unaudited pro forma consolidated combined financial information contained in this prospectus supplement is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Transactions been completed as of the dates indicated, nor is it indicative of our future operating results or financial position. The unaudited pro forma consolidated combined financial information does not reflect future non-recurring charges resulting from the Transactions. The unaudited pro forma consolidated combined financial information does not reflect events that have occurred or may occur after the consummation of the Transactions, including the potential incurrence of costs related to the planned integration, and does not consider potential negative impacts of market conditions on revenues or expenses. Such actual events may have a material adverse impact on our business, financial condition and cash flows, our ability to make payments on the notes and investor confidence, which in turn could have an adverse effect on the price of the notes and our ability to make payments on the notes.

Risks Related to Tax and Regulatory Matters

Comprehensive tax reform legislation could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law legislation known as the “Tax Cuts and Jobs Act” (“TCJA”) that significantly reforms the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards and allows for the expensing of capital expenditures. We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform is uncertain and could be adverse to us and/or our stockholders.

Transactions involving gaming assets are heavily regulated by local gaming, racing and other regulatory authorities and required regulatory approvals can delay or prohibit transactions, including some or all of the Acquisition Transactions.

The ownership, operation, financing and transfer of gaming and racing facilities are subject to extensive regulation. The operators of our gaming properties must be licensed under applicable state law and, prior to the transfer of gaming and/or racing facilities, including a controlling interest, the new owner or operator generally must become licensed under state law. In addition, many gaming and racing regulatory agencies in the jurisdictions in which our tenants operate require GLPI, its affiliates and certain officers and directors to maintain licenses as a key business entity, supplier or key person because of GLPI’s status as landlord. Some jurisdictions may also limit the number of gaming licenses in which a person may hold an ownership or a controlling interest. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.

 

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We cannot assure you that final regulatory approval will be received for each of the Acquisition Transactions on the terms described in this prospectus supplement or at all.

Moreover, it is possible that gaming regulators may in the future object to our acquisition of, or investment in, additional properties, citing concentration concerns or otherwise. Any limitation on our inability to continue to acquire or invest in additional gaming assets in our chosen markets may have a material adverse impact on our business, financial condition and cash flows, which in turn could have an adverse effect on the price of the notes and our ability to make payments on the notes.

Risks Related to the Penn Spin-Off and Acquisition of Pinnacle’s Gaming Properties

Pursuant to certain tax matters agreements entered into in connection with the Penn Spin-Off and our acquisition of Pinnacle’s gaming properties, we could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify Penn and/or Pinnacle for material taxes.

In connection with the Penn Spin-Off, we entered into a tax matters agreement with our former parent Penn pursuant to which we agreed to be responsible for certain liabilities and obligations following the Penn Spin-Off. In general, under the terms of the tax matters agreement, in the event the Penn Spin-Off were to fail to qualify for tax deferred treatment under Sections 355 and 368(a)(l)(D) of the Code (including as a result of Section 355(e) of the Code) and if such failure were the result of actions taken after the Penn Spin-Off by us or Penn, the party responsible for such failure will be responsible for all taxes imposed on Penn to the extent such taxes result from such actions. However, if such failure was the result of any acquisition of our shares or assets or any of our representations or undertakings being incorrect or breached, we will be responsible for all taxes imposed on Penn as a result of such acquisition or breach. Our indemnification obligations to Penn and its subsidiaries, officers and directors will not be limited in amount or subject to any cap. If we are required to indemnify Penn and its subsidiaries and their respective officers and directors under the circumstances set forth in the tax matters agreement, we may be subject to substantial liabilities.

We entered into a tax matters agreement with Pinnacle and the Operating Partnership in connection with our acquisition of Pinnacle’s gaming properties (the “Pinnacle Transaction”). Pursuant to the tax matters agreement, the Operating Partnership will generally be liable for taxes of Pinnacle relating to time periods before the effective time of the Pinnacle Transaction. We, however, will be liable for taxes of Pinnacle arising as a result of the Pinnacle Transaction, the taxable spin-off and certain related transactions. Our liability in this regard will be limited by certain assumptions relating to Pinnacle’s tax attributes and projected taxable income, with Pinnacle bearing liability to the extent additional taxes may result from an inaccuracy in such assumptions. We have agreed to share liability with Pinnacle for certain taxes relating to the assets we acquired. We will bear liability for any transfer taxes incurred on the Pinnacle Transaction, the taxable spin-off and certain related transactions.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering, after deducting underwriting discounts, the structuring fee and our estimated expenses, will be approximately $         million (assuming the notes will be issued at par and not including interest deemed to have accrued on the new 2025 notes to the closing date of this offering to be paid by purchasers of the new 2025 notes offered hereby).

We intend to use the net proceeds from this offering, together with $         million in borrowings under our Revolver, to finance the closing of the Acquisition Transactions and to pay the estimated transaction fees and expenses associated with the foregoing. This offering is not conditioned upon the closing of either of the Plainridge Park/Belterra Transactions or the Tropicana Transactions.

If (i) the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith) are not completed on or prior to the Outside Date or (ii) prior to the Outside Date, we notify the trustee in writing that the Tropicana Merger Agreement has been terminated or that we will not pursue the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith), we will use a portion of the net proceeds from this offering to redeem all of the 2029 notes at a redemption price equal to 101% of the aggregate issue price of the 2029 notes, plus accrued and unpaid interest, if any, to, but not including the date of redemption, as described under “Description of the 2029 Notes — Redemption — Special Mandatory Redemption of the 2029 Notes.” The form and terms of the Tropicana Transactions may be modified or amended in a manner not materially adverse to holders of the 2029 notes as reasonably determined by us in good faith without the consent of the holders of the notes offered hereby and any such modification or amendment would not constitute a Special Mandatory Redemption Trigger.

The new 2025 notes are not subject to a special mandatory redemption. If we use a portion of the net proceeds from this offering to redeem the 2029 notes, the new 2025 notes will remain outstanding and we intend to use the remaining net proceeds from this offering, together with cash on hand and/or borrowings under the Revolver to finance the Plainridge Park/Belterra Transactions or, if the Plainridge Park/Belterra Transactions are not consummated, we intend to use the remaining net proceeds from this offering for general corporate purposes. If we complete the Tropicana Transactions, but do not complete the Plainridge Park/Belterra Transactions, we intend to use any net proceeds from this offering not applied to the financing of the Tropicana Transactions for general corporate purposes.

For a discussion of the pro forma application of the net proceeds from this offering, cash on hand and borrowings under our Revolver in connection with the Transactions as of June 30, 2018, see “Unaudited Pro Forma Consolidated Combined Financial Statements.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2018:

 

   

on an actual basis; and

 

   

on a pro forma basis to give effect to the Transactions.

You should read this table in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited consolidated financial statements as of and for the fiscal quarter ended June 30, 2018 contained in our Quarterly Report on Form 10-Q, which is incorporated by reference into this prospectus supplement, as well as the section entitled “Unaudited Pro Forma Consolidated Combined Financial Statements” in this prospectus supplement.

 

     As of June 30, 2018  
     (in thousands)  
     Actual     Pro forma  

Cash and cash equivalents(1)

   $ 144,472     $  
  

 

 

   

 

 

 

Long term debt, including current maturities

    

Revolving credit facility(1)(2)

   $     $                

Term Loan A-1 Facility

     525,000       525,000  

4.375% senior unsecured notes due November 2018(1)

     156,457        

4.875% senior unsecured notes due November 2020

     1,000,000       1,000,000  

4.375% senior unsecured notes due April 2021

     400,000       400,000  

5.375% senior unsecured notes due November 2023

     500,000       500,000  

5.250% senior unsecured notes due June 2025(3)

     500,000       500,000  

5.375% senior unsecured notes due April 2026

     975,000       975,000  

5.750% senior unsecured notes due June 2028

     500,000       500,000  

Notes offered hereby(4)

        

Capital lease

     1,171       1,171  
  

 

 

   

 

 

 

Total long-term debt, including current maturities

     4,557,628    

Less: unamortized debt issuance costs

     (50,884  
  

 

 

   

 

 

 

Total long-term debt, net of unamortized debt issuance costs

   $ 4,506,744     $    
  

 

 

   

 

 

 

Shareholders’ equity

     2,378,768    
  

 

 

   

 

 

 

Total Capitalization

   $ 6,885,512     $    
  

 

 

   

 

 

 

 

(1)

On May 21, 2018, we repurchased $393.5 million aggregate principal amount of our 2018 Notes through a cash tender offer, and subsequently redeemed the remaining outstanding aggregate principal amount of $156.5 million of the 2018 Notes on August 16, 2018. Pro forma amounts reflect the pro forma use of $144.5 million in cash and $12.0 million in borrowings under our Revolver to finance the redemption of the remaining outstanding 2018 Notes.

 

(2)

As of June 30, 2018, on a pro forma basis after giving effect to the Transactions, we would have had $         million available for borrowing under our Revolver (including $0.4 million of contingent obligations under letters of credit).

 

(3)

On May 21, 2018, we completed a registered offering of $500 million in aggregate principal amount of our 5.250% senior unsecured notes due 2025. The new 2025 notes offered hereby will form a part of the same series as our outstanding 5.250% senior unsecured notes due 2025. Does not give pro forma effect to the issuance of the new 2025 notes offered hereby. See footnote (4) below.

 

(4)

Consists of $         million     % senior unsecured notes due 2029                 and $         million 5.250% senior unsecured notes due 2025.

 

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RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth GLPI’s ratio of earnings to fixed charges for the periods indicated:

 

    

 

Year Ended December 31,

     Six Months
Ended
June 30,
2018
 
   2017      2016      2015      2014      2013  

Ratio of Earnings to Fixed Charges(1)

     2.79        2.59        2.08        2.22        2.56        2.72  

 

(1)

The ratio of earnings to fixed charges for each of the periods indicated was computed by dividing earnings by fixed charges. Earnings is the amount resulting from adding: (a) pre-tax income from continuing operations and (b) fixed charges. Fixed charges is the amount equal to the sum of (a) interest expense; (b) amortization of capitalized expenses related to indebtedness, and (c) an estimate of the interest within rental expense.

 

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UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated combined financial statements (the “Pro Forma Financial Statements”) have been prepared to reflect the effects of the Transactions on our financial statements. Transactions include: (1) the issuance of the notes offered hereby, (2) the use of the net proceeds from this offering, together with borrowings under our Revolver, to finance the closing of the Acquisition Transactions, (3) the payment of estimated transaction fees and expenses associated with the foregoing, and (4) the pro forma use of borrowings under our Revolver to finance the redemption of all of our outstanding 2018 Notes. The unaudited pro forma consolidated combined balance sheet is presented as if the Transactions had occurred on June 30, 2018. The unaudited pro forma consolidated combined statement of income for the year ended December 31, 2017 is presented as if the Transactions had occurred on January 1, 2017 and the unaudited pro forma consolidated combined statement of income for the six months ended June 30, 2018 is presented as if the Transactions had occurred on January 1, 2017. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the Transactions and, with respect to the statements of income only, expected to have a continuing impact on the combined results.

The Pro Forma Financial Statements have been prepared using the acquisition method of accounting using the accounting guidance for asset acquisitions in ASC 805, with our Company treated as the acquirer. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing the Pro Forma Financial Statements, and are subject to revision based on a final determination of fair value as of the date of acquisition. Differences, if any, between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying Pro Forma Financial Statements and our future consolidated results of operations and consolidated financial position.

The Pro Forma Financial Statements are provided for informational purposes only and do not purport to represent what our actual consolidated results of operations or consolidated financial position would have been had the Transactions occurred on the dates assumed, nor are they necessarily indicative of our future consolidated results of operations or consolidated financial position. The Pro Forma Financial Statements should be read in conjunction with:

 

   

the accompanying notes to the Pro Forma Financial Statements;

 

   

our audited consolidated financial statements for the year ended December 31, 2017 and the notes relating thereto included in our 2017 10-K, which is incorporated herein by reference; and

 

   

our unaudited condensed consolidated financial statements for the six months ended June 30, 2018 and the notes relating thereto included in Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, which is incorporated herein by reference.

 

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Unaudited Pro Forma Consolidated Combined Balance Sheet

As of June 30, 2018

 

    Historical
as of
June 30,
2018
    Pro Forma
Adjustments
Related to
the
Tropicana
Transactions
        Pro Forma
Adjustments
Related to
Penn-
Pinnacle
Merger
        Pro Form
Adjustments
Related to
the
Redemption
of the
Remaining
2018
Notes
  Pro Forma as
of June 30,
2018
 
    (in thousands, except share and per share data)  

Assets

               

Real estate investments, net

  $ 3,612,095     $ 942,148     A   $ 251,925     A       $ 7,414,568  
          2,608,400     B      

Land rights, net

    634,693       48,565     C             683,258  

Property and equipment, used in operations, net

    104,312                   104,312  

Mortgage loans

      246,000     D     64,800     D         310,800  

Investment in direct financing lease, net

    2,608,400           (2,608,400   B          

Cash and cash equivalents

    144,472               (144,472   E      

Prepaid expenses

    4,417                   4,417  

Goodwill

    75,521                   75,521  

Other intangible assets

    9,577                   9,577  

Loan receivable

    13,497                   13,497  

Deferred tax assets

    4,769                   4,769  

Other assets

    76,807       (901   F     (567   F         75,339  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total assets

  $ 7,288,560     $ 1,235,812       $ 316,158       $ (144,472     $ 8,696,058  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Liabilities

               

Accounts payable

  $ 461                 $ 461  

Accrued expenses

    7,171                   7,171  

Accrued interest

    35,608                   35,608  

Accrued salaries and wages

    17,416                   17,416  

Gaming, property, and other taxes

    49,811                   49,811  

Long-term debt, net of unamortized debt issuance costs

    4,506,744       1,246,803     G     316,158     G         5,914,242  
              (156,457   E  
              11,985     E  
      (10,991   H          

Deferred rental revenue

    265,256                   265,256  

Deferred tax liabilities

    257                   257  

Other liabilities

    27,068                   27,068  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total liabilities

  $ 4,909,792     $ 1,235,812       $ 316,158       $ (144,472     $ 6,317,290  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Shareholders’ equity

               

Preferred stock ($.01 par value, 50,000,000 shares authorized, no shares issued or outstanding at June 30, 2018)

  $                 $  

Common stock ($.01 par value, 500,000,000 shares authorized, 213,737,939 shares issued and outstanding at June 30, 2018)

    2,137                   2,137  

Additional paid-in capital

    3,935,517                   3,935,517  

Retained deficit

    (1,558,886                 (1,558,886
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total shareholders’ equity

  $ 2,378,768     $       $       $         $ 2,378,768  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total liabilities and shareholders’ equity

  $ 7,228,560     $ 1,235,812       $ 316,158       $ (144,472     $ 8,696,058  
 

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

 

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Notes to the Unaudited Pro Forma Consolidated Combined Balance Sheet

As of June 30, 2018

Pro Forma Balance Sheet

The Company expects to complete the Acquisition Transactions during the fourth quarter of 2018, resulting in the acquisition of real estate properties, the entry into master leases with two new tenants, ERI and Boyd Gaming, the funding of mortgage loans for both Lumière Place and Belterra Park and the amendment of the Pinnacle Master Lease.

In connection with the Tropicana Transactions, the Company will acquire the real property assets of Tropicana Atlantic City, Tropicana Evansville, Tropicana Laughlin, Trop Casino Greenville and the Belle of Baton Rouge and lease these properties to ERI under a long-term triple-net master lease (the “ERI Master Lease”). ERI will purchase the operations from Tropicana at the same time the Company purchases the real property assets from Tropicana. Additionally, the Company will act as mortgagee in the financing of Tropicana’s Lumière Place property, collecting interest payments from ERI, which will operate this property following completion of the Tropicana Transactions.

The Company also expects that the Penn-Pinnacle Merger will close during the fourth quarter of 2018. In conjunction with this transaction, the Company will acquire the real property assets of Penn’s Plainridge Park property and subsequently lease these assets back to Penn under the amended Pinnacle Master Lease. The Penn-Pinnacle Merger will also trigger an amendment to the Pinnacle Master Lease, which will allow for the for sale by Pinnacle of the operating assets at Ameristar Casino Hotel Kansas City, Ameristar Casino Resort Spa St. Charles and Belterra Casino Resort to Boyd Gaming and allow the Company to enter into a new master lease agreement with Boyd Gaming for these properties (the “Boyd Master Lease”). The Company will also act as a mortgagee in the financing of Pinnacle’s Belterra Park property, collecting interest payments from Boyd Gaming, which will operate this property following the completion of the merger.

The real estate assets we acquire in the Acquisition Transactions will be accounted for as asset acquisitions under the Accounting Standards Codification Section 805 — Business Combinations and the master leases between GLPI and ERI and GLPI and Boyd Gaming will be accounted for as operating leases under the Accounting Standards Codification Section 840 — Leases. Furthermore, the modification to the Pinnacle Master Lease will unwind the direct financing lease treatment of the building portion of that lease and the entire Pinnacle Master Lease will qualify for operating lease treatment at the acquisition date. The total purchase price of all acquired assets will be allocated to the land, buildings and land rights acquired from Tropicana and Penn. The allocation of the purchase price components is described below.

Pro Forma Adjustments:

 

  (A)

To record the fair value of the land and buildings to be acquired from Tropicana and Penn in conjunction with the Acquisition Transactions.

 

  (B)

To unwind the direct financing lease as the modification of the Pinnacle Master Lease allowed us to treat the amendment to the original Pinnacle Master Lease as a new lease, which is classified as an operating lease under ASC 840. The building assets that were classified as an investment in direct financing lease under the original Pinnacle Master Lease are recorded as real estate investments at their present carrying value. Under ASC 840, when changes to a lease that was classified as a direct financing lease result in that lease being classified as an operating lease, the leased assets that were previously classified as a net investment in the lease are recorded as assets on the lessor’s books at the lower of the original cost, present fair value, or present carrying amount.

 

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  (C)

To record the fair value of the land rights to be acquired from Tropicana in the Tropicana Transactions. Land rights represent the Company’s rights to land subject to long-term ground leases. No long-term ground leases will be assumed in connection with the acquisition of Plainridge Park Casino.

 

  (D)

To record the fair value of the mortgage loans proposed to be made to ERI and Boyd Gaming, respectively, for the Lumière Place and Belterra Park properties.

 

  (E)

To record the Company’s use of cash funds for the redemption of the remaining 2018 Notes in August 2018. In addition to the use of the available cash funds, the Company is assumed to have borrowed additional funds under its Revolver to fund the redemption.

 

  (F)

To reflect those transaction costs that were paid or accrued by us prior to the consummation of the Transactions and recorded in other assets on our historical June 30, 2018 condensed consolidated balance sheet.

 

  (G)

To record the debt to be incurred by GLPI in connection with the Acquisition Transactions. Based on recent discussions with the underwriters of this offering and current market interest rates, we estimate that GLPI will issue 10-year $750 million senior unsecured notes with a fixed interest rate of 5.75% and 7-year $250 million senior unsecured notes with a fixed interest rate of 5.25%, the net proceeds of which will be used to finance, in part, the Acquisition Transactions. Additionally, we estimate that we will borrow $564.4 million under the Revolver to complete the financing of the Acquisition Transactions and to pay the estimated transaction fees and expenses associated with the foregoing.

 

  (H)

To record anticipated debt issuance costs related to our new debt issuances associated with the Acquisition Transactions.

 

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Unaudited Pro Forma Consolidated Combined Statement of Income

For the Year ended December 31, 2017

 

     Historical
Year ended
December 31,
2017
    Pro Forma
Adjustments
Related to the
Tropicana
Transactions
         Pro Forma
Adjustments
Related to
Penn-
Pinnacle
Merger
         Pro
Forma
Year ended
December 31,
2017
 
     (in thousands, except per share data)  

Revenues

              

Rental income

   $ 671,190     $ 87,639     A    $ 38,900     A    $ 905,629  
            147,405     B   
       (11,725   C      (37,813   C   
       10,033     D        

Income from direct financing lease

     74,333            (74,333   B       

Interest income from mortgaged real estate

       22,361     E      7,200     E      29,561  

Real estate taxes paid by tenants

     83,698       13,823     F      1,466     F      98,987  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total income from real estate

     829,221       122,131          82,825          1,034,177  

Gaming, food, beverage and other

     142,086                 142,086  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total revenues

     971,307       122,131          82,825          1,176,263  

Operating expenses

              

Gaming, food, beverage and other

     80,487                 80,487  

Real estate taxes

     84,666       14,006     F      1,466     F      100,138  

Land rights and ground lease expense

     24,005       10,033     D           35,486  
       1,448     G        

General and administrative

     63,151                 63,151  

Depreciation

     113,480       28,264     H      88,137     H      229,881  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total operating expenses

     365,789       53,751          89,603          509,143  
  

 

 

   

 

 

      

 

 

      

 

 

 

Income from operations

     605,518       68,380          (6,778        667,120  
  

 

 

   

 

 

      

 

 

      

 

 

 

Other income (expense)

              

Interest expense

     (217,068     (62,239   I      (15,939   I      (295,246

Interest income

     1,935                 1,935  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total other expenses

     (215,133     (62,239        (15,939        (293,311

Income before income taxes

     390,385       6,141          (22,717        373,809  

Income tax expense

     9,787                 9,787  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

   $ 380,598     $ 6,141        $ (22,717      $ 364,022  
  

 

 

   

 

 

      

 

 

      

 

 

 

Basic earnings per common share

   $ 1.80     $ 0.03        $ (0.11      $ 1.72  

Diluted earnings per common share

   $ 1.79     $ 0.03        $ (0.11      $ 1.71  

 

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Unaudited Pro Forma Consolidated Combined Statement of Income

For the Six Months ended June 30, 2018

 

     Historical
Six
Months
ended
June 30,
2018
    Pro Forma
Adjustments
Related to
the
Tropicana
Transactions
         Pro Forma
Adjustments
Related to
Penn-
Pinnacle
Merger
         Pro
Forma
Six
Months
ended
June 30,
2018
 
     (in thousands, except per share data)  

Revenues

              

Rental income

   $ 339,270     $ 43,819     A    $ 19,450     A    $ 465,064  
            74,844     B   
       (5,863   C      (11,549   C   
       5,093     D        

Income from direct financing lease

     45,605            (45,605   B       

Interest income from mortgaged real estate

           11,181     E      3,600     E      14,781  

Real estate taxes paid by tenants

     42,761       6,912     F      733     F      50,406  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total income from real estate

     427,636       61,142          41,473          530,251  

Gaming, food, beverage and other

     70,635                 70,635  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total revenues

     498,271       61,142          41,473          600,886  

Operating expenses

              

Gaming, food, beverage and other

     40,065                 40,065  

Real estate taxes

     43,395       7,003     F      733     F      51,131  

Land rights and ground lease expense

     12,976       5,093     D           18,793  
       724     G        

General and administrative

     41,266                 41,266  

Depreciation

     55,477       14,132     H      44,069     H      113,678  
  

 

 

   

 

 

      

 

 

      

 

 

 

Total operating expenses

     193,179       26,952          44,802          264,933  
  

 

 

   

 

 

      

 

 

      

 

 

 

Income from operations

     305,092       34,190          (3,329        335,953  
  

 

 

   

 

 

      

 

 

      

 

 

 

Other income (expense)

              

Interest expense

     (111,123     (31,120   I      (7,970   I      (150,213

Interest income

     1,372                 1,372  

Losses on debt extinguishment

     (3,473               (3,473
  

 

 

   

 

 

      

 

 

      

 

 

 

Total other expenses

     (113,224     (31,120        (7,970        (152,314

Income before income taxes

     191,868       3,070          (11,299        183,639  

Income tax expense

     3,098                 3,098  
  

 

 

   

 

 

      

 

 

      

 

 

 

Net Income

   $ 188,770     $ 3,070        $ (11,299      $ 180,541  
  

 

 

   

 

 

      

 

 

      

 

 

 

Basic earnings per common share

   $ 0.88     $ 0.01        $ (0.05      $ 0.84  

Diluted earnings per common share

   $ 0.88     $ 0.01        $ (0.05      $ 0.84  

 

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Notes to the Unaudited Pro Forma Consolidated Combined Statements of Income

For the Year ended December 31, 2017 and the Six Months ended June 30, 2018

Pro Forma Income Statement

Based upon the Company’s application of Accounting Standards Codification Section 840—Leases, the ERI Master Lease, Boyd Master Lease and amended Pinnacle Master Lease will all be accounted for as operating leases. The adjustments herein reflect the additional income the Company expects to recognize as a result of the Acquisition Transactions, as well as the reclassification of income previously classified as income from direct financing lease and cash receipts applied against the investment in direct financing lease receivable to rental revenue as the amended Pinnacle Master Lease now qualifies for operating lease treatment.

Pro Forma Adjustments:

 

  (A)

To record cash rent received from the acquired Tropicana real property assets under the ERI Master Lease, rental income from the acquired Plainridge Park property added to the Pinnacle Master Lease and additional fixed rent under the Pinnacle Master Lease.

 

  (B)

To reclassify the income previously recorded as income from direct financing lease to rental income, as the amended Pinnacle Master Lease qualifies for operating lease treatment. Additionally, the rent received under the original Pinnacle Master Lease and initially applied against the investment in direct financing lease receivable is reclassified to rental income.

 

  (C)

To record the deferral of cash rent received under the ERI and amended Pinnacle Master Leases. Under both the ERI Master Lease and the amended Pinnacle Master Lease, percentage rent is fixed only for the first two years of the respective lease; therefore, resulting in the deferral of cash rent received, as all rents that are fixed and determinable at lease inception are straight-lined over the term of the lease.

 

  (D)

To record the estimated ground lease rent paid by ERI on the ground leases subleased from GLPI. In accordance with ASC 606, the Company records revenue for the ground lease rent paid by its tenants on the subleased properties with offsetting expense recorded in land rights and ground lease expense within the consolidated statement of income as GLPI has concluded it is the primary obligor. No long-term ground leases were assumed in the purchase of the Plainridge Park property.

 

  (E)

To record interest income from the proposed mortgage loans to ERI and Boyd Gaming, respectively, for the Lumière Place and Belterra Park properties.

 

  (F)

To record the estimated real estate taxes paid by ERI and Penn on the newly acquired properties under our triple-net tenant leases. In accordance with ASC 606, the Company records revenue for the real estate taxes paid by its tenants on the leased properties with offsetting expense recorded in real estate taxes within the consolidated statement of income as GLPI has concluded it is the primary obligor. Real estate taxes for undeveloped land parcels GLPI acquired from Tropicana and will not lease to ERI are also reflected in the real estate tax expense line item of the consolidated statement of income.

 

  (G)

To record expected amortization expense related to the acquired rights to land subject to long-term ground leases on which Tropicana’s acquired real estate assets reside. The estimated amortization expense related to these below market ground leases was determined based upon the individual lease term of each ground lease, including all renewal options. No long-term ground leases were assumed in the purchase of the Plainridge Park property

 

  (H)

To record expected depreciation expense related to the acquired building assets. The expected depreciation expense related to the building assets originally classified as a net investment in direct financing lease and classified as real estate assets following the Acquisition Transactions is also included herein.

 

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  (I)

To record anticipated interest expense related to GLPI’s anticipated fixed and variable rate borrowings related to the Acquisition Transactions. Based on recent discussions with the underwriters of this offering and current market interest rates, we estimate that GLPI will issue 10-year $750 million senior unsecured notes with a fixed interest rate of 5.75% and 7-year $250 million senior unsecured notes with a fixed interest rate of 5.25%, the net proceeds of which will be used to finance, in part, the Acquisition Transactions. Amounts reflects the pro forma use of $144.5 million in cash and $12.0 million in borrowings under our Revolver to finance the redemption of the 2018 Notes. Additionally, we estimate that we will borrow $564.4 million under the Revolver to complete the financing of the Acquisition Transactions and to pay the estimated transaction fees and expenses associated with the foregoing. The interest expense amount also includes the anticipated amortization of debt issuance costs, which is recorded as interest expense in the consolidated statement of income. The impact of a 1/8% change in the interest rate of our borrowings described in this paragraph would increase or decrease the Company’s annual interest expense by approximately $2.0 million.

 

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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

The following is a summary of principal terms and provisions of our Credit Facility and our existing senior unsecured notes. This summary is not a complete description of all of the terms and provisions of such indebtedness or the relevant agreements, and is qualified in its entirety by reference to such agreements and related documents.

Credit Facility

Our senior unsecured credit facilities consist of a $1,100 million revolving credit facility (the “Revolver”) and a $525 million Term Loan A-1 Facility, pursuant to the Credit Agreement, dated as of October 28, 2013 (as amended to date, the “Credit Facility”), among the Operating Partnership, as borrower thereunder and as successor-by-merger to GLP Financing, LLC, each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”). The Revolver matures on May 21, 2023 and the Term Loan A-1 Facility matures on April 28, 2021.

The interest rates payable on loans borrowed under our Credit Facility are, at our option, equal to either a LIBOR rate or a base rate plus an applicable margin, which ranges from 1.0% to 2.0% per annum for LIBOR loans and 0.0% to 1.0% per annum for base rate loans, in each case, depending on the credit ratings assigned to the senior unsecured credit facilities. At June 30, 2018, the applicable margin was 1.5% for LIBOR loans and 0.5% for base rate loans. In addition, we are required to pay a commitment fee on the unused portion of the commitments under the Revolver at a rate that ranges from 0.15% to 0.35% per annum, depending on the credit ratings assigned to the senior unsecured credit facilities. At June 30, 2018, the commitment fee rate was 0.25%. Generally, we are not required to repay any loans under the Credit Facility prior to maturity on May 21, 2023, in the case of borrowings under our Revolver, or April 28, 2021, in the case of term loans under our Term Loan A-1 Facility, and may prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, subject to reimbursement of any LIBOR breakage costs of the lenders.

At June 30, 2018, the Credit Facility had a gross outstanding balance of $525 million, consisting of $525 million of term loans under the Term Loan A-1 facility and no borrowings under the Revolver. Additionally, at June 30, 2018, we were contingently obligated under letters of credit issued pursuant to the Revolver with face amounts aggregating approximately $0.4 million, resulting in $1,099.6 million of available borrowing capacity under the Revolver as of June 30, 2018.

The Credit Facility contains customary covenants that, among other things, restrict, subject to certain exceptions, the ability of GLPI and its subsidiaries to grant liens on their assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations or pay certain dividends and other restricted payments. The Credit Facility contains the following financial covenants, which are measured quarterly on a trailing four-quarter basis: a maximum total debt to total asset value ratio, a maximum senior secured debt to total asset value ratio, a maximum ratio of certain recourse debt to unencumbered asset value and a minimum fixed charge coverage ratio. In addition, GLPI is required to maintain a minimum tangible net worth and its status as a REIT. GLPI is permitted to pay dividends to its shareholders as may be required in order to maintain REIT status. GLPI is also permitted to make other dividends and distributions subject to pro forma compliance with the financial covenants and the absence of defaults. The Credit Facility also contains certain customary affirmative covenants and events of default, including the occurrence of a change of control and termination of the Penn Master Lease (subject to certain replacement rights). The occurrence and continuance of an event of default under the Credit Facility will enable the lenders under the Credit Facility to accelerate the loans and terminate the commitments thereunder, which could result in an event of default under our other debt. At June 30, 2018, we were in compliance with all required covenants under the Credit Facility.

Existing Senior Unsecured Notes

At June 30, 2018, the Company had $156.5 million outstanding of 4.375% senior unsecured notes maturing on November 1, 2018 (the “2018 Notes”), $1,000 million outstanding of 4.875% senior unsecured

 

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notes maturing on November 1, 2020 (the “2020 Notes”), $400 million of 4.375% senior unsecured notes maturing on April 15, 2021 (the “2021 Notes”), $500 million outstanding of 5.375% senior unsecured notes maturing on November 1, 2023 (the “2023 Notes”), the initial 2025 notes, $975 million of 5.375% senior unsecured notes maturing on April 15, 2026 (the “2026 Notes”) and $500 million of 5.750% senior unsecured notes maturing on June 1, 2028 (the “June 1, 2028 Notes” and, collectively with the 2020 Notes, the 2021 Notes, the 2023 Notes, the initial 2025 notes and the 2026 Notes, the “existing senior unsecured notes”). Interest on each of the 2020 Notes and 2023 Notes, is payable semi-annually on May 1 and November 1 of each year. Interest on the 2021 Notes and 2026 Notes is payable semi-annually on April 15 and October 15 of each year and commenced on October 15, 2016. Interest on the initial 2025 notes and June 1, 2028 Notes is payable semi-annually on June 1 and December 1 of each year and commencing December 1, 2018. On August 16, the Company redeemed all of the outstanding aggregate principal amount of the 2018 Notes.

The indenture governing the existing senior unsecured notes contains covenants limiting our ability to: incur additional debt and use our assets to secure debt; merge or consolidate with another company; and make certain amendments to the Penn Master Lease. The indenture governing the existing senior unsecured notes also require us to maintain a specified ratio of unencumbered assets to unsecured debt. These covenants are subject to a number of important and significant limitations, qualifications and exceptions.

We may redeem the existing senior unsecured notes of any series at any time, and from time to time, at a redemption price of 100% of the principal amount of the existing senior unsecured notes redeemed, plus a “make-whole” redemption premium described in the indenture governing the existing senior unsecured notes, together with accrued and unpaid interest to, but not including, the redemption date, except that if the existing senior unsecured notes of a series are redeemed 90 or fewer days prior to their maturity, the redemption price will be 100% of the principal amount of the existing senior unsecured notes redeemed, together with accrued and unpaid interest to, but not including, the redemption date. If GLPI experiences a change of control accompanied by a decline in the credit rating of the existing senior unsecured notes of a particular series, we will be required to give holders of the existing senior unsecured notes of such series the opportunity to sell their existing senior unsecured notes of such series at a price equal to 101% of the principal amount of the existing senior unsecured notes of such series, together with accrued and unpaid interest to, but not including, the repurchase date. The existing senior unsecured notes also are subject to mandatory redemption requirements imposed by gaming laws and regulations.

 

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DESCRIPTION OF THE 2029 NOTES

General

In this description, (1) the “Operating Partnership” refers only to GLP Capital, L.P., and not to any of its Subsidiaries, (2) ”Capital Corp. refers only to GLP Financing II, Inc., and not to any of its Subsidiaries, (3) “Issuers,” “we,” “us” and “our” refer only to the Operating Partnership and Capital Corp., and (4) “Guarantor” refers only to Gaming and Leisure Properties, Inc. and not to any of its Subsidiaries.

The notes will be issued under the indenture, dated as of October 30, 2013 (the “base indenture”), among the Issuers, the Guarantor and Wells Fargo Bank, National Association, as trustee, as supplemented by the supplemental indenture among the Issuers, the Guarantor and the trustee, dated as of March 28, 2016 (the “first supplemental indenture”). The terms of the notes will include those stated in the base indenture as supplemented by the first supplemental indenture as well as those stated in an additional supplemental indenture or officer’s certificate, as applicable, related to the notes (the base indenture, as supplemented by the first supplemental indenture and by such additional supplemental indenture or officer’s certificate, as applicable, is referred to as the “indenture”) and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the “TIA”).

The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because the indenture, and not this description, defines your rights as holders of the notes. The indenture is available from us upon request. See “— Additional Information” and “Where You Can Find More Information.”

Certain defined terms used in this description but not defined below under the caption “— Certain Definitions” have the meanings assigned to them in the indenture.

The registered holder of a note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture.

Brief Description of the Notes and the Note Guarantee

The notes:

 

   

will be general senior unsecured obligations of the Issuers;

 

   

will be pari passu in right of payment with all of the Issuers’ senior indebtedness, including the Existing Notes and borrowings under the Credit Agreement, without giving effect to collateral arrangements;

 

   

will be effectively subordinated in right of payment to all of the Issuers’ secured indebtedness to the extent of the value of the assets securing such indebtedness;

 

   

will be senior in right of payment to all of the Issuers’ senior subordinated or subordinated indebtedness;

 

   

will be structurally subordinated to all liabilities of the Issuers’ subsidiaries (other than Capital Corp., which is a co-issuer of the notes); and

 

   

will be fully and unconditionally guaranteed by the Guarantor.

The note guarantee:

The notes will be guaranteed by the Guarantor; however, the Guarantor is not subject to most of the covenants in the indenture. The guarantee of the notes:

 

   

will be a general unsecured obligation of the Guarantor;

 

   

will be pari passu in right of payment with all of the Guarantor’s senior indebtedness, including its guarantee of the Existing Notes and borrowings under the Credit Agreement, without giving effect to collateral arrangements;

 

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will be effectively subordinated in right of payment to all of the Guarantor’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

 

   

will be senior in right of payment to all of the Guarantor’s senior subordinated or subordinated indebtedness; and

 

   

will be structurally subordinated to all liabilities of the Guarantor’s subsidiaries (other than the Issuers).

The obligation of the Guarantor under its guarantee is limited as necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law.

As of June 30, 2018, on a pro forma basis after giving effect to the Transactions as described in this prospectus supplement, (i) the Issuers, the Guarantor and the Issuers’ Subsidiaries would have had total consolidated indebtedness of $                , net of unamortized issuance costs, including $                 of notes offered hereby, $3.9 billion of Existing Notes and approximately $                 of indebtedness outstanding under the Credit Agreement, and would have had $         million of availability under our Revolver (including $0.4 million of contingent obligations under letters of credit); (ii) the Issuers and the Guarantor would have had no secured indebtedness; and (iii) the liabilities of the Issuers’ Subsidiaries (other than Capital Corp.) would have consisted primarily of payables, deferred taxes, intercompany debt and other ordinary course liabilities. The indenture permits the Issuers and the Issuers’ Subsidiaries to incur substantial additional indebtedness and does not limit the amount of indebtedness that the Guarantor may incur.

Capital Corp.

Capital Corp. is a Delaware corporation and a wholly owned Subsidiary of the Operating Partnership. Capital Corp. is nominally capitalized and does not have any material assets or significant operations, other than with respect to acting as co-issuer or guarantor for certain debt obligations the Operating Partnership may incur or guarantee from time to time. As a result, prospective purchasers of the notes should not expect Capital Corp. to participate in servicing the interest and principal obligations on the notes. See “— Certain Covenants — Limitation on Activities of Capital Corp.”

Principal, Maturity and Interest

The Issuers are issuing $        aggregate principal amount of their     % Senior Notes due 2029 (solely for purposes of this section, “Description of the 2029 Notes,” the “notes”).

The Issuers may issue additional notes of the same or different series from time to time under the indenture. Any issuance of additional notes is subject to the covenants set forth below under “— Certain Covenants — Limitations on Incurrence of Indebtedness.” The notes and any additional notes of the same series subsequently issued will be treated as a single series for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the indenture and this “Description of the 2029 Notes,” references to the notes include any additional notes actually issued. The Issuers will issue notes in denominations of $2,000 and integral multiples of $1,000.

Interest on the notes offered hereby will accrue at the rate of     % per annum and will be payable semi-annually in arrears on                  and                 , commencing                     , 2019. The Issuers will make each interest payment on the notes to the holders of record on the immediately preceding                  and                 . The entire principal amount of the notes will mature and become due and payable, together with any accrued and unpaid interest, on                     , 2029. The notes will not be entitled to the benefit of any sinking fund.

Interest on the notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

 

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If any interest payment date, redemption date, repurchase date or maturity date falls on a day that is not a business day, the required payment of principal, premium, if any, and/or interest may be made on the next succeeding business day as if made on the date such payment was due, and no interest will accrue on such payment for the period from and after such interest payment date, redemption date, repurchase date or maturity date, as the case may be, to the date of such payment on the next succeeding business day.

Redemption

Special Mandatory Redemption of the Notes

If (i) the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the notes as reasonably determined by the Guarantor in good faith) are not completed on or prior to January 15, 2019; provided such date shall be extended to the latest of: (v) January 31, 2019, if the Closing Date (as defined in the Tropicana Merger Agreement) is deferred pursuant to Section 1.3 of the Tropicana Merger Agreement (a “Closing Date Deferral”), (w) April 15, 2019 (if the Outside Date (as defined in the Tropicana Merger Agreement) has been extended to twelve (12) months from the date of the Tropicana Merger Agreement pursuant to Section 8.1(d) of the Tropicana Merger Agreement) (the “Twelve Month Extension”); (x) April 30, 2019, if the Twelve Month Extension and a Closing Date Deferral occur; (y) July 15, 2019 (if the Outside Date (as defined in the Tropicana Merger Agreement) has been extended to fifteen (15) months from the date of the Tropicana Merger Agreement pursuant to Section 8.1(d) of the Tropicana Merger Agreement) (the “Fifteen Month Extension”) and (z) July 31, 2019, if the Fifteen Month Extension and a Closing Date Deferral occur (such date, as extended, if applicable, as described above, the “Outside Date”) or (ii) prior to the Outside Date, the Operating Partnership shall notify the trustee in writing that the Tropicana Merger Agreement has been terminated or that it will not pursue the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the notes as reasonably determined by the Guarantor in good faith) (each, a “Special Mandatory Redemption Trigger”), the Operating Partnership will, on a day not more than 30 calendar days following the Special Mandatory Redemption Notice Date (as defined below) (such date, the “Special Mandatory Redemption Date”), redeem all of the notes offered hereby (the “Special Mandatory Redemption”) at a price equal to 101% of the aggregate issue price of the notes, plus accrued and unpaid interest from the Issue Date to, but not including, the Special Mandatory Redemption Date (the “Special Mandatory Redemption Price”). If a Special Mandatory Redemption Trigger occurs, notice of the Special Mandatory Redemption will be delivered to each holder of notes offered hereby at its registered address and the trustee no later than the fifth business day after the date on which the Special Mandatory Redemption Trigger occurs (the “Special Mandatory Redemption Notice Date”). On the Special Mandatory Redemption Date, the Issuers shall pay to a paying agent for payment to each holder of notes the Special Mandatory Redemption Price for such holder’s notes.

Certain provisions relating to the Operating Partnership’s obligation to redeem the notes in a Special Mandatory Redemption may not be waived or modified without the written consent of the holders of all notes.

The form and terms of the Tropicana Transactions may be modified or amended in a manner not materially adverse to the holders of the notes as reasonably determined by the Guarantor in good faith without the consent of the holders of the notes offered hereby and any such modification or amendment would not constitute a Special Mandatory Redemption Trigger. Upon the consummation of the Tropicana Transactions (as such transactions may be modified or amended in a manner not materially adverse to holders of the notes as reasonably determined by the Guarantor in good faith), the foregoing provisions regarding Special Mandatory Redemption will cease to apply.

Optional Redemption

We may redeem all or part of the notes at any time at our option at a redemption price equal to the greater of:

(1) 100% of the principal amount of the notes to be redeemed, and

 

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(2) the sum of the present values of the remaining scheduled payments of principal and interest thereon that would be due if such notes matured 90 days prior to their maturity date (the “Par Call Date”) but for the redemption thereof (exclusive of interest accrued to, but not including, the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus      basis points, in each case, plus accrued and unpaid interest on the amount being redeemed to, but not including, the date of redemption; provided, however, that if we redeem the notes on or after the Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest on the amount being redeemed to, but not including, the date of redemption; provided, further, that installments of interest that are due and payable on any interest payment dates falling on or prior to a redemption date shall be payable on such interest payment dates to the persons who were registered holders of the notes at the close of business on the applicable record dates.

Unless we default in our payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portions of such notes called for redemption.

Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the notes being redeemed calculated as if the maturity date of such notes were the Par Call Date (the “Remaining Life”) that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life of the notes.

Comparable Treasury Price” means, with respect to any redemption date, (1) the average of four Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the Issuers are provided fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.

Quotation Agent” means the Reference Treasury Dealer appointed by the Issuers to act as the Quotation Agent from time to time.

Reference Treasury Dealer means (1) Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), we will substitute therefor another Primary Treasury Dealer, and (2) any other Primary Treasury Dealers selected by the Issuers.

Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by an Issuer, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Issuers by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date (or the third business day preceding the relevant Deposit Date in connection with the satisfaction and discharge of notes in accordance with the terms of the indenture).

Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price on such redemption date.

Gaming Redemption

In addition to the foregoing, if any Gaming Authority requires that a holder or Beneficial Owner of notes must be licensed, qualified or found suitable under any applicable Gaming Laws and such holder or Beneficial Owner:

(1)    fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority, or

 

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(2)    is denied such license or qualification or not found suitable, or if any Gaming Authority otherwise requires that notes from any holder or Beneficial Owner be redeemed, subject to applicable Gaming Laws the Issuers shall have the right, at their option:

(i)    to require any such holder or Beneficial Owner to dispose of its notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of receipt of such notice or finding by such Gaming Authority, or

(ii)    to call for the redemption of the notes of such holder or Beneficial Owner at a redemption price equal to the least of:

(A)    the principal amount thereof, together with accrued interest to the earlier of the date of redemption or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority,

(B)    the price at which such holder or Beneficial Owner acquired the notes, together with accrued interest to the earlier of the date of redemption or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority, or

(C)    such other lesser amount as may be required by any Gaming Authority.

The Issuers shall notify the trustee in writing of any such redemption as soon as practicable. The holder or Beneficial Owner applying for license, qualification or a finding of suitability must pay all costs of the licensure or investigation for such qualification or finding of suitability.

No Mandatory Redemption

Other than as described under “Redemption — Special Mandatory Redemption of 2029 Notes”, the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the notes.

Selection and Notice

If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows:

(1)    if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or

(2)    if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate and in accordance with DTC procedures.

No notes of $2,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail (or in the case of global notes, given pursuant to applicable DTC procedures) at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address, except that (a) redemption notices may be mailed or given more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture, (b) redemption notices may be mailed less than 30 days prior to the Special Mandatory Redemption Date, and (c) redemption notices may be mailed or given less than 30 days or more than 60 days prior to a redemption date if so required by any applicable Gaming Authority in connection with a redemption described above under the caption “— Redemption — Gaming Redemption.”

If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption (subject to satisfaction of any applicable conditions precedent). Unless we default in the payment of the redemption price, on and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. For the avoidance of doubt, the Trustee shall not have any responsibility for calculating the redemption price.

 

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Subject to applicable securities laws, the Issuers or their affiliates may at any time and from time to time purchase notes or other indebtedness. Any such purchases may be made through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices as well as with such consideration as the Issuers or any such affiliates may determine.

Repurchase at the Option of Holders

Change of Control and Rating Decline

If a Change of Control Triggering Event occurs with respect to the notes, each holder of the notes will have the right to require the Issuers to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000) of that holder’s notes pursuant to an offer by the Issuers (a “Change of Control Offer”) on the terms set forth in the indenture, except to the extent the Issuers have previously redeemed such notes as described under “— Redemption — Optional Redemption” or “— Redemption — Special Mandatory Redemption of 2029 Notes.” In the Change of Control Offer, the Issuers will offer a payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest on the notes repurchased, to the date of purchase (the “Change of Control Payment”). Within 30 days following the occurrence of a Change of Control Triggering Event, the Issuers will mail a notice to each holder describing the transaction or transactions that constitute, or are expected to constitute, the Change of Control Triggering Event, and offering to repurchase notes on the date (the “Change of Control Payment Date”) specified in the notice, which date will be no earlier than 30 days and no later than 60 days after the date such notice is mailed (or in the case of global notes, given pursuant to applicable DTC procedures), pursuant to the procedures required by the indenture and described in such notice. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict.

On the Change of Control Payment Date, the Issuers will, to the extent lawful:

(1)    accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;

(2)    deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

(3)    deliver or cause to be delivered to the trustee the notes properly accepted together with an officer’s certificate stating the aggregate principal amount of notes or portions of notes being purchased by the Issuers.

The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $2,000 or an integral multiple of $1,000.

The provisions described above that require the Issuers to make a Change of Control Offer following the occurrence of a Change of Control Triggering Event will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control Triggering Event, the indenture does not contain provisions that permit the holders of the notes to require that the Issuers repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

 

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The Issuers will not be required to make a Change of Control Offer upon the occurrence of a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Issuers and purchases all notes properly tendered and not withdrawn under the Change of Control Offer. Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of an anticipated Change of Control Triggering Event, conditional upon such Change of Control Triggering Event.

If holders of not less than 90% in aggregate principal amount of the outstanding notes validly tender and do not withdraw such notes in a Change of Control Offer and the Issuers, or any third party making a Change of Control Offer in lieu of the Issuers as described above, purchases all of the notes validly tendered and not withdrawn by such holders, the Issuers or such third party will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer described above, to redeem all notes that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to, but not including the date of redemption.

The definition of “Change of Control” includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Guarantor, the Issuers and their Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require the Issuers to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Guarantor, the Issuers and their Subsidiaries taken as a whole to another Person or group may be uncertain.

The Credit Agreement provides that certain change of control events with respect to the Issuers would constitute a default under the Credit Agreement. Any future credit agreements or other agreements to which any of the Issuers becomes a party may contain similar provisions. In the event a Change of Control Triggering Event occurs at a time when the Issuers are prohibited from purchasing notes, the Issuers could seek the consent of their senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If the Issuers do not obtain such a consent or repay such borrowings, the Issuers will remain prohibited from purchasing notes. In such case, the Issuers’ failure to purchase tendered notes would constitute a default under the indenture which could, in turn, constitute a default under such other indebtedness.

Certain Covenants

Limitations on Incurrence of Indebtedness

Limitation on Total Debt. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Indebtedness (other than Permitted Debt) if, immediately after giving effect to the incurrence of such additional Indebtedness, the Total Debt of the Issuers and their Subsidiaries on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness) would exceed 60% of the sum of (i) Total Asset Value as of the end of the Latest Completed Quarter and (ii) any increase in Total Asset Value since the end of the Latest Completed Quarter (such sum of (i) and (ii), “Adjusted Total Asset Value”); provided, however, that from and after the consummation of a Significant Acquisition, such percentage shall be 65% for the fiscal quarter in which such Significant Acquisition is consummated and the three consecutive fiscal quarters immediately succeeding such fiscal quarter.

Limitation on Secured Debt. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt, the Secured Debt of the Issuers and their Subsidiaries on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness) would exceed 40% of Adjusted Total Asset Value.

Interest Coverage Ratio. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Indebtedness (other than Permitted Debt) if, immediately after giving effect to the incurrence of such

 

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additional Indebtedness, the ratio of Consolidated EBITDA to Interest Expense for the Issuers and their Subsidiaries (the “Coverage Ratio”) for the four consecutive fiscal quarter period ending on and including the Latest Completed Quarter would be less than 1.50 to 1.00 on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness).

Limitation on Subordinated Debt and Subsidiary Guarantees. The Issuers shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any other Indebtedness of the Issuers, unless such Indebtedness is expressly subordinated in right of payment to the notes. The foregoing does not apply to distinctions between categories of Indebtedness that exist by reason of any Liens securing some but not all of such Indebtedness or securing such Indebtedness with greater or lesser priority or with different collateral or as a result of provisions that apply proceeds or amounts received by the borrower, obligor or issuer following a default or exercise of remedies in a certain order of priority.

In addition, following the date of the indenture, no Subsidiary of the Operating Partnership (excluding Capital Corp.) will directly or indirectly guarantee, or become jointly and severally liable with respect to any Debt Securities of the Operating Partnership (excluding, in any event, (x) Acquired Debt and (y) guarantees of such Acquired Debt or any other Indebtedness of the Operating Partnership to the extent a guarantee is required as a result of the assumption by the Operating Partnership of such Acquired Debt described in clause (x) pursuant to the terms thereof as they existed at the time of and after giving effect to (and are not modified in contemplation of, other than to give effect to) the assumption of or acquisition of such Acquired Debt) issued after the date of the indenture, unless a guarantee is provided in respect of the notes by such Subsidiary.

Maintenance of Total Unencumbered Assets

The Issuers and their Subsidiaries shall maintain Total Unencumbered Asset Value of not less than 150% of Unsecured Debt, in each case calculated as of the end of the Latest Completed Quarter.

Reports

Whether or not required by the SEC, so long as any notes are outstanding, the Issuers will furnish to the trustee with written instructions for mailing (or in the case of global notes, delivery pursuant to applicable DTC procedures) to the holders of notes, within 30 days after the time periods specified in the SEC’s rules and regulations:

(1)    all quarterly and annual financial information that is filed or that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if or as if the Issuers were required to file such forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Issuers’ certified independent accountants; and

(2)    all current reports that would be required to be filed with the SEC on Form 8-K if the Issuers were required to file such reports.

The availability of the foregoing materials on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy the Issuers’ obligations to furnish such materials to the trustee with written instructions for mailing (or in the case of global notes, delivery pursuant to applicable DTC procedures) to the holders of notes; provided, however, that the trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the “EDGAR” system (or its successor).

Delivery of such reports, information and documents to the trustee is for informational purposes only and the trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers’ compliance with any of its covenants under the indenture (as to which the trustee is entitled to rely exclusively on officer’s certificates).

 

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Notwithstanding the foregoing, for so long as the Guarantor guarantees the notes (or in the event that another parent entity of the Issuers becomes a guarantor of the notes), the Issuers may satisfy their obligations to furnish the reports and other information described above by furnishing such reports filed by, or such information of, the Guarantor (or such other parent guarantor, respectively) and the availability of the Guarantor’s (or such other parent guarantor’s, as applicable) information on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy such obligation.

Penn Master Lease

The Issuers will not enter into any amendment to the Penn Master Lease if such amendment would materially impair the ability of the Issuers to satisfy their obligations to make payments on the notes; provided that amendments of the Penn Master Lease (and corresponding rent reduction) pursuant to the terms of the Penn Master Lease in connection with an asset sale made in accordance with the Penn Master Lease shall not be deemed to materially impair the ability of the Issuers to satisfy their obligations to make payments on the notes or to materially impair the rights and remedies of the holders of the notes.

Consolidation, Merger and Sale of Assets

Each Issuer may not, directly or indirectly: (x) consolidate or merge with or into another Person (whether or not such Issuer is the surviving entity); or (y) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of such Issuer and its Subsidiaries taken as a whole to another Person unless:

(1)    either (a) such Issuer is the surviving Person; or (b) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia (provided that if such Person is not a corporation, a co-obligor of the notes is a corporation organized or existing under such laws);

(2)    the Person formed by or surviving any such consolidation or merger (if other than an Issuer) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of such Issuer under the notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; and

(3)    immediately after such transaction no default or event of default exists with respect to the notes.

The Guarantor may not, directly or indirectly: (x) consolidate or merge with or into another Person (whether or not the Guarantor is the surviving corporation); or (y) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Guarantor and its Subsidiaries taken as a whole to another Person unless:

(1)    either (a) the Guarantor is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia;

(2)    the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Guarantor under the notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; and

(3)    immediately after such transaction no default or event of default exists with respect to the notes.

Upon any sale, assignment, transfer, conveyance or other disposition of all or substantially all of an Issuer’s or the Guarantor’s, as applicable, and its Subsidiaries’ assets, taken as a whole, in compliance with the provisions of this “Consolidation, Merger and Sale of Assets” covenant, such Issuer or the Guarantor, as applicable, will be released from the obligations under the notes or its guarantee, respectively, and the indenture except with respect to any obligations that arise from, or are related to, such transaction.

 

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This “Consolidation, Merger and Sale of Assets” covenant will not apply to:

(1)    a merger, consolidation, sale, assignment, transfer, conveyance or other disposition of assets between or among the Guarantor, the Issuers (or an Issuer) or any of the Issuers’ Subsidiaries;

(2)    a merger between the Issuers (or an Issuer), the Guarantor or any Subsidiary respectively, and an Affiliate of an Issuer, the Guarantor or such Subsidiary incorporated or formed solely for the purpose of reincorporating or reorganizing an Issuer, the Guarantor or such Subsidiary in another state of the United States or changing the legal domicile or form of an Issuer, the Guarantor or such Subsidiary or for the sole purpose of forming or collapsing a holding company structure;

(3)    the lease of all or substantially all of the real estate assets of the Guarantor or any Issuer, or any of their respective Subsidiaries, to Penn or its Subsidiaries or another operator pursuant to the Penn Master Lease, Pinnacle Master Lease or another real estate lease or leases; or

(4)    the Penn Transactions and any transactions related thereto.

The description above includes a phrase relating to the sale or disposition of “all or substantially all” of the properties or assets of the Issuers or the Guarantor, and their respective Subsidiaries. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law.

Limitation on Activities of Capital Corp.

Capital Corp. will not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that Capital Corp. may be a co-obligor or guarantor with respect to indebtedness if the Operating Partnership is an obligor on or guarantor of such indebtedness and the net proceeds of such indebtedness are funded to, or at the direction of, the Operating Partnership or a Subsidiary thereof other than Capital Corp.

Certain Definitions

2013 Offering Memorandum” means the offering memorandum of the Issuers, dated October 23, 2013.

Acquired Debt” means, with respect to any specified Person:

(1)    Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and

(2)    Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

Asset Value” means, at any date of determination, the sum of:

(1)    in the case of any Income Property (or group of Income Properties, including, without limitation, the Penn Master Lease Properties), the Capitalized Value of such Income Property (or group of Income Properties) as of such date; provided, however, that the Asset Value of each Income Property (other than a former Development Property or Redevelopment Property) during the first four complete fiscal quarters following the date of acquisition thereof shall be the greater of (i) the acquisition price thereof and (ii) the Capitalized Value thereof (provided that the Asset Value shall be the acquisition price thereof if results of one full fiscal quarter after the acquisition thereof are not available with respect to such Income Property (or group of Income Properties) (and after results of one full fiscal quarter after the acquisition thereof are available, the Capitalized Value thereof may be determined by annualizing such results) including for purposes of determining any increase in Total Asset Value since the end of the Latest Completed Quarter); provided, further, that an adjustment shall be made to the Asset Value of any Income Property (in an amount reasonably determined by an Issuer) as new tenancy leases are entered into, or existing tenancy leases terminate or expire, in respect of such Income Property;

 

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(2)    in the case of any Development Property or Redevelopment Property (or former Development Property or Redevelopment Property) prior to the date when financial results are available for at least one complete fiscal quarter following completion or opening of the applicable development project, 100% of the book value (determined in accordance with GAAP but determined without giving effect to any depreciation) of any such Development Property or Redevelopment Property (or former Development Property or Redevelopment Property); and

(3)    100% of the book value (determined in accordance with GAAP) of any undeveloped land owned or leased as of such date of determination.

Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

Capitalized Value” means, with respect to the Penn Master Lease Properties or any other group of related properties or any other property, the Property EBITDA of the Penn Master Lease Properties or such other group of related properties or such property, as the case may be, for the most recent four completed fiscal quarters divided by 8.25%.

Change of Control” means the occurrence of any of the following:

(1)    the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Guarantor, the Operating Partnership and their Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d) of the Exchange Act); provided, however, that for the avoidance of doubt, the lease of all or substantially all of the real estate assets of the Guarantor or any Issuer or any of their respective subsidiaries, to Penn or its Subsidiaries or to another operator pursuant to the Penn Master Lease or another real estate lease or leases shall not constitute a Change of Control;

(2)    the adoption by shareholders or partners of a plan relating to the liquidation or dissolution of the Guarantor or the Operating Partnership;

(3)    the consummation of any transaction (including any merger or consolidation) the result of which is that any “person” (as defined above), other than any holding company which owns 100% of the Voting Stock of the Guarantor (so long as no Change of Control would otherwise have occurred in respect of the Voting Stock of such holding company), becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Guarantor, measured by voting power rather than number of shares;

(4)    (i) the Guarantor ceases to own, directly or indirectly, more than 50% of the Voting Stock of the Operating Partnership or (ii) the sole general partner of the Operating Partnership ceases to be the Guarantor or one or more of the Guarantor’s wholly owned subsidiaries; or

(5)    the first day on which a majority of the members of the Board of Directors of the Guarantor are not Continuing Directors.

For purposes of this definition, (1) no Change of Control shall be deemed to have occurred solely as a result of a transfer of assets among the Guarantor, any Issuer and any of their respective Subsidiaries and (2) a Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, merger agreement or similar agreement until the consummation of the transactions contemplated by such agreement.

Change of Control Triggering Event” means the occurrence of both (i) a Change of Control and (ii) a Rating Decline.

Consolidated EBITDA” means, for the applicable test period, the net income (or net loss) of the Issuers and their Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, except to the extent that GAAP is not applicable, including, without limitation, with respect to the determination of all extraordinary, non-cash and non-recurring items ((x) excluding, without duplication, gains (or losses) from dispositions of depreciable real estate investments, property valuation losses and

 

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impairment charges and (y) before giving effect to cash dividends on preferred units of the Issuers or charges resulting from the redemption of preferred units of the Issuers attributable to the Issuers and their Subsidiaries for such period determined on a consolidated basis in conformity with GAAP);

(1)    plus, without duplication and solely to the extent already deducted (and not added back) in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    interest expense (whether paid or accrued and whether or not capitalized);

(b)    income tax expense;

(c)    depreciation expense;

(d)    amortization expense;

(e)    extraordinary, non-recurring and unusual items, charges or expenses (including, without limitation, impairment charges, fees, costs and expenses relating to the Penn Transactions, prepayment penalties and costs, fees or expenses incurred in connection with any capital markets offering, debt financing, or amendment thereto, redemption or exchange of indebtedness, lease termination, business combination, acquisition, disposition, recapitalization or similar transaction (regardless of whether such transaction is completed));

(f)    expenses and losses associated with hedging agreements;

(g)    expenses and losses resulting from fluctuations in foreign exchange rates;

(h)    other non-cash items, charges or expenses reducing net income (or increasing net loss) (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made in which case, at the election of the Issuers such items may be added back when accrued and deducted from net income when paid in cash, or given effect (and not added back to net income) when accrued or reserved);

(i)    the amount of integration costs deducted (and not added back) in such period in computing the net income (or net loss);

(j)    severance, relocation costs, signing costs, retention or completion bonuses, transition costs, curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities); and

(k)    to the extent not included in net income or, if otherwise excluded from Consolidated EBITDA due to the operation of clause (2)(a) below, the amount of insurance proceeds received during such period, or after such period and on or prior to the date the calculation is made with respect to such period, attributable to any property which has been closed or had operations curtailed for such period; provided that such amount of insurance proceeds shall only be included pursuant to this clause (k) to the extent of the amount of insurance proceeds plus Consolidated EBITDA attributable to such property for such period (without giving effect to this clause (k)) does not exceed Consolidated EBITDA attributable to such property during the most recent four consecutive fiscal quarter period that such property was fully operational (or if such property has not been fully operational for the most recent such period prior to such closure or curtailment, the Consolidated EBITDA attributable to such property during the consecutive fiscal quarter period prior to such closure or curtailment (for which financial results are available) annualized over four fiscal quarters);

(2)    minus, without duplication and solely to the extent included in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    extraordinary, non-recurring and unusual gains (other than insurance proceeds);

(b)    gains attributable to hedging agreements;

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(d)    other non-cash gains increasing net income (or decreasing net loss) other than accruals in the ordinary course.

For purposes of this definition, net income (net loss) shall only include the Issuers’ Ownership Share of net income (net loss) of their non-wholly owned Subsidiaries and Unconsolidated Affiliates and, accordingly, there shall be no deduction from net income or Consolidated EBITDA for non-controlling or minority interests in such Persons.

Consolidated EBITDA will be adjusted, without duplication, to give pro forma effect: (x) in the case of any assets having been placed-in-service or removed from service since the beginning of the period and on or prior to the date of determination, to include or exclude, as the case may be, any Consolidated EBITDA earned or eliminated as a result of the placement of such assets in service or removal of such assets from service as if the placement of such assets in service or removal of such assets from service occurred at the beginning of the period; and (y) in the case of any acquisition or disposition of any asset or group of assets since the beginning of the period and on or prior to the date of determination, including, without limitation, by merger, or stock or asset purchase or sale, to include or exclude, as the case may be, any Consolidated EBITDA earned or eliminated as a result of the acquisition or disposition of those assets as if the acquisition or disposition occurred at the beginning of the period. For purposes of calculating Consolidated EBITDA, all amounts shall be as reasonably determined by an Issuer, and in accordance with GAAP except to the extent that GAAP is not applicable, including, without limitation, with respect to the determination of extraordinary, non-cash or non-recurring items.

Consolidated Financial Statements” means, with respect to any Person, collectively, the consolidated financial statements and notes to those financial statements, of that Person and its Subsidiaries prepared in accordance with GAAP.

Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Guarantor who:

(1)    was a member of such Board of Directors on the date of the indenture; or

(2)    was nominated for election or elected to such Board of Directors with the approval of a majority of the continuing directors under clause (1) or this clause (2) who were members of such Board at the time of such nomination or election.

Credit Agreement” means the Credit Agreement, dated October 28, 2013, as amended by Amendment No. 1 thereto, dated July 31, 2015, and as further amended by Amendment No. 2 thereto, dated May 21, 2018, among the Operating Partnership, as the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, L/C Issuer and Swingline Lender and the parties named therein as Co-Syndication Agents, Documentation Agents, Joint Physical Bookrunners and Joint Lead Arrangers, and the lenders from time to time party thereto, including any related notes, guarantees, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, restructured, replaced or refinanced from time to time including increases in principal amount (whether the same are provided by the original agents and lenders under such Credit Agreement or other agents or other lenders).

Credit Facilities” means one or more debt facilities or commercial paper facilities (providing for revolving credit loans, term loans, other loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit) or debt securities, including any related notes, guarantees, collateral documents, agreements relating to swap or other hedging obligations, and other instruments, agreements and documents executed in connection therewith, in each case as amended, restated, modified, renewed, refunded, replaced, restructured or otherwise refinanced in whole or in part from time to time by one or more agreements, facilities (whether or not in the form of a debt facility or commercial paper facility) or instruments.

Debt Securities” means any debt securities, as such term is commonly understood, issued in any public offering or private placement in an aggregate principal amount of $100.0 million or more.

 

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Development Property” means real property (a) acquired for, or currently under, development into an Income Property that, in accordance with GAAP, would be classified as an asset on the consolidated balance sheet of the Issuers and their Subsidiaries and (b) of the type described in clause (a) of this definition to be (but not yet) acquired by the Issuers or any of their Subsidiaries upon completion of construction pursuant to a contract in which the seller of such real property is required to build, develop or renovate prior to, and as a condition precedent to, such acquisition.

Existing Notes” means the Penn Notes and the Issuers’ 4.375% Senior Notes due 2021, initial 5.250% Senior Notes due 2025 issued on May 21, 2018, 5.375% Senior Notes due 2026 and 5.750% Senior Notes due 2028.

Fitch” means Fitch Ratings, Inc., doing business as Fitch Ratings, or any successor thereto.

GAAP” means generally accepted accounting principles set forth as of the relevant date in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), including, without limitation, any Accounting Standards Codifications, which are applicable to the circumstances as of the date of determination; provided that (1) any lease that is accounted for by any Person as an operating lease as of the Issue Date, (2) the Pinnacle Master Lease and (3) any similar lease to either lease referred to in clauses (1) and (2) and entered into after the Issue Date by any Person may, in the sole discretion of the Operating Partnership, be accounted for as an operating lease for purposes of the notes and the indenture with respect to the notes (and shall not constitute a capitalized lease).

Gaming Approval” means any and all approvals, licenses, authorizations, permits, consents, rulings, orders or directives (a) relating to any gaming business (including pari-mutuel betting) or enterprise, including to enable the Issuers or any of their Subsidiaries or affiliates to engage in or manage the casino, gambling, horse racing or gaming business or otherwise continue to conduct or manage such business substantially as is presently conducted or managed or contemplated to be conducted or managed following the Issue Date or (b) required by any Gaming Law.

Gaming Authority” means any governmental agency, authority, board, bureau, commission, department, office or instrumentality with regulatory, licensing or permitting authority or jurisdiction over any gaming business or enterprise or any Gaming Facility, or with regulatory, licensing or permitting authority or jurisdiction over any gaming operation (or proposed gaming operation) owned, managed or operated by the Issuers or any of their Subsidiaries.

Gaming Facility” means any gaming or pari-mutuel wagering establishment, including any casino or “racino,” and other property or assets ancillary thereto or used in connection therewith, including any casinos, hotels, resorts, racetracks, off-track wagering sites, theaters, parking facilities, recreational vehicle parks, timeshare operations, retail shops, restaurants, other buildings, restaurants, theatres, related or ancillary businesses, land, golf courses and other recreation and entertainment facilities, marinas, vessels, barges, ships and equipment.

Gaming Laws” means all applicable provisions of all: (a) constitutions, treaties, statutes or laws governing Gaming Facilities (including card club casinos and pari-mutuel racetracks) and rules, regulations, codes and ordinances of, and all administrative or judicial orders or decrees or other laws pursuant to which, any Gaming Authority possesses regulatory, licensing or permit authority over gambling, gaming, racing or Gaming Facility activities conducted or managed by the Issuers or any of their Subsidiaries or affiliates within its jurisdiction; (b) Gaming Approvals; and (c) orders, decisions, determinations, judgments, awards and decrees of any Gaming Authority.

Income Property” means any real or personal property or assets or vessels (including any personal property ancillary thereto or used in connection therewith or in support thereof) owned, operated or leased or otherwise controlled by the Issuers or their Subsidiaries and earning, or intended to earn, current income whether from rent, lease payments, operations or otherwise. “Income Property” shall not include any

 

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Development Property, Redevelopment Property or undeveloped land during the period such property or assets or vessels are Development Properties, Redevelopment Properties or undeveloped land as reasonably determined by an Issuer.

Indebtedness” means, as of any date of determination, all indebtedness for borrowed money of the Issuers and their Subsidiaries that is included as a liability on the Consolidated Financial Statements of the Issuers in accordance with GAAP, excluding: (i) any indebtedness to the extent Discharged or to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness), (ii) Intercompany Debt, (iii) all liabilities associated with customary exceptions to non-recourse indebtedness, such as for fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy and other similar exceptions and (iv) any redeemable equity interest in the Issuers; provided that Indebtedness of a Subsidiary of any of the Issuers that is not a wholly owned Subsidiary of the Issuers shall be reduced to reflect the Issuers’ proportionate interest therein.

Intercompany Debt” means, as of any date, Indebtedness to which the only parties are the Guarantor, the Issuers and any of their respective Subsidiaries as of such date; provided, however, that with respect to any such Indebtedness of which any of the Issuers is the borrower, such Indebtedness is subordinate in right of payment to the notes.

Interest Expense” means, for any period of time, the aggregate amount of interest payable in cash on Indebtedness of the Issuers and their Subsidiaries, net of interest income and payments received under swap and other hedging agreements or arrangements relating to interest rates, and excluding (i) any commitment, upfront, arrangement or structuring fees or premiums (including redemption and prepayment premiums) or original issue discount, (ii) interest reserves funded from the proceeds of any Indebtedness, (iii) any cash costs associated with breakage in respect of hedging agreements for interest rates, (iv) all cash interest expense consisting of liquidated damages for failure to timely comply with registration rights obligations and financing fees, and (v) amortization of deferred financing costs; provided that the components of Interest Expense relating to a Subsidiary of any of the Issuers that is not a wholly owned Subsidiary of the Issuers shall be reduced to reflect the Issuers’ proportionate interest therein.

Issue Date” means                 , 2018.

Latest Completed Quarter” means, as of any date, the most recently ended fiscal quarter of the Issuers for which Consolidated Financial Statements of the Issuers (or the Guarantor or another parent guarantor, as applicable) have been completed, it being understood that at any time when the Issuers (or the Guarantor or another parent guarantor, as applicable) are subject to the informational requirements of the Exchange Act, and in accordance therewith file annual and quarterly reports with the SEC, the term “Latest Completed Quarter” shall be deemed to refer to the fiscal quarter covered by the Issuers’ (or the Guarantor’s or another parent guarantor’s, as applicable) most recently filed Quarterly Report on Form 10-Q, or, in the case of the last fiscal quarter of the year, the Issuers’ (or the Guarantor’s or another parent guarantor’s, as applicable) Annual Report on Form 10-K.

Lien” means, with respect to any asset (without duplication), any lien, security interest or other type of preferential arrangement for security, including, without limitation, the lien or retained security title of a conditional vendor; provided that, for purposes hereof, “Lien” shall not include any Lien related to Indebtedness that has been Discharged or otherwise satisfied by the Issuers or any of their Subsidiaries in accordance with the provisions thereof, including through the deposit of cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee with respect to third party indebtedness).

Ownership Share” means, with respect to any Subsidiary (other than a wholly owned Subsidiary of any of the Issuers) or any Unconsolidated Affiliate of the Issuers, the Issuers’ relative direct and indirect economic interest (calculated as a percentage) in such Subsidiary or Unconsolidated Affiliate determined in accordance with the applicable provisions of the declaration of trust, articles or certificate of incorporation,

 

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articles of organization, partnership agreement, joint venture agreement or other applicable organizational document of such Subsidiary or Unconsolidated Affiliate.

Penn” means Penn National Gaming, Inc., a Pennsylvania corporation.

Penn Master Lease” means that certain Master Lease, dated as of November 1, 2013, between the Operating Partnership (and any Subsidiaries of the Operating Partnership acting as landlord or co-landlord) and the Penn Tenant, as it may be amended, supplemented or modified from time to time.

Penn Master Lease Guaranty” means the Guaranty of the Penn Master Lease by Penn in favor of the Operating Partnership or a Subsidiary thereof.

Penn Master Lease Properties” means, as of any date of determination, the real properties that are leased to Penn Tenant pursuant to the Penn Master Lease.

Penn Notes” means the Issuers’ 4.875% Senior Notes due 2020 and 5.375% Senior Notes due 2023.

Penn Notes Issue Date” means October 30, 2013, with respect to the Issuers’ 5.375% Senior Notes due 2023, and October 31, 2013, with respect to the Issuers’ 4.875% Senior Notes due 2020.

Penn Tenant” means Penn Tenant, LLC, a Pennsylvania limited liability company, in its capacity as tenant under the Penn Master Lease, and its successors in such capacity.

Penn Transactions” means, collectively, (a) the Spin-Off and the series of corporate restructurings and other transactions entered into in connection with the foregoing, the acquisition by the Guarantor of the GLPI Assets (as defined in the 2013 Offering Memorandum) and the entering into of the Penn Master Lease, (b) the issuance of the Penn Notes (and the Issuers’ 4.375% Senior Notes due 2018, which have been redeemed in full as of the date hereof) and the entering into of the Credit Agreement on October 28, 2013, (c) the payment of the earnings and profits purge described in the 2013 Offering Memorandum, (d) any other transactions defined as “Transactions” in the 2013 Offering Memorandum and (e) the payment of fees and expenses in connection with the foregoing.

Permitted Debt means:

(1)    Indebtedness incurred under the Credit Facilities on or prior to the date of the indenture; and

(2)    Indebtedness represented by the Existing Notes and any of the Issuers’ 5.250% Senior Notes due 2025 offered pursuant to this prospectus supplement.

Permitted Replacement Lease” means (a) any new lease entered into pursuant to Section 17.1(f) of the Penn Master Lease, (b) any new lease entered into with a Qualified Successor Tenant or (c) any assignment of the Penn Master Lease to a Qualified Successor Tenant, in each case, whether in respect of all or a portion of the gaming facilities subject to the Penn Master Lease.

Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

Pinnacle” means Pinnacle Entertainment, Inc., a Delaware corporation.

Pinnacle Master Lease” means that certain Master Lease, dated as of April 28, 2016, between, Pinnacle MLS, LLC, as tenant, and Gold Merger Sub, LLC (as successor to Pinnacle), as landlord, as such Master Lease may be amended, supplemented or modified from time to time.

pro forma basis” means:

(1)    For purposes of calculating the amount of Total Debt or Secured Debt or Unsecured Debt under “— Certain Covenants — Limitations on Incurrence of Indebtedness — Limitation on Total Debt” and “— Limitation on Secured Debt,” there shall be excluded Indebtedness to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness) or which has been repaid, discharged, defeased (whether by covenant or legal defeasance), retired, repurchased or redeemed

 

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or otherwise satisfied on or prior to the date such calculation is being made or for which the Guarantor, the Issuers or any of their Subsidiaries has irrevocably made a deposit to repay, defease (whether by covenant or legal defeasance), discharge, repurchase, retire or redeem or otherwise satisfy or called for redemption, defeasance (whether by covenant or legal defeasance), discharge, repurchase or retirement, on or prior to the date such calculation is being made (collectively, “Discharged”);

(2)    For purposes of calculating the Coverage Ratio:

(a)    in the event that the Issuers or any of their Subsidiaries incurs, assumes, guarantees or Discharges any Indebtedness (other than ordinary working capital borrowings) subsequent to the commencement of the period for which the Coverage Ratio is being calculated and on or prior to the date such calculation is being made, then the Coverage Ratio will be calculated giving pro forma effect thereto, and the use of the proceeds therefrom (including any such transaction giving rise to the need to calculate the Coverage Ratio), in each case, as if the same had occurred at the beginning of the applicable four-quarter period and Interest Expense relating to any such Indebtedness that has been Discharged or to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness) shall be excluded;

(b)    acquisitions or investments that have been made by the Issuers or any of their Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter period or subsequent to such period and on or prior to the date such calculation is being made, and the change in Consolidated EBITDA resulting therefrom, will be given pro forma effect as if they had occurred on the first day of the four-quarter period, and Consolidated EBITDA for such period shall include the Consolidated EBITDA of the acquired entities or applicable to such investments, and related transactions, and shall otherwise be calculated on a pro forma basis;

(c)    (a) any Person that is a Subsidiary on the date such calculation is being made will be deemed to have been a Subsidiary at all times during the applicable four-quarter period, and (b) any Person that is not a Subsidiary on the date such calculation is being made will be deemed not to have been a Subsidiary at any time during the applicable four-quarter reference period;

(d)    the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the date such calculation is being made, will be excluded;

(e)    the Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the date such calculation is being made, will be excluded, but only to the extent that the obligations giving rise to such Interest Expense will not be obligations of the Issuers or any of their Subsidiaries following the date such calculation is being made;

(f)    interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate as the Issuers may designate; and

(g)    for any period that includes any period of time occurring prior to the Penn Notes Issue Date, the Penn Transactions shall be given pro forma effect as if the Penn Transactions had occurred at the beginning of such period.

Property EBITDA” means, for any period of time with respect to the Penn Master Lease Properties or any other group of related properties or any property (excluding any properties that are not Income Properties), the sum, with respect to the Penn Master Lease Properties or other group of related properties or property, of the net income (or net loss) derived from such property for such period (excluding, without duplication, gains (or losses) from dispositions of depreciable real estate investments, property valuation losses and impairment charges);

 

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(1)    plus, without duplication and solely to the extent already deducted (and not added back) in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    interest expense (whether paid or accrued and whether or not capitalized);

(b)    income tax expense;

(c)    depreciation expense;

(d)    amortization expense;

(e)    extraordinary, non-recurring and unusual items, charges or expenses (including, without limitation, property valuation losses, impairment charges, fees, costs and expenses relating to the Penn Transactions, prepayment penalties and costs, fees or expenses incurred in connection with any capital markets offering, debt financing, or amendment thereto, redemption or exchange of indebtedness, lease termination, business combination, acquisition, disposition, recapitalization or similar transaction (regardless of whether such transaction is completed));

(f)    expenses and losses associated with hedging agreements;

(g)    expenses and losses resulting from fluctuations in foreign exchange rates;

(h)    other non-cash items, charges or expenses reducing net income (or increasing net loss) (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made in which case, at the election of the Issuers such items may be added back when accrued and deducted from net income when paid in cash, or given effect (and not added back to net income) when accrued or reserved);

(i)    the amount of integration costs deducted (and not added back) in such period in computing the net income (or net loss);

(j)    severance, relocation costs, signing costs, retention or completion bonuses, transition costs, curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities); and

(k)    to the extent not included in net income or, if otherwise excluded from Property EBITDA due to the operation of clause (2)(a) below, the amount of insurance proceeds received during such period, or after such period and on or prior to the date the calculation is made with respect to such period, attributable to such property;

(2)    minus, without duplication and solely to the extent included in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    extraordinary, non-recurring and unusual gains (other than insurance proceeds);

(b)    gains attributable to hedging agreements;

(c)    non-cash gains resulting from fluctuations in foreign exchange rates; and

(d)    other non-cash gains increasing net income (or decreasing net loss) other than accruals in the ordinary course;

provided that to the extent any amounts referred to in this definition or deducted in calculating net income (or net loss) (including any costs or expenses included in calculating net income (or net loss)) are required to be paid by the Penn Tenant under the Penn Master Lease or any other Person that is a lessee or operator of any such property, such amounts will not be subtracted, and will be added back to Property EBITDA for the applicable property or group of properties.

Property EBITDA will be adjusted, without duplication, to give pro forma effect: (x) in the case of any assets having been placed-in-service or removed from service since the beginning of the period and on or prior to the date of determination, to include or exclude, as the case may be, any Property EBITDA earned or eliminated as a result of the placement of such assets in service or removal of such assets from service as

 

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if the placement of such assets in service or removal of such assets from service occurred at the beginning of the period; and (y) in the case of any acquisition or disposition of any asset or group of assets since the beginning of the period and on or prior to the date of determination, including, without limitation, by merger, or stock or asset purchase or sale, to include or exclude, as the case may be, any Property EBITDA earned or eliminated as a result of the acquisition or disposition of those assets as if the acquisition or disposition occurred at the beginning of the period. For purposes of calculating Property EBITDA, all amounts shall be as determined reasonably by an Issuer, and in accordance with GAAP except to the extent that GAAP is not applicable.

Qualified Successor Tenant” means a Person that: (a) in the reasonable judgment of an Issuer, has sufficient experience (directly or through one or more of its Subsidiaries) operating or managing casinos or is owned, controlled or managed by a Person with such experience, to operate properties subject to a Permitted Replacement Lease and (b) is licensed or certified by each gaming authority with jurisdiction over any gaming facility subject to the applicable Permitted Replacement Lease as of the initial date of the effectiveness of the applicable Permitted Replacement Lease.

Rating Agency” means (a) Fitch, Moody’s or S&P or (b) if any of Fitch, Moody’s or S&P shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuers (as certified by a resolution of the Issuers’ Board of Directors) which shall be substituted for Fitch, Moody’s or S&P, as the case may be.

Rating Category” means (a) with respect to Fitch or S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (b) with respect to Moody’s, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (c) the equivalent of any such category of Fitch, S&P or Moody’s used by another Rating Agency selected by the Issuers. In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories ((i) + and - for S&P and Fitch; (ii) 1, 2 and 3 for Moody’s; and (iii) the equivalent gradations for another Rating Agency selected by the Issuers) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, or from BB- to B+, will constitute a decrease of one gradation).

Rating Date” means the date which is 90 days prior to the earlier of (a) a Change of Control or (b) public notice of the occurrence of a Change of Control or of the intention by the Issuers to effect a Change of Control.

Rating Decline” with respect to the notes shall be deemed to occur if, within 90 days after public notice of the occurrence of a Change of Control (which period shall be extended in respect of a Rating Agency so long as the rating of the notes is under publicly announced consideration for possible downgrade by any such Rating Agency with respect to a Rating Category), the rating of the notes by at least two of the three Rating Agencies shall be decreased by one or more gradations to or within a Rating Category (including gradations within Rating Categories as well as between Rating Categories) as compared to the rating of the notes on the Rating Date.

Redevelopment Property” means any real property owned by an Issuer or its Subsidiaries that operates or is intended to operate as an Income Property (a)(i) that has been acquired by an Issuer or any of its Subsidiaries with a view toward renovating or rehabilitating such real property at an aggregate anticipated cost of at least 10% of the acquisition cost thereof and such renovation or rehabilitation is expected to disrupt the occupancy of at least 30% of the square footage of such property or (x) that an Issuer or any of its Subsidiaries intends to renovate or rehabilitate at an aggregate anticipated cost in excess of (y) 10% of the Capitalized Value of such real property immediately prior to such renovation or rehabilitation and such renovation or rehabilitation is expected to temporarily reduce the Property EBITDA attributable to such property by at least 30% as compared to the immediately preceding comparable prior period and or (ii) with respect to which an Issuer or a Subsidiary thereof has entered into a binding construction contract or construction has commenced, (b) that does not qualify as a “Development Property” and (c) that an Issuer so desires to classify as a “Redevelopment Property” for purposes of the notes.

Secured Debt” means, as of any date of determination, the portion of Total Debt as of such date that is secured by a Lien on property or assets of the Issuers or any of their Subsidiaries.

 

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Significant Acquisition” means an acquisition in which the aggregate consideration (whether in the form of cash, securities, goodwill, or otherwise) with respect to such acquisition is not less than five percent (5%) of Total Asset Value immediately prior to such acquisition.

Significant Subsidiary” means any Subsidiary of an Issuer having (together with its Subsidiaries) assets that constitute five percent (5%) or more of Total Asset Value as of the end any of the most recently completed fiscal year of the Issuers for which Consolidated Financial Statements have been prepared prior to the date of determination.

Spin-Off” means the spin-off of the Guarantor from Penn to the shareholders of Penn in November 2013, which resulted in the Operating Partnership having title to substantially all of the real estate assets held by Penn prior to the spin-off, and including the entering into by the Penn Tenant and the Operating Partnership (or one or more Subsidiaries of the Operating Partnership acting as landlord or co-landlord) of the Penn Master Lease.

Subsidiary” means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of an Issuer, and in the case of each of clauses (i) and (ii) which is required to be consolidated with such Person in accordance with GAAP.

Total Asset Value” means, as of any date, the sum of the following without duplication: (a) the sum of the Asset Values for all assets constituting Income Properties, Development Properties, Redevelopment Properties or undeveloped land owned by the Issuers or any of their Subsidiaries at such date, plus (b) an amount (but not less than zero) equal to all unrestricted cash and cash equivalents on hand of the Issuers and their Subsidiaries (including the proceeds of the Indebtedness to be incurred), plus (c) earnest money deposits associated with potential acquisitions as of such date, plus (d) the book value (determined in accordance with GAAP) (but determined without giving effect to any depreciation or amortization) of all other investments held by the Issuers and their Subsidiaries at such date (exclusive of accounts receivable and goodwill and other intangible assets). Total Asset Value shall be adjusted in the case of assets owned by Subsidiaries of the Issuers which are not wholly owned Subsidiaries of the Issuers to reflect the Issuers’ Ownership Share therein.

Total Debt” means, as of any date of determination, the aggregate principal amount of outstanding Indebtedness of the Issuers and their Subsidiaries as of such date; provided that (a) Total Debt shall not include Indebtedness in respect of letters of credit, except to the extent of unreimbursed amounts thereunder, and (b) the amount of Total Debt, in the case of Indebtedness of a Subsidiary of the Issuers that is not a wholly owned Subsidiary of the Issuers, shall be reduced to reflect the Issuers’ proportionate interest therein.

Total Unencumbered Asset Value” means, as of any date of determination, the Total Asset Value for all assets owned by the Issuers or one of their Subsidiaries at such date that are not subject to any Lien which secures Indebtedness of the Issuers and their Subsidiaries; provided, however, that all investments by the Issuers and their Subsidiaries in unconsolidated joint ventures, unconsolidated limited partnerships, unconsolidated limited liability companies and other unconsolidated entities shall be excluded from Total Unencumbered Asset Value to the extent such investments would have otherwise been included.

Unconsolidated Affiliate” means, with respect to any Person, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the Consolidated Financial Statements of such Person.

Unsecured Debt” means, as of any date of determination, that portion of Total Debt as of that date that is not Secured Debt.

 

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Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

Events of Default

The following are “events of default” under the indenture with respect to debt securities of a particular series issued under the indenture, including the notes:

(1)    default for 30 days in the payment when due of interest on the debt securities of a particular series issued under the indenture, including the notes;

(2)    default in payment when due of the principal of or premium, if any, on the debt securities of a particular series issued under the indenture, including the notes;

(3)    failure by the Issuers or any of their Subsidiaries for 60 days after receipt of notice from the trustee or holders of at least 25% in principal amount of the notes then outstanding to comply with any of the covenants or agreements in the indenture (other than a covenant or agreement included in the indenture for the benefit of one or more series of debt securities other than the notes) or the notes;

(4)    certain specified events under bankruptcy, insolvency or other similar laws with respect to the Issuers or any of their Significant Subsidiaries;

(5)    a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any of our recourse Indebtedness (or the payment of which we guarantee), whether such Indebtedness or guarantee now exists or is created after the date of the indenture, if that default: (i) is caused by a failure to pay principal of such Indebtedness at final maturity (a “payment default”); or (ii) results in the acceleration of such Indebtedness prior to its express maturity (which acceleration has not been rescinded, annulled or cured within 20 business days after receipt by us of notice from the trustee or holders of at least 25% in principal amount of the notes then outstanding specifying such default), and, in each case, the due and payable principal amount of any such Indebtedness, together with the due and payable principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $100.0 million or more; and

(6)    other than in connection with any transaction not prohibited by “— Certain Covenants — Penn Master Lease,” the Penn Master Lease shall have terminated or the Penn Master Lease Guaranty shall have terminated (other than in accordance with the terms of the Penn Master Lease); provided that such termination shall not constitute an event of default if within 90 days after such termination the Operating Partnership has entered into one or more Permitted Replacement Leases (or in the case of the Penn Master Lease Guaranty, a replacement guaranty is entered into in accordance with the Penn Master Lease).

In the case of an event of default arising under clause (4) of the immediately preceding paragraph with respect to the Issuers, all notes then outstanding will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of then outstanding notes (or then outstanding debt securities of a particular series in case of an event of default specific to such series) may declare all the debt securities outstanding under the indenture (or all of the notes, as applicable) to be due and payable immediately.

Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of then outstanding notes may direct the trustee, in writing, in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing default or event of default if it determines that withholding notice is in their interest, except a default or event of default relating to the payment of principal or interest.

The holders of a majority in aggregate principal amount of the notes then outstanding by written notice to the trustee may on behalf of the holders of all of the notes waive any existing default or event of default with respect to the notes and its consequences under the indenture (or in the case of an event of default specific to a series of debt securities outstanding under the indenture, including the notes, holders of a majority in aggregate principal amount of the debt securities of such series then outstanding by written

 

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notice to the trustee may on behalf of the holders of all of the such series waive any existing default or event of default with respect to the debt securities of such series and its consequences under the indenture), in each case, except a continuing default or event of default in the payment of interest on, or the principal of, the such debt securities, including the notes; provided that the holders of a majority in aggregate principal amount of such debt securities (or of the debt securities of such series, respectively) then outstanding may rescind an acceleration of the debt securities (or the debt securities of such series) and waive the payment default that resulted from such acceleration.

The Issuers are required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any default or event of default, the Issuers are required to deliver to the trustee, a statement specifying such default or event of default.

Notwithstanding clause (3) of the first paragraph above or any other provision of the indenture, except as provided in the final sentence of this paragraph, the sole remedy for any failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall be the payment of liquidated damages as described in the following sentence, such failure to comply shall not constitute an event of default, and holders of the notes shall not have any right under the indenture or the notes to accelerate the maturity of the notes as a result of any such failure to comply. If a failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” continues for 60 days after the Issuers receives notice of such failure to comply in accordance with clause (3) of the first paragraph above (such notice, the “Reports Default Notice”), and is continuing on the 60th day following the Issuers’ receipt of the Reports Default Notice, the Issuers will pay liquidated damages to all holders of notes at a rate per annum equal to 0.25% of the principal amount of the notes from the 60th day following the Issuers’ receipt of the Reports Default Notice to but not including the earlier of (x) the 121st day following the Issuers’ receipt of the Reports Default Notice and (y) the date on which the failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall have been cured or waived. On the earlier of the date specified in the immediately preceding clauses (x) and (y), such liquidated damages will cease to accrue. If the failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall not have been cured or waived on or before the 121st day following the Issuers’ receipt of the Reports Default Notice, then the failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall on such 121st day constitute an event of default. A failure to comply with the covenant described under the caption “— Certain Covenants — Reports” automatically shall cease to be continuing and shall be deemed cured at such time as the Issuers (or the Guarantor or other parent guarantor of the Issuers, as applicable) furnishes to the trustee the applicable information or report (it being understood that the availability of such information or report on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy the Issuers’ obligation to furnish such information or report to the trustee); provided, however, that the trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the “EDGAR” system (or its successor).

Amendment, Supplement and Waiver

Except as provided in the next three succeeding paragraphs, the notes and the indenture may be amended or supplemented with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with the notes or any provision of the indenture as it relates to the notes may be waived with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes).

Without the consent of each holder of notes affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder):

(1)    reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver;

 

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(2)    reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes;

(3)    reduce the rate of or change the time for payment of interest on any note;

(4)    waive a default or event of default in the payment of principal of or interest or premium on the notes (except a rescission of acceleration of the notes by the holders of a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration);

(5)    make any note payable in money other than that stated in the notes;

(6)    make any change in the provisions of the indenture relating to waivers of past defaults or the rights of holders of notes to receive payments of principal of or interest or premium on the notes;

(7)    waive a redemption payment with respect to any note; or

(8)    make any change in the preceding amendment and waiver provisions.

Notwithstanding the preceding, without the consent of any holder of notes, the Issuers and the trustee may amend or supplement the indenture or the notes:

(1)    to cure any ambiguity, defect, mistake or inconsistency;

(2)    to provide for uncertificated notes in addition to or in place of certificated notes;

(3)    to provide for the assumption of the Issuers’ obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ assets;

(4)    to comply with the rules of any applicable securities depository;

(5)    to comply with applicable gaming laws, to the extent that such amendment or supplement is not materially adverse to the holders of notes;

(6)    to provide for the issuance of additional notes or additional debt securities in accordance with the limitations set forth in the indenture;

(7)    to make any change that would provide any additional rights or benefits to the holders of notes (including to provide for any guarantees of the notes or any collateral securing the notes or any guarantees of the notes) or that does not materially adversely affect the legal rights under the indenture of any such holder;

(8)    to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the TIA; or

(9)    to conform the text of the indenture or the notes to any provision of the “Description of the 2029 Notes” contained in the Offering Memorandum or this prospectus supplement as set forth in an officer’s certificate.

Legal Defeasance and Covenant Defeasance

The Issuers may, at their option and at any time, elect to have all of their obligations discharged with respect to the outstanding notes (“Legal Defeasance”) except for:

(1)    the rights of holders of outstanding notes to receive payments in respect of the principal of or interest or premium on such notes when such payments are due from the trust referred to below;

(2)    the Issuers’ obligations with respect to the notes concerning issuing temporary notes, the replacement of mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

(3)    the rights, powers, trusts, duties and immunities of the trustee, and the Issuers’ obligations in connection therewith; and

(4)    the Legal Defeasance provisions of the indenture.

 

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In addition, the Issuers may, at their option and at any time, elect to have the obligations of the Issuers released with respect to certain covenants that are described in the indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a default or event of default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including the events described in clauses (1), (2), or (4) under the caption “Events of Default” above pertaining to the Issuers) described under the caption “Events of Default” above will no longer constitute an event of default with respect to the notes. The Issuers may exercise Legal Defeasance regardless of whether they previously have exercised Covenant Defeasance.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1)    the Issuers must irrevocably deposit with the trustee, in trust, for the benefit of the holders of notes to be defeased, cash in U.S. dollars, non-callable government securities, or a combination of cash in U.S. dollars and non-callable government securities, in amounts as will be sufficient, in the opinion or based on the report of a nationally recognized firm of independent public accountants, investment bank or appraisal firm, to pay the principal of, premium, if any, on and accrued and unpaid interest on the outstanding notes to be defeased on the stated maturity or on a redemption date, as the case may be, and the Issuers must specify whether the notes are being defeased to maturity or to a particular redemption date; provided that, with respect to any redemption pursuant to “— Redemption — Optional Redemption,” the amount deposited shall be sufficient for purposes of the indenture to the extent that an amount is so deposited with the trustee equal to the redemption amount computed using the Treasury Rate as of the third business date preceding the date of such deposit with the trustee;

(2)    in the case of Legal Defeasance, the Issuers must have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such Legal Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3)    in the case of Covenant Defeasance, the Issuers must have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4)    no default or event of default has occurred and is continuing on the date of such deposit (other than a default or event of default resulting from transactions occurring contemporaneously with the borrowing of funds, or the borrowing of funds, to be applied to such deposit or other Indebtedness which is being Discharged and, in each case, the granting of Liens in connection therewith);

(5)    such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture or any agreement or instrument governing any other Indebtedness which is being Discharged) to which the Issuers are a party or by which the Issuers are bound;

(6)    the Issuers must deliver to the trustee an officer’s certificate stating that the deposit was not made by the Issuers with the intent of preferring the holders of notes over the other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and

(7)    the Issuers must deliver to the trustee an officer’s certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

 

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The Legal Defeasance or Covenant Defeasance will be effective on the day on which all the applicable conditions above have been satisfied. Upon compliance with the foregoing, the trustee shall execute proper instrument(s) acknowledging such Legal Defeasance or Covenant Defeasance.

Satisfaction and Discharge

The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when:

(1)    either:

(a)    all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and, if provided for in the indenture, thereafter repaid to the Issuers, have been delivered to the trustee for cancellation; or

(b)    all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuers have irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable government securities, or a combination of cash in U.S. dollars and non-callable government securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium, if any, and accrued and unpaid interest to, but not including, the date of maturity or redemption; provided that, in the event that any portion of the trust funds so deposited consist of non-callable government securities, the sufficiency of such trust funds shall be determined based upon the opinion or the report of a nationally recognized firm of independent public accountants, investment bank or appraisal firm; provided further that, with respect to any redemption pursuant to “— Redemption — Optional Redemption,” the amount deposited shall be sufficient for purposes of the indenture to the extent that an amount is so deposited with the trustee equal to the redemption amount computed using the Treasury Rate as of the third business date preceding the date of such deposit with the trustee (the date of any such deposit, a “Deposit Date”);

(2)    the Issuers have paid or caused to be paid all other sums then payable by it under the indenture; and

(3)    the Issuers have delivered irrevocable written instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.

In addition, the Issuers must deliver an officer’s certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

Upon compliance with the foregoing, the trustee shall execute proper instrument(s) acknowledging the satisfaction and discharge of all of the Issuers’ obligations under the notes and the indenture.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or direct or indirect partner, member or stockholder, past, present or future, of the Issuers, the Guarantor or any successor entity, as such, will have any liability for any obligations of the Issuers or the Guarantor under the notes or the indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Forms and Denomination

The notes will be issued as permanent global securities in the name of a nominee of DTC. The notes will be issued in fully registered form without coupons and are available for purchase only in denominations of $2,000 and in integral multiples of $1,000 in excess thereof.

 

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Governing Law

The indenture and the notes will be governed by and construed in accordance with the laws of the State of New York.

Concerning the Trustee

If the trustee becomes a creditor of the Issuers or the Guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.

The holders of a majority in principal amount of then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee with respect to the notes, subject to certain exceptions. The indenture provides that in case an event of default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of such person’s own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.

The trustee shall be entitled to make a deduction or withholding from any payment which it makes under the indenture for or on account of any present or future taxes, duties or charges if and to the extent so required by any applicable law and any current or future regulations or agreements thereunder or official interpretations thereof or any law implementing an intergovernmental approach thereto or by virtue of the relevant holder failing to satisfy any certification or other requirements in respect of the notes, in which event the trustee shall make such payment after such withholding or deduction has been made and shall account to the relevant authorities for the amount so withheld or deducted and shall have no obligation to gross up any payment hereunder or pay any additional amount as a result of such withholding tax. In connection with any proposed exchange of a certificated note for a global note interest, the Issuers or DTC shall be required to use commercially reasonable efforts to provide or cause to be provided to the trustee all information reasonably requested by the trustee that is necessary to allow the trustee to comply with any applicable tax reporting obligations. The trustee shall be entitled to rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

Wells Fargo Bank, National Association, in addition to serving as trustee under the indenture, is one of the lenders under our Credit Agreement, and such credit facility includes outstanding debt which is to be retired at least in part with proceeds from this transaction. Wells Fargo Securities, LLC, an affiliate of the trustee, is one of the underwriters. We currently have a business relationship, and may from time to time conduct other banking transactions including lending transactions or maintaining deposit accounts, with Wells Fargo Bank, National Association in the ordinary course of business.

Additional Information

Anyone who receives this prospectus during the marketing of this offering may obtain a copy of the indenture without charge by writing to Gaming and Leisure Properties, Inc., Wyomissing Professional Center, 845 Berkshire Boulevard, Suite 200, Wyomissing, PA 19610, Attention: Chief Financial Officer.

 

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DESCRIPTION OF THE NEW 2025 NOTES

General

In this description, (1) the “Operating Partnership” refers only to GLP Capital, L.P., and not to any of its Subsidiaries, (2) “Capital Corp. refers only to GLP Financing II, Inc., and not to any of its Subsidiaries, (3) “Issuers,” “we,” “us” and “our” refer only to the Operating Partnership and Capital Corp., and (4) “Guarantor” refers only to Gaming and Leisure Properties, Inc. and not to any of its Subsidiaries.

The new 2025 notes offered hereby are additional 2025 notes issued under the indenture. The new 2025 notes offered hereby will form a part of the same series as the Issuers’ 5.250% Senior Notes due 2025 issued on May 21, 2018 in the aggregate principal amount of $500 million (the “initial 2025 notes”) and will be treated as a single series with the initial 2025 notes for all purposes under the indenture. The terms of the new 2025 notes offered hereby, other than their issue date, initial interest payment date and issue price, will be identical to the terms of the initial 2025 notes. Upon completion of this offering, the aggregate principal amount of the outstanding 2025 notes of the series will be $        million. The new 2025 notes offered hereby will have the same CUSIP number as, and be fungible for trading purposes with, the initial 2025 notes.

The notes will be issued under the indenture, dated as of October 30, 2013 (the “base indenture”), among the Issuers, the Guarantor and Wells Fargo Bank, National Association, as trustee, as supplemented by the first supplemental indenture among the Issuers, the Guarantor and the trustee, dated as of March 28, 2016 (the “first supplemental indenture”) and the fifth supplemental indenture among the Issuers, the Guarantor and the trustee (the “fifth supplemental indenture”). The terms of the notes include those stated in the base indenture as supplemented by the first supplemental indenture and the fifth supplemental indenture (the base indenture, as supplemented by the first supplemental indenture and the fifth supplemental indenture, is referred to as the “indenture”) and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended (the “TIA”).

The following description is a summary of the material provisions of the indenture. It does not restate the indenture in its entirety. We urge you to read the indenture because the indenture, and not this description, defines your rights as holders of the notes. The indenture is available from us upon request. See “— Additional Information” and “Where You Can Find More Information.”

Certain defined terms used in this description but not defined below under the caption “— Certain Definitions” have the meanings assigned to them in the indenture.

The registered holder of a note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture.

Brief Description of the Notes and the Note Guarantee

The notes:

 

   

will be general senior unsecured obligations of the Issuers;

 

   

will be pari passu in right of payment with all of the Issuers’ senior indebtedness, including the Existing Notes and borrowings under the Credit Agreement, without giving effect to collateral arrangements;

 

   

will be effectively subordinated in right of payment to all of the Issuers’ secured indebtedness to the extent of the value of the assets securing such indebtedness;

 

   

will be senior in right of payment to all of the Issuers’ senior subordinated or subordinated indebtedness;

 

   

will be structurally subordinated to all liabilities of the Issuers’ subsidiaries (other than Capital Corp., which is a co-issuer of the notes); and

 

   

will be fully and unconditionally guaranteed by the Guarantor.

 

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The note guarantee:

The notes will be guaranteed by the Guarantor; however, the Guarantor is not subject to most of the covenants in the indenture. The guarantee of the notes:

 

   

will be a general unsecured obligation of the Guarantor;

 

   

will be pari passu in right of payment with all of the Guarantor’s senior indebtedness, including its guarantee of the Existing Notes and borrowings under the Credit Agreement, without giving effect to collateral arrangements;

 

   

will be effectively subordinated in right of payment to all of the Guarantor’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

 

   

will be senior in right of payment to all of the Guarantor’s senior subordinated or subordinated indebtedness; and

 

   

will be structurally subordinated to all liabilities of the Guarantor’s subsidiaries (other than the Issuers).

The obligation of the Guarantor under its guarantee is limited as necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law.

As of June 30, 2018, on a pro forma basis after giving effect to the Transactions as described in this prospectus supplement, (i) the Issuers, the Guarantor and the Issuers’ Subsidiaries would have had total consolidated indebtedness of $                , net of unamortized issuance costs, including $                 of notes, $3.9 billion of Existing Notes and approximately $                 of indebtedness outstanding under the Credit Agreement, and would have had $         million of availability under our Revolver (including $0.4 million of contingent obligations under letters of credit); (ii) the Issuers and the Guarantor would have had no secured indebtedness; and (iii) the liabilities of the Issuers’ Subsidiaries (other than Capital Corp.) would have consisted primarily of payables, deferred taxes, intercompany debt and other ordinary course liabilities. The indenture permits the Issuers and the Issuers’ Subsidiaries to incur substantial additional indebtedness and does not limit the amount of indebtedness that the Guarantor may incur.

Capital Corp.

Capital Corp. is a Delaware corporation and a wholly owned Subsidiary of the Operating Partnership. Capital Corp. is nominally capitalized and does not have any material assets or significant operations, other than with respect to acting as co-issuer or guarantor for certain debt obligations the Operating Partnership may incur or guarantee from time to time. As a result, prospective purchasers of the notes should not expect Capital Corp. to participate in servicing the interest and principal obligations on the notes. See “— Certain Covenants — Limitation on Activities of Capital Corp.”

Principal, Maturity and Interest

The Issuers are issuing $        aggregate principal amount of their 5.250% Senior Notes due 2025 (solely for purposes of this section, “Description of the New 2025 Notes,” the “notes”).

The Issuers may issue additional notes of the same or different series from time to time under the indenture. Any issuance of additional notes is subject to the covenants set forth below under “— Certain Covenants — Limitations on Incurrence of Indebtedness.” The notes and any additional notes of the same series subsequently issued will be treated as a single series for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the indenture and this “Description of the New 2025 Notes,” references to the notes include any additional notes actually issued. The Issuers will issue notes in denominations of $2,000 and integral multiples of $1,000.

Interest on the notes offered hereby will accrue at the rate of 5.250% per annum and will be payable semi-annually in arrears on June 1 and December 1, commencing December 1, 2018. Interest on the notes

 

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will be deemed to accrue from May 21, 2018. The Issuers will make each interest payment on the notes to the holders of record on the immediately preceding May 15 and November 15. The entire principal amount of the notes will mature and become due and payable, together with any accrued and unpaid interest, on June 1, 2025. The notes will not be entitled to the benefit of any sinking fund.

Interest on the notes will be computed on the basis of a 360-day year comprised of twelve 30-day months.

If any interest payment date, redemption date, repurchase date or maturity date falls on a day that is not a business day, the required payment of principal, premium, if any, and/or interest may be made on the next succeeding business day as if made on the date such payment was due, and no interest will accrue on such payment for the period from and after such interest payment date, redemption date, repurchase date or maturity date, as the case may be, to the date of such payment on the next succeeding business day.

Redemption

Optional Redemption

We may redeem all or part of the notes at any time at our option at a redemption price equal to the greater of:

(1)    100% of the principal amount of the notes to be redeemed, and

(2)    the sum of the present values of the remaining scheduled payments of principal and interest thereon that would be due if such notes matured 90 days prior to their maturity date (the “Par Call Date”) but for the redemption thereof (exclusive of interest accrued to, but not including, the date of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis points, in each case, plus accrued and unpaid interest on the amount being redeemed to, but not including, the date of redemption; provided, however, that if we redeem the notes on or after the Par Call Date, the redemption price will equal 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest on the amount being redeemed to, but not including, the date of redemption; provided, further, that installments of interest that are due and payable on any interest payment dates falling on or prior to a redemption date shall be payable on such interest payment dates to the persons who were registered holders of the notes at the close of business on the applicable record dates.

Unless we default in our payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portions of such notes called for redemption.

Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the notes being redeemed calculated as if the maturity date of such notes were the Par Call Date (the “Remaining Life”) that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life of the notes.

Comparable Treasury Price” means, with respect to any redemption date, (1) the average of four Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the Issuers are provided fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.

Quotation Agent” means the Reference Treasury Dealer appointed by the Issuers to act as the Quotation Agent from time to time.

Reference Treasury Dealer means (1) Wells Fargo Securities, LLC and its successors; provided, however, that if Wells Fargo Securities, LLC shall cease to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), we will substitute therefor another Primary Treasury Dealer, and (2) any other Primary Treasury Dealers selected by the Issuers.

 

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Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by an Issuer, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Issuers by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date (or the third business day preceding the relevant Deposit Date in connection with the satisfaction and discharge of notes in accordance with the terms of the indenture).

Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price on such redemption date.

Gaming Redemption

In addition to the foregoing, if any Gaming Authority requires that a holder or Beneficial Owner of notes must be licensed, qualified or found suitable under any applicable Gaming Laws and such holder or Beneficial Owner:

(1)    fails to apply for a license, qualification or a finding of suitability within 30 days (or such shorter period as may be required by the applicable Gaming Authority) after being requested to do so by the Gaming Authority, or

(2)    is denied such license or qualification or not found suitable, or if any Gaming Authority otherwise requires that notes from any holder or Beneficial Owner be redeemed, subject to applicable Gaming Laws the Issuers shall have the right, at their option:

(i)    to require any such holder or Beneficial Owner to dispose of its notes within 30 days (or such earlier date as may be required by the applicable Gaming Authority) of receipt of such notice or finding by such Gaming Authority, or

(ii)    to call for the redemption of the notes of such holder or Beneficial Owner at a redemption price equal to the least of:

(A)    the principal amount thereof, together with accrued interest to the earlier of the date of redemption or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority,

(B)    the price at which such holder or Beneficial Owner acquired the notes, together with accrued interest to the earlier of the date of redemption or the date of the denial of license or qualification or of the finding of unsuitability by such Gaming Authority, or

(C)    such other lesser amount as may be required by any Gaming Authority.

The Issuers shall notify the trustee in writing of any such redemption as soon as practicable. The holder or Beneficial Owner applying for license, qualification or a finding of suitability must pay all costs of the licensure or investigation for such qualification or finding of suitability.

No Mandatory Redemption

The Issuers are not required to make mandatory redemption or sinking fund payments with respect to the notes.

Selection and Notice

If less than all of the notes are to be redeemed at any time, the trustee will select notes for redemption as follows:

(1)    if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or

 

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(2)    if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate and in accordance with DTC procedures.

No notes of $2,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail (or in the case of global notes, given pursuant to applicable DTC procedures) at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address, except that (a) redemption notices may be mailed or given more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture and (b) redemption notices may be mailed or given less than 30 days or more than 60 days prior to a redemption date if so required by any applicable Gaming Authority in connection with a redemption described above under the caption “— Redemption — Gaming Redemption.”

If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption (subject to satisfaction of any applicable conditions precedent). Unless we default in the payment of the redemption price, on and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. For the avoidance of doubt, the Trustee shall not have any responsibility for calculating the redemption price.

Subject to applicable securities laws, the Issuers or their affiliates may at any time and from time to time purchase notes or other indebtedness. Any such purchases may be made through open market or privately negotiated transactions with third parties or pursuant to one or more tender or exchange offers or otherwise, upon such terms and at such prices as well as with such consideration as the Issuers or any such affiliates may determine.

Repurchase at the Option of Holders

Change of Control and Rating Decline

If a Change of Control Triggering Event occurs with respect to the notes, each holder of such notes will have the right to require the Issuers to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000) of that holder’s notes pursuant to an offer by the Issuers (a “Change of Control Offer”) on the terms set forth in the indenture, except to the extent the Issuers have previously redeemed such notes as described under “— Redemption — Optional Redemption.” In the Change of Control Offer, the Issuers will offer a payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest on the notes repurchased, to the date of purchase (the “Change of Control Payment”). Within 30 days following the occurrence of a Change of Control Triggering Event, the Issuers will mail a notice to each holder describing the transaction or transactions that constitute, or are expected to constitute, the Change of Control Triggering Event, and offering to repurchase notes on the date (the “Change of Control Payment Date”) specified in the notice, which date will be no earlier than 30 days and no later than 60 days after the date such notice is mailed (or in the case of global notes, given pursuant to applicable DTC procedures), pursuant to the procedures required by the indenture and described in such notice. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control Triggering Event. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such conflict.

On the Change of Control Payment Date, the Issuers will, to the extent lawful:

(1)    accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;

 

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(2)    deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

(3)    deliver or cause to be delivered to the trustee the notes properly accepted together with an officer’s certificate stating the aggregate principal amount of notes or portions of notes being purchased by the Issuers.

The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $2,000 or an integral multiple of $1,000.

The provisions described above that require the Issuers to make a Change of Control Offer following the occurrence of a Change of Control Triggering Event will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control Triggering Event, the indenture does not contain provisions that permit the holders of the notes to require that the Issuers repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

The Issuers will not be required to make a Change of Control Offer upon the occurrence of a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by the Issuers and purchases all notes properly tendered and not withdrawn under the Change of Control Offer. Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of an anticipated Change of Control Triggering Event, conditional upon such Change of Control Triggering Event.

If holders of not less than 90% in aggregate principal amount of the outstanding notes validly tender and do not withdraw such notes in a Change of Control Offer and the Issuers, or any third party making a Change of Control Offer in lieu of the Issuers as described above, purchases all of the notes validly tendered and not withdrawn by such holders, the Issuers or such third party will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer described above, to redeem all notes that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to, but not including the date of redemption.

The definition of “Change of Control” includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of the Guarantor, the Issuers and their Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require the Issuers to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Guarantor, the Issuers and their Subsidiaries taken as a whole to another Person or group may be uncertain.

The Credit Agreement provides that certain change of control events with respect to the Issuers would constitute a default under the Credit Agreement. Any future credit agreements or other agreements to which any of the Issuers becomes a party may contain similar provisions. In the event a Change of Control Triggering Event occurs at a time when the Issuers are prohibited from purchasing notes, the Issuers could seek the consent of their senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If the Issuers do not obtain such a consent or repay such borrowings, the Issuers will remain prohibited from purchasing notes. In such case, the Issuers’ failure to purchase tendered notes would constitute a default under the indenture which could, in turn, constitute a default under such other indebtedness.

 

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Certain Covenants

Limitations on Incurrence of Indebtedness

Limitation on Total Debt. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Indebtedness (other than Permitted Debt) if, immediately after giving effect to the incurrence of such additional Indebtedness, the Total Debt of the Issuers and their Subsidiaries on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness) would exceed 60% of the sum of (i) Total Asset Value as of the end of the Latest Completed Quarter and (ii) any increase in Total Asset Value since the end of the Latest Completed Quarter (such sum of (i) and (ii), “Adjusted Total Asset Value”); provided, however, that from and after the consummation of a Significant Acquisition, such percentage shall be 65% for the fiscal quarter in which such Significant Acquisition is consummated and the three consecutive fiscal quarters immediately succeeding such fiscal quarter.

Limitation on Secured Debt. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt, the Secured Debt of the Issuers and their Subsidiaries on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness) would exceed 40% of Adjusted Total Asset Value.

Interest Coverage Ratio. The Issuers shall not, and shall not permit any of their Subsidiaries to, incur any Indebtedness (other than Permitted Debt) if, immediately after giving effect to the incurrence of such additional Indebtedness, the ratio of Consolidated EBITDA to Interest Expense for the Issuers and their Subsidiaries (the “Coverage Ratio”) for the four consecutive fiscal quarter period ending on and including the Latest Completed Quarter would be less than 1.50 to 1.00 on a pro forma basis (including pro forma application of the net proceeds from such Indebtedness).

Limitation on Subordinated Debt and Subsidiary Guarantees. The Issuers shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any other Indebtedness of the Issuers, unless such Indebtedness is expressly subordinated in right of payment to the notes. The foregoing does not apply to distinctions between categories of Indebtedness that exist by reason of any Liens securing some but not all of such Indebtedness or securing such Indebtedness with greater or lesser priority or with different collateral or as a result of provisions that apply proceeds or amounts received by the borrower, obligor or issuer following a default or exercise of remedies in a certain order of priority.

In addition, following the date of the indenture, no Subsidiary of the Operating Partnership (excluding Capital Corp.) will directly or indirectly guarantee, or become jointly and severally liable with respect to any Debt Securities of the Operating Partnership (excluding, in any event, (x) Acquired Debt and (y) guarantees of such Acquired Debt or any other Indebtedness of the Operating Partnership to the extent a guarantee is required as a result of the assumption by the Operating Partnership of such Acquired Debt described in clause (x) pursuant to the terms thereof as they existed at the time of and after giving effect to (and are not modified in contemplation of, other than to give effect to) the assumption of or acquisition of such Acquired Debt) issued after the date of the indenture, unless a guarantee is provided in respect of the notes by such Subsidiary.

Maintenance of Total Unencumbered Assets

The Issuers and their Subsidiaries shall maintain Total Unencumbered Asset Value of not less than 150% of Unsecured Debt, in each case calculated as of the end of the Latest Completed Quarter.

Reports

Whether or not required by the SEC, so long as any notes are outstanding, the Issuers will furnish to the trustee with written instructions for mailing (or in the case of global notes, delivery pursuant to

 

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applicable DTC procedures) to the holders of notes, within 30 days after the time periods specified in the SEC’s rules and regulations:

(1)    all quarterly and annual financial information that is filed or that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if or as if the Issuers were required to file such forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Issuers’ certified independent accountants; and

(2)    all current reports that would be required to be filed with the SEC on Form 8-K if the Issuers were required to file such reports.

The availability of the foregoing materials on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy the Issuers’ obligations to furnish such materials to the trustee with written instructions for mailing (or in the case of global notes, delivery pursuant to applicable DTC procedures) to the holders of notes; provided, however, that the trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the “EDGAR” system (or its successor).

Delivery of such reports, information and documents to the trustee is for informational purposes only and the trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers’ compliance with any of its covenants under the indenture (as to which the trustee is entitled to rely exclusively on officer’s certificates).

Notwithstanding the foregoing, for so long as the Guarantor guarantees the notes (or in the event that another parent entity of the Issuers becomes a guarantor of the notes), the Issuers may satisfy their obligations to furnish the reports and other information described above by furnishing such reports filed by, or such information of, the Guarantor (or such other parent guarantor, respectively) and the availability of the Guarantor’s (or such other parent guarantor’s, as applicable) information on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy such obligation.

Penn Master Lease

The Issuers will not enter into any amendment to the Penn Master Lease if such amendment would materially impair the ability of the Issuers to satisfy their obligations to make payments on the notes; provided that amendments of the Penn Master Lease (and corresponding rent reduction) pursuant to the terms of the Penn Master Lease in connection with an asset sale made in accordance with the Penn Master Lease shall not be deemed to materially impair the ability of the Issuers to satisfy their obligations to make payments on the notes or to materially impair the rights and remedies of the holders of the notes.

Consolidation, Merger and Sale of Assets

Each Issuer may not, directly or indirectly: (x) consolidate or merge with or into another Person (whether or not such Issuer is the surviving entity); or (y) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of such Issuer and its Subsidiaries taken as a whole to another Person unless:

(1)    either (a) such Issuer is the surviving Person; or (b) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia (provided that if such Person is not a corporation, a co-obligor of the notes is a corporation organized or existing under such laws);

(2)    the Person formed by or surviving any such consolidation or merger (if other than an Issuer) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made

 

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assumes all the obligations of such Issuer under the notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; and

(3)    immediately after such transaction no default or event of default exists with respect to the notes.

The Guarantor may not, directly or indirectly: (x) consolidate or merge with or into another Person (whether or not the Guarantor is the surviving corporation); or (y) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Guarantor and its Subsidiaries taken as a whole to another Person unless:

(1)    either (a) the Guarantor is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia;

(2)    the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Guarantor under the notes and the indenture pursuant to agreements reasonably satisfactory to the trustee; and

(3)    immediately after such transaction no default or event of default exists with respect to the notes.

Upon any sale, assignment, transfer, conveyance or other disposition of all or substantially all of an Issuer’s or the Guarantor’s, as applicable, and its Subsidiaries’ assets, taken as a whole, in compliance with the provisions of this “Consolidation, Merger and Sale of Assets” covenant, such Issuer or the Guarantor, as applicable, will be released from the obligations under the notes or its guarantee, respectively, and the indenture except with respect to any obligations that arise from, or are related to, such transaction.

This “Consolidation, Merger and Sale of Assets” covenant will not apply to:

(1)    a merger, consolidation, sale, assignment, transfer, conveyance or other disposition of assets between or among the Guarantor, the Issuers (or an Issuer) or any of the Issuers’ Subsidiaries;

(2)    a merger between the Issuers (or an Issuer), the Guarantor or any Subsidiary respectively, and an Affiliate of an Issuer, the Guarantor or such Subsidiary incorporated or formed solely for the purpose of reincorporating or reorganizing an Issuer, the Guarantor or such Subsidiary in another state of the United States or changing the legal domicile or form of an Issuer, the Guarantor or such Subsidiary or for the sole purpose of forming or collapsing a holding company structure;

(3)    the lease of all or substantially all of the real estate assets of the Guarantor or any Issuer, or any of their respective Subsidiaries, to Penn or its Subsidiaries or another operator pursuant to the Penn Master Lease, Pinnacle Master Lease or another real estate lease or leases; or

(4)    the Penn Transactions and any transactions related thereto.

The description above includes a phrase relating to the sale or disposition of “all or substantially all” of the properties or assets of the Issuers or the Guarantor, and their respective Subsidiaries. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law.

Limitation on Activities of Capital Corp.

Capital Corp. will not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that Capital Corp. may be a co-obligor or guarantor with respect to indebtedness if the Operating Partnership is an obligor on or guarantor of such indebtedness and the net proceeds of such indebtedness are funded to, or at the direction of, the Operating Partnership or a Subsidiary thereof other than Capital Corp.

 

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Certain Definitions

2013 Offering Memorandum” means the offering memorandum of the Issuers, dated October 23, 2013.

Acquired Debt” means, with respect to any specified Person:

(1)    Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and

(2)    Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

Asset Value” means, at any date of determination, the sum of:

(1)    in the case of any Income Property (or group of Income Properties, including, without limitation, the Penn Master Lease Properties), the Capitalized Value of such Income Property (or group of Income Properties) as of such date; provided, however, that the Asset Value of each Income Property (other than a former Development Property or Redevelopment Property) during the first four complete fiscal quarters following the date of acquisition thereof shall be the greater of (i) the acquisition price thereof and (ii) the Capitalized Value thereof (provided that the Asset Value shall be the acquisition price thereof if results of one full fiscal quarter after the acquisition thereof are not available with respect to such Income Property (or group of Income Properties) (and after results of one full fiscal quarter after the acquisition thereof are available, the Capitalized Value thereof may be determined by annualizing such results) including for purposes of determining any increase in Total Asset Value since the end of the Latest Completed Quarter); provided, further, that an adjustment shall be made to the Asset Value of any Income Property (in an amount reasonably determined by an Issuer) as new tenancy leases are entered into, or existing tenancy leases terminate or expire, in respect of such Income Property;

(2)    in the case of any Development Property or Redevelopment Property (or former Development Property or Redevelopment Property) prior to the date when financial results are available for at least one complete fiscal quarter following completion or opening of the applicable development project, 100% of the book value (determined in accordance with GAAP but determined without giving effect to any depreciation) of any such Development Property or Redevelopment Property (or former Development Property or Redevelopment Property); and

(3)    100% of the book value (determined in accordance with GAAP) of any undeveloped land owned or leased as of such date of determination.

Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

Capitalized Value” means, with respect to the Penn Master Lease Properties or any other group of related properties or any other property, the Property EBITDA of the Penn Master Lease Properties or such other group of related properties or such property, as the case may be, for the most recent four completed fiscal quarters divided by 8.25%.

Change of Control” means the occurrence of any of the following:

(1)    the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Guarantor, the Operating Partnership and their Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d) of the Exchange Act); provided, however, that for the avoidance of doubt, the lease of all or substantially all of the real estate assets of the Guarantor or any Issuer or any of their respective subsidiaries, to Penn or its Subsidiaries or to another operator pursuant to the Penn Master Lease or another real estate lease or leases shall not constitute a Change of Control;

 

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(2)    the adoption by shareholders or partners of a plan relating to the liquidation or dissolution of the Guarantor or the Operating Partnership;

(3)    the consummation of any transaction (including any merger or consolidation) the result of which is that any “person” (as defined above), other than any holding company which owns 100% of the Voting Stock of the Guarantor (so long as no Change of Control would otherwise have occurred in respect of the Voting Stock of such holding company), becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Guarantor, measured by voting power rather than number of shares;

(4)    (i) the Guarantor ceases to own, directly or indirectly, more than 50% of the Voting Stock of the Operating Partnership or (ii) the sole general partner of the Operating Partnership ceases to be the Guarantor or one or more of the Guarantor’s wholly owned subsidiaries; or

(5)    the first day on which a majority of the members of the Board of Directors of the Guarantor are not Continuing Directors.

For purposes of this definition, (1) no Change of Control shall be deemed to have occurred solely as a result of a transfer of assets among the Guarantor, any Issuer and any of their respective Subsidiaries and (2) a Person shall not be deemed to have beneficial ownership of securities subject to a stock purchase agreement, merger agreement or similar agreement until the consummation of the transactions contemplated by such agreement.

Change of Control Triggering Event” means the occurrence of both (i) a Change of Control and (ii) a Rating Decline.

Consolidated EBITDA” means, for the applicable test period, the net income (or net loss) of the Issuers and their Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, except to the extent that GAAP is not applicable, including, without limitation, with respect to the determination of all extraordinary, non-cash and non-recurring items ((x) excluding, without duplication, gains (or losses) from dispositions of depreciable real estate investments, property valuation losses and impairment charges and (y) before giving effect to cash dividends on preferred units of the Issuers or charges resulting from the redemption of preferred units of the Issuers attributable to the Issuers and their Subsidiaries for such period determined on a consolidated basis in conformity with GAAP);

(1)    plus, without duplication and solely to the extent already deducted (and not added back) in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    interest expense (whether paid or accrued and whether or not capitalized);

(b)    income tax expense;

(c)    depreciation expense;

(d)    amortization expense;

(e)    extraordinary, non-recurring and unusual items, charges or expenses (including, without limitation, impairment charges, fees, costs and expenses relating to the Penn Transactions, prepayment penalties and costs, fees or expenses incurred in connection with any capital markets offering, debt financing, or amendment thereto, redemption or exchange of indebtedness, lease termination, business combination, acquisition, disposition, recapitalization or similar transaction (regardless of whether such transaction is completed));

(f)    expenses and losses associated with hedging agreements;

(g)    expenses and losses resulting from fluctuations in foreign exchange rates;

(h)    other non-cash items, charges or expenses reducing net income (or increasing net loss) (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made in which case, at the election of the Issuers such items may be added back when accrued and deducted from net income when paid in cash, or given effect (and not added back to net income) when accrued or reserved);

 

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(i)    the amount of integration costs deducted (and not added back) in such period in computing the net income (or net loss);

(j)    severance, relocation costs, signing costs, retention or completion bonuses, transition costs, curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities); and

(k)    to the extent not included in net income or, if otherwise excluded from Consolidated EBITDA due to the operation of clause (2)(a) below, the amount of insurance proceeds received during such period, or after such period and on or prior to the date the calculation is made with respect to such period, attributable to any property which has been closed or had operations curtailed for such period; provided that such amount of insurance proceeds shall only be included pursuant to this clause (k) to the extent of the amount of insurance proceeds plus Consolidated EBITDA attributable to such property for such period (without giving effect to this clause (k)) does not exceed Consolidated EBITDA attributable to such property during the most recent four consecutive fiscal quarter period that such property was fully operational (or if such property has not been fully operational for the most recent such period prior to such closure or curtailment, the Consolidated EBITDA attributable to such property during the consecutive fiscal quarter period prior to such closure or curtailment (for which financial results are available) annualized over four fiscal quarters);

(2)    minus, without duplication and solely to the extent included in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    extraordinary, non-recurring and unusual gains (other than insurance proceeds);

(b)    gains attributable to hedging agreements;

(c)    non-cash gains resulting from fluctuations in foreign exchange rates; and

(d)    other non-cash gains increasing net income (or decreasing net loss) other than accruals in the ordinary course.

For purposes of this definition, net income (net loss) shall only include the Issuers’ Ownership Share of net income (net loss) of their non-wholly owned Subsidiaries and Unconsolidated Affiliates and, accordingly, there shall be no deduction from net income or Consolidated EBITDA for non-controlling or minority interests in such Persons.

Consolidated EBITDA will be adjusted, without duplication, to give pro forma effect: (x) in the case of any assets having been placed-in-service or removed from service since the beginning of the period and on or prior to the date of determination, to include or exclude, as the case may be, any Consolidated EBITDA earned or eliminated as a result of the placement of such assets in service or removal of such assets from service as if the placement of such assets in service or removal of such assets from service occurred at the beginning of the period; and (y) in the case of any acquisition or disposition of any asset or group of assets since the beginning of the period and on or prior to the date of determination, including, without limitation, by merger, or stock or asset purchase or sale, to include or exclude, as the case may be, any Consolidated EBITDA earned or eliminated as a result of the acquisition or disposition of those assets as if the acquisition or disposition occurred at the beginning of the period. For purposes of calculating Consolidated EBITDA, all amounts shall be as reasonably determined by an Issuer, and in accordance with GAAP except to the extent that GAAP is not applicable, including, without limitation, with respect to the determination of extraordinary, non-cash or non-recurring items.

Consolidated Financial Statements” means, with respect to any Person, collectively, the consolidated financial statements and notes to those financial statements, of that Person and its Subsidiaries prepared in accordance with GAAP.

Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Guarantor who:

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(2)    was nominated for election or elected to such Board of Directors with the approval of a majority of the continuing directors under clause (1) or this clause (2) who were members of such Board at the time of such nomination or election.

Credit Agreement” means the Credit Agreement, dated October 28, 2013, as amended by Amendment No. 1 thereto, dated July 31, 2015, and as further amended by Amendment No. 2 thereto, dated May 21, 2018, among the Operating Partnership, as the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, L/C Issuer and Swingline Lender and the parties named therein as Co-Syndication Agents, Documentation Agents, Joint Physical Bookrunners and Joint Lead Arrangers, and the lenders from time to time party thereto, including any related notes, guarantees, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, restructured, replaced or refinanced from time to time including increases in principal amount (whether the same are provided by the original agents and lenders under such Credit Agreement or other agents or other lenders).

Credit Facilities” means one or more debt facilities or commercial paper facilities (providing for revolving credit loans, term loans, other loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit) or debt securities, including any related notes, guarantees, collateral documents, agreements relating to swap or other hedging obligations, and other instruments, agreements and documents executed in connection therewith, in each case as amended, restated, modified, renewed, refunded, replaced, restructured or otherwise refinanced in whole or in part from time to time by one or more agreements, facilities (whether or not in the form of a debt facility or commercial paper facility) or instruments.

Debt Securities” means any debt securities, as such term is commonly understood, issued in any public offering or private placement in an aggregate principal amount of $100.0 million or more.

Development Property” means real property (a) acquired for, or currently under, development into an Income Property that, in accordance with GAAP, would be classified as an asset on the consolidated balance sheet of the Issuers and their Subsidiaries and (b) of the type described in clause (a) of this definition to be (but not yet) acquired by the Issuers or any of their Subsidiaries upon completion of construction pursuant to a contract in which the seller of such real property is required to build, develop or renovate prior to, and as a condition precedent to, such acquisition.

Existing Notes” means the Penn Notes and the Issuers’ 4.375% Senior Notes due 2021 and 5.375% Senior Notes due 2026.

GAAP” means generally accepted accounting principles set forth as of the relevant date in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), including, without limitation, any Accounting Standards Codifications, which are applicable to the circumstances as of the date of determination; provided that (1) any lease that is accounted for by any Person as an operating lease as of the Issue Date, (2) the Pinnacle Master Lease and (3) any similar lease to either lease referred to in clauses (1) and (2) and entered into after the Issue Date by any Person may, in the sole discretion of the Operating Partnership, be accounted for as an operating lease for purposes of the notes and the indenture with respect to the notes (and shall not constitute a capitalized lease).

Gaming Approval” means any and all approvals, licenses, authorizations, permits, consents, rulings, orders or directives (a) relating to any gaming business (including pari-mutuel betting) or enterprise, including to enable the Issuers or any of their Subsidiaries or affiliates to engage in or manage the casino, gambling, horse racing or gaming business or otherwise continue to conduct or manage such business substantially as is presently conducted or managed or contemplated to be conducted or managed following the Issue Date or (b) required by any Gaming Law.

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any gaming business or enterprise or any Gaming Facility, or with regulatory, licensing or permitting authority or jurisdiction over any gaming operation (or proposed gaming operation) owned, managed or operated by the Issuers or any of their Subsidiaries.

Gaming Facility” means any gaming or pari-mutuel wagering establishment, including any casino or “racino,” and other property or assets ancillary thereto or used in connection therewith, including any casinos, hotels, resorts, racetracks, off-track wagering sites, theaters, parking facilities, recreational vehicle parks, timeshare operations, retail shops, restaurants, other buildings, restaurants, theatres, related or ancillary businesses, land, golf courses and other recreation and entertainment facilities, marinas, vessels, barges, ships and equipment.

Gaming Laws” means all applicable provisions of all: (a) constitutions, treaties, statutes or laws governing Gaming Facilities (including card club casinos and pari-mutuel racetracks) and rules, regulations, codes and ordinances of, and all administrative or judicial orders or decrees or other laws pursuant to which, any Gaming Authority possesses regulatory, licensing or permit authority over gambling, gaming, racing or Gaming Facility activities conducted or managed by the Issuers or any of their Subsidiaries or affiliates within its jurisdiction; (b) Gaming Approvals; and (c) orders, decisions, determinations, judgments, awards and decrees of any Gaming Authority.

Income Property” means any real or personal property or assets or vessels (including any personal property ancillary thereto or used in connection therewith or in support thereof) owned, operated or leased or otherwise controlled by the Issuers or their Subsidiaries and earning, or intended to earn, current income whether from rent, lease payments, operations or otherwise. “Income Property” shall not include any Development Property, Redevelopment Property or undeveloped land during the period such property or assets or vessels are Development Properties, Redevelopment Properties or undeveloped land as reasonably determined by an Issuer.

Indebtedness” means, as of any date of determination, all indebtedness for borrowed money of the Issuers and their Subsidiaries that is included as a liability on the Consolidated Financial Statements of the Issuers in accordance with GAAP, excluding: (i) any indebtedness to the extent Discharged or to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness), (ii) Intercompany Debt, (iii) all liabilities associated with customary exceptions to non-recourse indebtedness, such as for fraud, misapplication of funds, environmental indemnities, voluntary bankruptcy, collusive involuntary bankruptcy and other similar exceptions and (iv) any redeemable equity interest in the Issuers; provided that Indebtedness of a Subsidiary of any of the Issuers that is not a wholly owned Subsidiary of the Issuers shall be reduced to reflect the Issuers’ proportionate interest therein.

Intercompany Debt” means, as of any date, Indebtedness to which the only parties are the Guarantor, the Issuers and any of their respective Subsidiaries as of such date; provided, however, that with respect to any such Indebtedness of which any of the Issuers is the borrower, such Indebtedness is subordinate in right of payment to the notes.

Interest Expense” means, for any period of time, the aggregate amount of interest payable in cash on Indebtedness of the Issuers and their Subsidiaries, net of interest income and payments received under swap and other hedging agreements or arrangements relating to interest rates, and excluding (i) any commitment, upfront, arrangement or structuring fees or premiums (including redemption and prepayment premiums) or original issue discount, (ii) interest reserves funded from the proceeds of any Indebtedness, (iii) any cash costs associated with breakage in respect of hedging agreements for interest rates, (iv) all cash interest expense consisting of liquidated damages for failure to timely comply with registration rights obligations and financing fees, and (v) amortization of deferred financing costs; provided that the components of Interest Expense relating to a Subsidiary of any of the Issuers that is not a wholly owned Subsidiary of the Issuers shall be reduced to reflect the Issuers’ proportionate interest therein.

Issue Date” means May 21, 2018.

 

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Latest Completed Quarter” means, as of any date, the most recently ended fiscal quarter of the Issuers for which Consolidated Financial Statements of the Issuers (or the Guarantor or another parent guarantor, as applicable) have been completed, it being understood that at any time when the Issuers (or the Guarantor or another parent guarantor, as applicable) are subject to the informational requirements of the Exchange Act, and in accordance therewith file annual and quarterly reports with the SEC, the term “Latest Completed Quarter” shall be deemed to refer to the fiscal quarter covered by the Issuers’ (or the Guarantor’s or another parent guarantor’s, as applicable) most recently filed Quarterly Report on Form 10-Q, or, in the case of the last fiscal quarter of the year, the Issuers’ (or the Guarantor’s or another parent guarantor’s, as applicable) Annual Report on Form 10-K.

Lien” means, with respect to any asset (without duplication), any lien, security interest or other type of preferential arrangement for security, including, without limitation, the lien or retained security title of a conditional vendor; provided that, for purposes hereof, “Lien” shall not include any Lien related to Indebtedness that has been Discharged or otherwise satisfied by the Issuers or any of their Subsidiaries in accordance with the provisions thereof, including through the deposit of cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee with respect to third party indebtedness).

Ownership Share” means, with respect to any Subsidiary (other than a wholly owned Subsidiary of any of the Issuers) or any Unconsolidated Affiliate of the Issuers, the Issuers’ relative direct and indirect economic interest (calculated as a percentage) in such Subsidiary or Unconsolidated Affiliate determined in accordance with the applicable provisions of the declaration of trust, articles or certificate of incorporation, articles of organization, partnership agreement, joint venture agreement or other applicable organizational document of such Subsidiary or Unconsolidated Affiliate.

Penn” means Penn National Gaming, Inc., a Pennsylvania corporation.

Penn Master Lease” means that certain Master Lease, dated as of November 1, 2013, between the Operating Partnership (and any Subsidiaries of the Operating Partnership acting as landlord or co-landlord) and the Penn Tenant, as it may be amended, supplemented or modified from time to time.

Penn Master Lease Guaranty” means the Guaranty of the Penn Master Lease by Penn in favor of the Operating Partnership or a Subsidiary thereof.

Penn Master Lease Properties” means, as of any date of determination, the real properties that are leased to Penn Tenant pursuant to the Penn Master Lease.

Penn Notes” means the Issuers’ 4.375% Senior Notes due 2018, 4.875% Senior Notes due 2020 and 5.375% Senior Notes due 2023.

Penn Notes Issue Date” means October 30, 2013, with respect to the Issuers’ 4.375% Senior Notes due 2018 and 5.375% Senior Notes due 2023 and October 31, 2013, with respect to the Issuers’ 4.875% Senior Notes due 2020.

Penn Tenant” means Penn Tenant, LLC, a Pennsylvania limited liability company, in its capacity as tenant under the Penn Master Lease, and its successors in such capacity.

Penn Transactions” means, collectively, (a) the Spin-Off and the series of corporate restructurings and other transactions entered into in connection with the foregoing, the acquisition by the Guarantor of the GLPI Assets (as defined in the 2013 Offering Memorandum) and the entering into of the Penn Master Lease, (b) the issuance of the Penn Notes and the entering into of the Credit Agreement on October 28, 2013, (c) the payment of the earnings and profits purge described in the 2013 Offering Memorandum, (d) any other transactions defined as “Transactions” in the 2013 Offering Memorandum and (e) the payment of fees and expenses in connection with the foregoing.

Permitted Debt means:

(1)    Indebtedness incurred under the Credit Facilities on or prior to the date of the indenture; and

 

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(2)    Indebtedness represented by the Existing Notes.

Permitted Replacement Lease” means (a) any new lease entered into pursuant to Section 17.1(f) of the Penn Master Lease, (b) any new lease entered into with a Qualified Successor Tenant or (c) any assignment of the Penn Master Lease to a Qualified Successor Tenant, in each case, whether in respect of all or a portion of the gaming facilities subject to the Penn Master Lease.

Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

Pinnacle” means Pinnacle Entertainment, Inc., a Delaware corporation.

Pinnacle Master Lease” means that certain Master Lease, dated as of April 28, 2016, between, Pinnacle MLS, LLC, as tenant, and Gold Merger Sub, LLC (as successor to Pinnacle), as landlord, as such Master Lease may be amended, supplemented or modified from time to time.

pro forma basis” means:

(1)    For purposes of calculating the amount of Total Debt or Secured Debt or Unsecured Debt under “— Certain Covenants — Limitations on Incurrence of Indebtedness — Limitation on Total Debt” and “— Limitation on Secured Debt,” there shall be excluded Indebtedness to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness) or which has been repaid, discharged, defeased (whether by covenant or legal defeasance), retired, repurchased or redeemed or otherwise satisfied on or prior to the date such calculation is being made or for which the Guarantor, the Issuers or any of their Subsidiaries has irrevocably made a deposit to repay, defease (whether by covenant or legal defeasance), discharge, repurchase, retire or redeem or otherwise satisfy or called for redemption, defeasance (whether by covenant or legal defeasance), discharge, repurchase or retirement, on or prior to the date such calculation is being made (collectively, “Discharged”);

(2)    For purposes of calculating the Coverage Ratio:

(a)    in the event that the Issuers or any of their Subsidiaries incurs, assumes, guarantees or Discharges any Indebtedness (other than ordinary working capital borrowings) subsequent to the commencement of the period for which the Coverage Ratio is being calculated and on or prior to the date such calculation is being made, then the Coverage Ratio will be calculated giving pro forma effect thereto, and the use of the proceeds therefrom (including any such transaction giving rise to the need to calculate the Coverage Ratio), in each case, as if the same had occurred at the beginning of the applicable four-quarter period and Interest Expense relating to any such Indebtedness that has been Discharged or to the extent secured by cash, cash equivalents or marketable securities (it being understood that cash collateral shall be deemed to include cash deposited with a trustee or other agent with respect to third party indebtedness) shall be excluded;

(b)    acquisitions or investments that have been made by the Issuers or any of their Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter period or subsequent to such period and on or prior to the date such calculation is being made, and the change in Consolidated EBITDA resulting therefrom, will be given pro forma effect as if they had occurred on the first day of the four-quarter period, and Consolidated EBITDA for such period shall include the Consolidated EBITDA of the acquired entities or applicable to such investments, and related transactions, and shall otherwise be calculated on a pro forma basis;

(c)    (a) any Person that is a Subsidiary on the date such calculation is being made will be deemed to have been a Subsidiary at all times during the applicable four-quarter period, and (b) any Person that is not a Subsidiary on the date such calculation is being made will be deemed not to have been a Subsidiary at any time during the applicable four-quarter reference period;

 

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(d)    the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the date such calculation is being made, will be excluded;

(e)    the Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the date such calculation is being made, will be excluded, but only to the extent that the obligations giving rise to such Interest Expense will not be obligations of the Issuers or any of their Subsidiaries following the date such calculation is being made;

(f)    interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate as the Issuers may designate; and

(g)    for any period that includes any period of time occurring prior to the Penn Notes Issue Date, the Penn Transactions shall be given pro forma effect as if the Penn Transactions had occurred at the beginning of such period.

Property EBITDA” means, for any period of time with respect to the Penn Master Lease Properties or any other group of related properties or any property (excluding any properties that are not Income Properties), the sum, with respect to the Penn Master Lease Properties or other group of related properties or property, of the net income (or net loss) derived from such property for such period (excluding, without duplication, gains (or losses) from dispositions of depreciable real estate investments, property valuation losses and impairment charges);

(1)    plus, without duplication and solely to the extent already deducted (and not added back) in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    interest expense (whether paid or accrued and whether or not capitalized);

(b)    income tax expense;

(c)    depreciation expense;

(d)    amortization expense;

(e)    extraordinary, non-recurring and unusual items, charges or expenses (including, without limitation, property valuation losses, impairment charges, fees, costs and expenses relating to the Penn Transactions, prepayment penalties and costs, fees or expenses incurred in connection with any capital markets offering, debt financing, or amendment thereto, redemption or exchange of indebtedness, lease termination, business combination, acquisition, disposition, recapitalization or similar transaction (regardless of whether such transaction is completed));

(f)    expenses and losses associated with hedging agreements;

(g)    expenses and losses resulting from fluctuations in foreign exchange rates;

(h)    other non-cash items, charges or expenses reducing net income (or increasing net loss) (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made in which case, at the election of the Issuers such items may be added back when accrued and deducted from net income when paid in cash, or given effect (and not added back to net income) when accrued or reserved);

(i)    the amount of integration costs deducted (and not added back) in such period in computing the net income (or net loss);

(j)    severance, relocation costs, signing costs, retention or completion bonuses, transition costs, curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities); and

 

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(k)    to the extent not included in net income or, if otherwise excluded from Property EBITDA due to the operation of clause (2)(a) below, the amount of insurance proceeds received during such period, or after such period and on or prior to the date the calculation is made with respect to such period, attributable to such property;

(2)    minus, without duplication and solely to the extent included in arriving at such net income (or net loss), the sum of the following amounts for such period:

(a)    extraordinary, non-recurring and unusual gains (other than insurance proceeds);

(b)    gains attributable to hedging agreements;

(c)    non-cash gains resulting from fluctuations in foreign exchange rates; and

(d)    other non-cash gains increasing net income (or decreasing net loss) other than accruals in the ordinary course;

provided that to the extent any amounts referred to in this definition or deducted in calculating net income (or net loss) (including any costs or expenses included in calculating net income (or net loss)) are required to be paid by the Penn Tenant under the Penn Master Lease or any other Person that is a lessee or operator of any such property, such amounts will not be subtracted, and will be added back to Property EBITDA for the applicable property or group of properties.

Property EBITDA will be adjusted, without duplication, to give pro forma effect: (x) in the case of any assets having been placed-in-service or removed from service since the beginning of the period and on or prior to the date of determination, to include or exclude, as the case may be, any Property EBITDA earned or eliminated as a result of the placement of such assets in service or removal of such assets from service as if the placement of such assets in service or removal of such assets from service occurred at the beginning of the period; and (y) in the case of any acquisition or disposition of any asset or group of assets since the beginning of the period and on or prior to the date of determination, including, without limitation, by merger, or stock or asset purchase or sale, to include or exclude, as the case may be, any Property EBITDA earned or eliminated as a result of the acquisition or disposition of those assets as if the acquisition or disposition occurred at the beginning of the period. For purposes of calculating Property EBITDA, all amounts shall be as determined reasonably by an Issuer, and in accordance with GAAP except to the extent that GAAP is not applicable.

Qualified Successor Tenant” means a Person that: (a) in the reasonable judgment of an Issuer, has sufficient experience (directly or through one or more of its Subsidiaries) operating or managing casinos or is owned, controlled or managed by a Person with such experience, to operate properties subject to a Permitted Replacement Lease and (b) is licensed or certified by each gaming authority with jurisdiction over any gaming facility subject to the applicable Permitted Replacement Lease as of the initial date of the effectiveness of the applicable Permitted Replacement Lease.

Rating Agency” means (a) Moody’s or S&P or (b) if Moody’s or S&P or both shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuers (as certified by a resolution of the Issuers’ Board of Directors) which shall be substituted for Moody’s or S&P or both, as the case may be.

Rating Category means (a) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (b) with respect to Moody’s, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (c) the equivalent of any such category of S&P or Moody’s used by another Rating Agency selected by the Issuers. In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories ((i) + and — for S&P; (ii) 1, 2 and 3 for Moody’s; and (iii) the equivalent gradations for another Rating Agency selected by the Issuers) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, or from BB- to B+, will constitute a decrease of one gradation).

 

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Rating Date” means the date which is 90 days prior to the earlier of (a) a Change of Control or (b) public notice of the occurrence of a Change of Control or of the intention by the Issuers to effect a Change of Control.

Rating Decline” with respect to the notes shall be deemed to occur if, within 90 days after public notice of the occurrence of a Change of Control (which period shall be extended so long as the rating of the notes is under publicly announced consideration for possible downgrade by either of the Rating Agencies with respect to a Rating Category), the rating of the notes by each Rating Agency shall be decreased by one or more gradations to or within a Rating Category (including gradations within Rating Categories as well as between Rating Categories) as compared to the rating of the notes on the Rating Date.

Redevelopment Property” means any real property owned by an Issuer or its Subsidiaries that operates or is intended to operate as an Income Property (a)(i) that has been acquired by an Issuer or any of its Subsidiaries with a view toward renovating or rehabilitating such real property at an aggregate anticipated cost of at least 10% of the acquisition cost thereof and such renovation or rehabilitation is expected to disrupt the occupancy of at least 30% of the square footage of such property or (x) that an Issuer or any of its Subsidiaries intends to renovate or rehabilitate at an aggregate anticipated cost in excess of (y) 10% of the Capitalized Value of such real property immediately prior to such renovation or rehabilitation and such renovation or rehabilitation is expected to temporarily reduce the Property EBITDA attributable to such property by at least 30% as compared to the immediately preceding comparable prior period and or (ii) with respect to which an Issuer or a Subsidiary thereof has entered into a binding construction contract or construction has commenced, (b) that does not qualify as a “Development Property” and (c) that an Issuer so desires to classify as a “Redevelopment Property” for purposes of the notes.

Secured Debt” means, as of any date of determination, the portion of Total Debt as of such date that is secured by a Lien on property or assets of the Issuers or any of their Subsidiaries.

Significant Acquisition” means an acquisition in which the aggregate consideration (whether in the form of cash, securities, goodwill, or otherwise) with respect to such acquisition is not less than five percent (5%) of Total Asset Value immediately prior to such acquisition.

Significant Subsidiary” means any Subsidiary of an Issuer having (together with its Subsidiaries) assets that constitute five percent (5%) or more of Total Asset Value as of the end any of the most recently completed fiscal year of the Issuers for which Consolidated Financial Statements have been prepared prior to the date of determination.

Spin-Off” means the spin-off of the Guarantor from Penn to the shareholders of Penn in November 2013, which resulted in the Operating Partnership having title to substantially all of the real estate assets held by Penn prior to the spin-off, and including the entering into by the Penn Tenant and the Operating Partnership (or one or more Subsidiaries of the Operating Partnership acting as landlord or co-landlord) of the Penn Master Lease.

Subsidiary” means, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of an Issuer, and in the case of each of clauses (i) and (ii) which is required to be consolidated with such Person in accordance with GAAP.

Total Asset Value” means, as of any date, the sum of the following without duplication: (a) the sum of the Asset Values for all assets constituting Income Properties, Development Properties, Redevelopment Properties or undeveloped land owned by the Issuers or any of their Subsidiaries at such date, plus (b) an amount (but not less than zero) equal to all unrestricted cash and cash equivalents on hand of the Issuers

 

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and their Subsidiaries (including the proceeds of the Indebtedness to be incurred), plus (c) earnest money deposits associated with potential acquisitions as of such date, plus (d) the book value (determined in accordance with GAAP) (but determined without giving effect to any depreciation or amortization) of all other investments held by the Issuers and their Subsidiaries at such date (exclusive of goodwill and other intangible assets). Total Asset Value shall be adjusted in the case of assets owned by Subsidiaries of the Issuers which are not wholly owned Subsidiaries of the Issuers to reflect the Issuers’ Ownership Share therein.

Total Debt” means, as of any date of determination, the aggregate principal amount of outstanding Indebtedness of the Issuers and their Subsidiaries as of such date; provided that (a) Total Debt shall not include Indebtedness in respect of letters of credit, except to the extent of unreimbursed amounts thereunder, and (b) the amount of Total Debt, in the case of Indebtedness of a Subsidiary of the Issuers that is not a wholly owned Subsidiary of the Issuers, shall be reduced to reflect the Issuers’ proportionate interest therein.

Total Unencumbered Asset Value” means, as of any date of determination, the Total Asset Value for all assets owned by the Issuers or one of their Subsidiaries at such date that are not subject to any Lien which secures Indebtedness of the Issuers and their Subsidiaries.

Unconsolidated Affiliate” means, with respect to any Person, any other Person in whom such Person holds an Investment, which Investment is accounted for in the financial statements of such Person on an equity basis of accounting and whose financial results would not be consolidated under GAAP with the financial results of such Person on the Consolidated Financial Statements of such Person.

Unsecured Debt” means, as of any date of determination, that portion of Total Debt as of that date that is not Secured Debt.

Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

Events of Default

The following are “events of default” under the indenture with respect to debt securities of a particular series issued under the indenture, including the notes:

(1)    default for 30 days in the payment when due of interest on the debt securities of a particular series issued under the indenture, including the notes;

(2)    default in payment when due of the principal of or premium, if any, on the debt securities of a particular series issued under the indenture, including the notes;

(3)    failure by the Issuers or any of their Subsidiaries for 60 days after receipt of notice from the trustee or holders of at least 25% in principal amount of the notes then outstanding to comply with any of the covenants or agreements in the indenture (other than a covenant or agreement included in the indenture for the benefit of one or more series of debt securities other than the notes) or the notes;

(4)    certain specified events under bankruptcy, insolvency or other similar laws with respect to the Issuers or any of their Significant Subsidiaries;

(5)    a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any of our recourse Indebtedness (or the payment of which we guarantee), whether such Indebtedness or guarantee now exists or is created after the date of the indenture, if that default: (i) is caused by a failure to pay principal of such Indebtedness at final maturity (a “payment default”); or (ii) results in the acceleration of such Indebtedness prior to its express maturity (which acceleration has not been rescinded, annulled or cured within 20 business days after receipt by us of notice from the trustee or holders of at least 25% in principal amount of the notes then outstanding specifying such default), and, in each case, the due and payable principal amount of any such Indebtedness, together with the due and payable principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $100.0 million or more; and

 

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(6)    other than in connection with any transaction not prohibited by “— Certain Covenants — Penn Master Lease,” the Penn Master Lease shall have terminated or the Penn Master Lease Guaranty shall have terminated (other than in accordance with the terms of the Penn Master Lease); provided that such termination shall not constitute an event of default if within 90 days after such termination the Operating Partnership has entered into one or more Permitted Replacement Leases (or in the case of the Penn Master Lease Guaranty, a replacement guaranty is entered into in accordance with the Penn Master Lease).

In the case of an event of default arising under clause (4) of the immediately preceding paragraph with respect to the Issuers, all notes then outstanding will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of then outstanding notes (or then outstanding debt securities of a particular series in case of an event of default specific to such series) may declare all the debt securities outstanding under the indenture (or all of the notes, as applicable) to be due and payable immediately.

Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, holders of a majority in principal amount of then outstanding notes may direct the trustee, in writing, in its exercise of any trust or power. The trustee may withhold from holders of the notes notice of any continuing default or event of default if it determines that withholding notice is in their interest, except a default or event of default relating to the payment of principal or interest.

The holders of a majority in aggregate principal amount of the notes then outstanding by written notice to the trustee may on behalf of the holders of all of the notes waive any existing default or event of default with respect to the notes and its consequences under the indenture (or in the case of an event of default specific to a series of debt securities outstanding under the indenture, including the notes, holders of a majority in aggregate principal amount of the debt securities of such series then outstanding by written notice to the trustee may on behalf of the holders of all of the such series waive any existing default or event of default with respect to the debt securities of such series and its consequences under the indenture), in each case, except a continuing default or event of default in the payment of interest on, or the principal of, the such debt securities, including the notes; provided that the holders of a majority in aggregate principal amount of such debt securities (or of the debt securities of such series, respectively) then outstanding may rescind an acceleration of the debt securities (or the debt securities of such series) and waive the payment default that resulted from such acceleration.

The Issuers are required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any default or event of default, the Issuers are required to deliver to the trustee, a statement specifying such default or event of default.

Notwithstanding clause (3) of the first paragraph above or any other provision of the indenture, except as provided in the final sentence of this paragraph, the sole remedy for any failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall be the payment of liquidated damages as described in the following sentence, such failure to comply shall not constitute an event of default, and holders of the notes shall not have any right under the indenture or the notes to accelerate the maturity of the notes as a result of any such failure to comply. If a failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” continues for 60 days after the Issuers receives notice of such failure to comply in accordance with clause (3) of the first paragraph above (such notice, the “Reports Default Notice”), and is continuing on the 60th day following the Issuers’ receipt of the Reports Default Notice, the Issuers will pay liquidated damages to all holders of notes at a rate per annum equal to 0.25% of the principal amount of the notes from the 60th day following the Issuers’ receipt of the Reports Default Notice to but not including the earlier of (x) the 121st day following the Issuers’ receipt of the Reports Default Notice and (y) the date on which the failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall have been cured or waived. On the earlier of the date specified in the immediately preceding clauses (x) and (y), such liquidated damages will cease to accrue. If the failure to comply by the Issuers with the covenant described under the caption “—Certain Covenants—Reports” shall not have been cured or waived on or

 

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before the 121st day following the Issuers’ receipt of the Reports Default Notice, then the failure to comply by the Issuers with the covenant described under the caption “— Certain Covenants — Reports” shall on such 121st day constitute an event of default. A failure to comply with the covenant described under the caption “— Certain Covenants — Reports” automatically shall cease to be continuing and shall be deemed cured at such time as the Issuers (or the Guarantor or other parent guarantor of the Issuers, as applicable) furnishes to the trustee the applicable information or report (it being understood that the availability of such information or report on the SEC’s EDGAR service (or any successor thereto) shall be deemed to satisfy the Issuers’ obligation to furnish such information or report to the trustee); provided, however, that the trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the “EDGAR” system (or its successor).

Amendment, Supplement and Waiver

Except as provided in the next three succeeding paragraphs, the notes and the indenture may be amended or supplemented with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with the notes or any provision of the indenture as it relates to the notes may be waived with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes).

Without the consent of each holder of notes affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder):

(1)    reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver;

(2)    reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes;

(3)    reduce the rate of or change the time for payment of interest on any note;

(4)    waive a default or event of default in the payment of principal of or interest or premium on the notes (except a rescission of acceleration of the notes by the holders of a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration);

(5)    make any note payable in money other than that stated in the notes;

(6)    make any change in the provisions of the indenture relating to waivers of past defaults or the rights of holders of notes to receive payments of principal of or interest or premium on the notes;

(7)    waive a redemption payment with respect to any note; or

(8)    make any change in the preceding amendment and waiver provisions.

Notwithstanding the preceding, without the consent of any holder of notes, the Issuers and the trustee may amend or supplement the indenture or the notes:

(1)    to cure any ambiguity, defect, mistake or inconsistency;

(2)    to provide for uncertificated notes in addition to or in place of certificated notes;

(3)    to provide for the assumption of the Issuers’ obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ assets;

(4)    to comply with the rules of any applicable securities depository;

(5)    to comply with applicable gaming laws, to the extent that such amendment or supplement is not materially adverse to the holders of notes;

 

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(6)    to provide for the issuance of additional notes or additional debt securities in accordance with the limitations set forth in the indenture;

(7)    to make any change that would provide any additional rights or benefits to the holders of notes (including to provide for any guarantees of the notes or any collateral securing the notes or any guarantees of the notes) or that does not materially adversely affect the legal rights under the indenture of any such holder;

(8)    to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the TIA; or

(9)    to conform the text of the indenture or the notes to any provision of the “Description of the Notes” contained in the Offering Memorandum or the prospectus supplement related to the outstanding 5.250% Senior Notes due 2025 issued on May 21, 2018 as set forth in an officer’s certificate.

Legal Defeasance and Covenant Defeasance

The Issuers may, at their option and at any time, elect to have all of their obligations discharged with respect to the outstanding notes (“Legal Defeasance”) except for:

(1)    the rights of holders of outstanding notes to receive payments in respect of the principal of or interest or premium on such notes when such payments are due from the trust referred to below;

(2)    the Issuers’ obligations with respect to the notes concerning issuing temporary notes, the replacement of mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

(3)    the rights, powers, trusts, duties and immunities of the trustee, and the Issuers’ obligations in connection therewith; and

(4)    the Legal Defeasance provisions of the indenture.

In addition, the Issuers may, at their option and at any time, elect to have the obligations of the Issuers released with respect to certain covenants that are described in the indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a default or event of default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including the events described in clauses (1), (2), or (4) under the caption “Events of Default” above pertaining to the Issuers) described under the caption “Events of Default” above will no longer constitute an event of default with respect to the notes. The Issuers may exercise Legal Defeasance regardless of whether they previously have exercised Covenant Defeasance.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1)    the Issuers must irrevocably deposit with the trustee, in trust, for the benefit of the holders of notes to be defeased, cash in U.S. dollars, non-callable government securities, or a combination of cash in U.S. dollars and non-callable government securities, in amounts as will be sufficient, in the opinion or based on the report of a nationally recognized firm of independent public accountants, investment bank or appraisal firm, to pay the principal of, premium, if any, on and accrued and unpaid interest on the outstanding notes to be defeased on the stated maturity or on a redemption date, as the case may be, and the Issuers must specify whether the notes are being defeased to maturity or to a particular redemption date; provided that, with respect to any redemption pursuant to “— Redemption — Optional Redemption,” the amount deposited shall be sufficient for purposes of the indenture to the extent that an amount is so deposited with the trustee equal to the redemption amount computed using the Treasury Rate as of the third business date preceding the date of such deposit with the trustee;

(2)    in the case of Legal Defeasance, the Issuers must have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has

 

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been a change in the applicable United States federal income tax law, in either case to the effect that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such Legal Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3)    in the case of Covenant Defeasance, the Issuers must have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4)    no default or event of default has occurred and is continuing on the date of such deposit (other than a default or event of default resulting from transactions occurring contemporaneously with the borrowing of funds, or the borrowing of funds, to be applied to such deposit or other Indebtedness which is being Discharged and, in each case, the granting of Liens in connection therewith);

(5)    such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture or any agreement or instrument governing any other Indebtedness which is being Discharged) to which the Issuers are a party or by which the Issuers are bound;

(6)    the Issuers must deliver to the trustee an officer’s certificate stating that the deposit was not made by the Issuers with the intent of preferring the holders of notes over the other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and

(7)    the Issuers must deliver to the trustee an officer’s certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

The Legal Defeasance or Covenant Defeasance will be effective on the day on which all the applicable conditions above have been satisfied. Upon compliance with the foregoing, the trustee shall execute proper instrument(s) acknowledging such Legal Defeasance or Covenant Defeasance.

Satisfaction and Discharge

The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when:

(1)    either:

(a)    all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and, if provided for in the indenture, thereafter repaid to the Issuers, have been delivered to the trustee for cancellation; or

(b)    all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuers have irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable government securities, or a combination of cash in U.S. dollars and non-callable government securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium, if any, and accrued and unpaid interest to, but not including, the date of maturity or redemption; provided that, in the event that any portion of the trust funds so deposited consist of non-callable government securities, the sufficiency of such trust funds shall be determined based upon the opinion or the report of a nationally recognized firm of independent public accountants, investment bank or appraisal firm; provided further that, with respect to any redemption pursuant to

 

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“—Redemption—Optional Redemption,” the amount deposited shall be sufficient for purposes of the indenture to the extent that an amount is so deposited with the trustee equal to the redemption amount computed using the Treasury Rate as of the third business date preceding the date of such deposit with the trustee (the date of any such deposit, a “Deposit Date”);

(2)    the Issuers have paid or caused to be paid all other sums then payable by it under the indenture; and

(3)    the Issuers have delivered irrevocable written instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.

In addition, the Issuers must deliver an officer’s certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

Upon compliance with the foregoing, the trustee shall execute proper instrument(s) acknowledging the satisfaction and discharge of all of the Issuers’ obligations under the notes and the indenture.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or direct or indirect partner, member or stockholder, past, present or future, of the Issuers, the Guarantor or any successor entity, as such, will have any liability for any obligations of the Issuers or the Guarantor under the notes or the indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Forms and Denomination

The notes will be issued as permanent global securities in the name of a nominee of DTC. The notes will be issued in fully registered form without coupons and are available for purchase only in denominations of $2,000 and in integral multiples of $1,000 in excess thereof.

Governing Law

The indenture and the notes will be governed by and construed in accordance with the laws of the State of New York.

Concerning the Trustee

If the trustee becomes a creditor of the Issuers or the Guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.

The holders of a majority in principal amount of then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee with respect to the notes, subject to certain exceptions. The indenture provides that in case an event of default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of such person’s own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.

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required by any applicable law and any current or future regulations or agreements thereunder or official interpretations thereof or any law implementing an intergovernmental approach thereto or by virtue of the relevant holder failing to satisfy any certification or other requirements in respect of the notes, in which event the trustee shall make such payment after such withholding or deduction has been made and shall account to the relevant authorities for the amount so withheld or deducted and shall have no obligation to gross up any payment hereunder or pay any additional amount as a result of such withholding tax. In connection with any proposed exchange of a certificated note for a global note interest, the Issuers or DTC shall be required to use commercially reasonable efforts to provide or cause to be provided to the trustee all information reasonably requested by the trustee that is necessary to allow the trustee to comply with any applicable tax reporting obligations. The trustee shall be entitled to rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

Wells Fargo Bank, National Association, in addition to serving as trustee under the indenture, is one of the lenders under our Credit Agreement, and such credit facility includes outstanding debt which is to be retired at least in part with proceeds from this transaction. Wells Fargo Securities, LLC, an affiliate of the trustee, is one of the underwriters. We currently have a business relationship, and may from time to time conduct other banking transactions including lending transactions or maintaining deposit accounts, with Wells Fargo Bank, National Association in the ordinary course of business.

Additional Information

Anyone who receives this prospectus during the marketing of this offering may obtain a copy of the indenture without charge by writing to Gaming and Leisure Properties, Inc., Wyomissing Professional Center, 845 Berkshire Boulevard, Suite 200, Wyomissing, PA 19610, Attention: Chief Financial Officer.

 

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain material U.S. federal income tax considerations relating to our qualification and taxation as a REIT and relating to the purchase, ownership and disposition of the notes. Because this is a summary that is intended to address only certain material U.S. federal income tax considerations relating to the notes that are generally applicable to holders, it may not contain all the information that may be important to you. As you review this discussion, you should keep in mind that:

 

   

the tax consequences to you may vary depending on your particular tax situation;

 

   

special rules that are not discussed below may apply to you if, for example, you are a broker-dealer, a trust, an estate, a regulated investment company, a REIT, a financial institution, an insurance company, a controlled foreign corporation, a passive foreign investment company, a partnership or similar pass-through entity or a person holding their interest through such entity, a person subject to the alternative minimum tax provisions of the Code, a person holding the notes as part of a “straddle,” “hedge,” “short sale,” “conversion transaction,” “synthetic security” or other integrated investment, a person who marks the notes to market, a U.S. expatriate, a U.S. holder ( as defined below) whose functional currency is not the U.S. dollar or who holds the notes through a non-U.S. broker or other non-U.S. intermediary, or are otherwise subject to special tax treatment under the Code;

 

   

this summary does not address state, local or non-U.S. tax considerations, alternative minimum taxes, or U.S. federal taxes other than income taxes (such as estate and gift taxes);

 

   

this summary assumes that the notes are held as “capital assets” within the meaning of Section 1221 of the Code;

 

   

this summary does not address U.S. federal income tax considerations applicable to tax-exempt entities, except to the limited extent described below; and

 

   

this discussion is not intended to be, and should not be construed as, tax advice.

You are urged both to review the following discussion and to consult with your tax advisors to determine the effect of ownership and disposition of the notes on your particular tax situation, including any state, local or non-U.S. tax consequences.

For purposes of this discussion, references to “we,” “us” or “our” and any similar terms, refer solely to GLPI and not the Operating Partnership, unless otherwise noted.

The information in this section is based on the current Code, current, temporary and proposed Treasury Regulations, the legislative history of the Code, current administrative interpretations and practices of the Internal Revenue Service (“IRS”) including its practices and policies as endorsed in private letter rulings, which are not binding on the IRS except in the case of the taxpayer to whom a private letter ruling is addressed, and existing court decisions. Future legislation, regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law, possibly with retroactive effect. Any change could adversely affect an investment in the notes. We have not obtained any rulings from the IRS concerning the tax treatment of the matters discussed below, other than a ruling obtained from the IRS by our former parent Penn. That ruling provided, subject to the terms and conditions contained therein, that certain of the assets held by us after the Spin-Off were qualifying real estate assets for REIT qualification purposes, and that certain rental formulas in the Penn Master Lease would not cause any amounts received by us pursuant to the Penn Master Lease to be treated as other than rents from real property for REIT qualification purposes. However, it did not rule on our qualification as a REIT generally or on any of the statements in the discussion below. As a result, it is possible that the IRS could challenge the statements in this discussion and that a court could agree with the IRS.

 

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Classification and Taxation of GLPI as a REIT

We elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year beginning on January 1, 2014. A REIT generally is not subject to U.S. federal income tax on the income that it distributes to stockholders if it meets the applicable REIT distribution requirements and other requirements for qualification.

We believe that our ownership, form of organization and our operations through the date hereof and our proposed ownership, organization and method of operations thereafter have enabled and will enable to us to qualify as a REIT beginning with our taxable year beginning on January 1, 2014. In connection with this filing, we will receive an opinion of our tax counsel, Goodwin Procter LLP, to the effect that, commencing with our taxable year beginning on January 1, 2014 (i) we have been and we are organized in conformity with the requirements for qualification and taxation as a REIT, and (ii) our prior, current and proposed organization, ownership and method of operation as represented by management have allowed and will allow us to satisfy the requirements for qualification and taxation as a REIT. This opinion is based on representations made by us as to certain factual matters relating to our prior and intended and expected organization, ownership and method of operation. Goodwin Procter LLP has not verified those representations, and its opinion assumes that such representations and covenants are accurate and complete, that we have been owned, organized and operated and will continue to be owned, organized and will continue to operate in accordance with such representations and that we will take no action inconsistent with such representations. In addition, this opinion is based on the law existing and in effect as of its date. Our qualification and taxation as a REIT has depended and will depend on our ability to meet on a continuing basis, through actual operating results, asset composition, distribution levels, diversity of share ownership and various other qualification tests imposed under the Code discussed below. Goodwin Procter LLP has not reviewed and will not review our compliance with these tests on a continuing basis. Accordingly, the opinion of our tax counsel does not guarantee our ability to qualify as or remain qualified as a REIT, and no assurance can be given that we have satisfied and will satisfy such tests for our taxable year beginning on January 1, 2014 or for any subsequent period. Also, the opinion of Goodwin Procter LLP is not binding on the IRS, or any court, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to U.S. federal income tax laws, any of which could be applied retroactively. Goodwin Procter LLP will have no obligation to advise us or the holders of our stock of any subsequent change in the matters addressed in its opinion, the factual representations or assumptions on which the conclusions in the opinion are based, or of any subsequent change in applicable law.

So long as we qualify for taxation as a REIT, we generally will be entitled to a deduction for dividends that we pay and therefore will not be subject to U.S. federal income tax on our net income that we distribute currently to our stockholders. This treatment substantially eliminates “double taxation” (that is, taxation at both the corporate and stockholder levels) that generally results from an investment in a corporation. However, even if we qualify for taxation as a REIT, we will be subject to U.S. federal income tax as follows:

 

   

We will be taxed at regular corporate rates on any undistributed “REIT taxable income.” REIT taxable income is the taxable income of the REIT subject to specified adjustments, including a deduction for dividends paid.

 

   

If we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business, or other nonqualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on this income.

 

   

If we have net income from “prohibited transactions” we will be subject to a 100% tax on this income. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business other than foreclosure property.

 

   

If we fail to satisfy either the 75% gross income test or the 95% gross income test discussed below, but nonetheless maintain our qualification as a REIT because other requirements are met, we will be subject to a tax in an amount equal to the greater of either (1) the amount by which we fail the 75%

 

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gross income test for the taxable year or (2) the amount by which we fail the 95% gross income test for the taxable year, multiplied by a fraction intended to reflect our profitability.

 

   

If we fail to satisfy any of the REIT asset tests, as described below, other than a failure by a de minimis amount of the 5% or 10% assets tests, and we qualify for and satisfy certain cure provisions, then we will be required to pay a tax equal to the greater of $50,000 or the product of (x) the net income generated by the nonqualifying assets during the period in which we failed to satisfy the asset tests and (y) the highest U.S. federal income tax rate then applicable to corporations.

 

   

If we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a gross income or asset test requirement) and that violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification, but we will be required to pay a penalty of $50,000 for each such failure.

 

   

If we fail to qualify for taxation as a REIT because we fail to distribute by the end of the relevant year any earnings and profits we inherit from a taxable C corporation during the year (e.g., by tax- free merger or tax-free liquidation), and the failure is not due to fraud with intent to evade tax, we generally may retain our REIT status by paying a special distribution, but we will be required to pay an interest charge on 50% of the amount of undistributed non-REIT earnings and profits.

 

   

We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of our stockholders, as described below in “— Requirements for Qualification as a REIT.”

 

   

We will be subject to a nondeductible 4% excise tax on the excess of the required distribution over the sum of amounts actually distributed and amounts retained for which U.S. federal income tax was paid, if we fail to distribute during each calendar year at least the sum of 85% of our REIT ordinary income for the year, 95% of our REIT capital gain net income for the year; and any undistributed taxable income from prior taxable years.

 

   

We will be subject to a 100% penalty tax on some payments we receive or on certain other amounts (or on certain expenses deducted by our TRSs) if arrangements among us, our tenants and/or our TRSs are not comparable to similar arrangements among unrelated parties.

 

   

We may be subject to tax on gain recognized in a taxable disposition of assets acquired by way of a tax-free merger or other tax-free reorganization with a non-REIT corporation or a tax-free liquidation of a non-REIT corporation into us. Specifically, to the extent we acquire any asset from a C corporation in a carry-over basis transaction and we subsequently recognize gain on a disposition of such asset during a five-year period beginning on the date on which we acquired the asset, then, to the extent of any “built-in gain,” such gain will be subject to U.S. federal income tax at the highest regular corporate tax rate, which is currently 21%. Built-in gain means the excess of (i) the fair market value of the asset as of the beginning of the applicable recognition period over (ii) our adjusted basis in such asset as of the beginning of such recognition period. See “— Tax on Built-in Gains of Former C Corporation Assets.”

 

   

We may elect to retain and pay income tax on our net long-term capital gain. In that case, a stockholder would: (1) include its proportionate share of our undistributed long-term capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, (2) be deemed to have paid its proportionate share of the tax that we paid on such gain and (3) be allowed a credit for its proportionate share of the tax deemed to have been paid, with an adjustment made to increase the stockholders’ basis in our stock.

 

   

We have subsidiaries that are C corporations that have elected, jointly with us, to be treated as our TRSs and we may have other subsidiaries or own interests in their lower-tier entities that are TRSs in the future. The earnings of our TRSs are subject to U.S. federal corporate income tax.

 

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No assurance can be given that the amount of any such U.S. federal income taxes will not be substantial.

In addition, we and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state, local and non-U.S. income, franchise, property and other taxes on assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification as a REIT

We elected to be taxed as a REIT under the Code effective with our taxable year beginning on January 1, 2014. In order to have so qualified, we must have met and continue to meet the requirements discussed below, relating to our organization, ownership, sources of income, nature of assets and distributions of income to stockholders, beginning with our taxable year beginning on January 1, 2014, unless otherwise noted.

The Code defines a REIT as a corporation, trust, or association:

 

  (1)

that is managed by one or more trustees or directors;

 

  (2)

the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

 

  (3)

that would be taxable as a domestic corporation, but for its election to be subject to tax as a REIT under Sections 856 through 860 of the Code;

 

  (4)

that is neither a financial institution nor an insurance company subject to applicable provisions of the Code;

 

  (5)

the beneficial ownership of which is held by 100 or more persons;

 

  (6)

during the last half of each taxable year not more than 50% in value of the outstanding shares of which is owned directly or indirectly by five or fewer “individuals,” as defined in the Code to include specified entities;

 

  (7)

that makes an election to be taxable as a REIT, or has made this election for a previous taxable year, which has not been revoked or terminated, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status;

 

  (8)

that uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the Code and regulations promulgated thereunder; and

 

  (9)

that meets other applicable tests, described below, regarding the nature of its income and assets and the amount of its distributions.

Conditions (1), (2), (3) and (4) above must be met during the entire taxable year and condition (5) above must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) need not be satisfied during a corporation’s initial tax year as a REIT (which, in our case, was our taxable year beginning on January 1, 2014). For purposes of determining stock ownership under condition (6) above, a supplemental unemployment compensation benefits plan, a private foundation and a portion of a trust permanently set aside or used exclusively for charitable purposes generally are each considered an individual. A trust that is a qualified trust under Code Section 401(a) generally is not considered an individual, and beneficiaries of a qualified trust are treated as holding shares of a REIT in proportion to their actuarial interests in the trust for purposes of condition (6) above. A successful challenge to our valuation determination could jeopardize our ability to comply with condition (6) above. For purposes of its opinion, Goodwin Procter LLP is relying on our determinations of relative values of our shares.

 

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We believe that we have sufficient diversity of ownership to allow us to satisfy conditions (5) and (6) above. In addition, our charter provides restrictions regarding the transfer of shares of our capital stock that are intended to assist us in satisfying the share ownership requirements described in conditions (5) and (6) above. These restrictions, however, may not ensure that we will be able to satisfy these share ownership requirements.

We complied with condition (7) above by making our REIT election as part of our U.S. federal income tax return for our taxable year beginning on January 1, 2014.

To monitor its compliance with condition (6) above, a REIT is required to send annual letters to its stockholders requesting information regarding the actual ownership of its shares. If we comply with the annual letters requirement and we do not know or, exercising reasonable diligence, would not have known of our failure to meet condition (6) above, then we will be treated as having met condition (6) above.

For purposes of condition (8) above, we will use a calendar year for U.S. federal income tax purposes, and we intend to comply with the applicable recordkeeping requirements.

Non-REIT Accumulated Earnings and Profits

As a REIT, we may not have any undistributed non-REIT earnings and profits at the end of any taxable year, including our first REIT taxable year beginning on January 1, 2014. We entered into a closing agreement with the IRS to determine the portion of our former parent’s earnings and profits that was allocated to us in connection with the Spin-Off, and we believe we have distributed an amount sufficient to purge all of such earnings plus our earnings accumulated post Spin-Off and prior to our first REIT taxable year. In addition, we do not believe that we inherited any non-REIT earnings from our acquisition of substantially all of Pinnacle’s real estate assets because we believe Pinnacle fully distributed its earnings prior to our acquisition. In connection with our acquisition of Meadows, we may have inherited some non-REIT earnings and profits, but we believe we fully distributed any such earnings prior to the end of our tax year in which we acquired Meadows. Although we do not believe we have had any non-REIT earnings and profits at the end of any REIT taxable year, and we currently do not expect to have any non-REIT earnings and profits at the end of any REIT taxable year, if it is subsequently determined that we had undistributed non-REIT earnings and profits as of the end of our first taxable year as a REIT or at the end of any subsequent taxable year, we could fail to qualify as a REIT.

Taxable REIT Subsidiaries

A TRS of ours is a corporation in which we directly or indirectly own stock and that jointly with us elects to be treated as our TRS under Section 856(l) of the Code. In addition, if one of our TRSs owns, directly or indirectly, securities representing more than 35% of the vote or value of a subsidiary corporation, that subsidiary will also be treated as our TRS. A TRS is subject to U.S. federal income tax and state and local income tax, where applicable, as a regular C corporation.

Generally, a TRS can perform impermissible tenant services without causing us to receive impermissible tenant services income from those services under the REIT income tests. A TRS may also engage in other activities that, if conducted by us other than through a TRS, could result in the receipt of non-qualified income or the ownership of non-qualified assets. However, several provisions regarding the arrangements between a REIT and its TRSs ensure that a TRS will be subject to an appropriate level of U.S. federal income taxation. For example, we will be obligated to pay a 100% penalty tax on some payments that we receive or on certain other amounts or on certain expenses deducted by the TRS if the economic arrangements among us, our tenants and/or the TRS are not comparable to similar arrangements among unrelated parties.

We own and may continue to own interests in one or more TRSs that may hold assets or generate income that, if held or generated by us, could cause us to fail the REIT income or asset tests or subject us to the 100% tax on prohibited transactions. Our TRSs may incur significant amounts of U.S. federal, state and local income taxes.

 

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Although we do not expect any non-U.S. TRSs (or other non-U.S. subsidiaries) to incur significant U.S. income taxes, any such non-U.S. entities may incur significant non-U.S. taxes.

Subsidiary REITs

If any REIT in which we acquire an interest fails to qualify for taxation as a REIT in any taxable year, that failure could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation that is not a REIT or a TRS, as further described below. Investments in subsidiary REITs may pose additional challenges, such as smaller income and asset bases against which to absorb nonqualifying income and assets and, in the case of subsidiary REITs acquired by purchase, reliance on the seller’s compliance with the REIT requirements for periods prior to acquisition.

Ownership of Partnership Interests and Disregarded Subsidiaries by a REIT

A REIT that is a partner in a partnership (or a member of a limited liability company or other entity that is treated as a partnership for U.S. federal income tax purposes) will be deemed to own its proportionate share of the assets of the partnership and will be deemed to earn its proportionate share of the partnership’s income. The assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of the gross income and asset tests applicable to REITs, as described below.

If a REIT owns all of the stock of a corporate subsidiary (including an entity that is treated as an association taxable as a corporation for U.S. federal income tax purposes) that is a “qualified REIT subsidiary,” the separate existence of that subsidiary is disregarded for U.S. federal income tax purposes. Generally, a qualified REIT subsidiary is a corporation, other than a TRS, all of the capital stock of which is owned by the REIT (either directly or through other disregarded subsidiaries). For U.S. federal income tax purposes, all assets, liabilities and items of income, deduction and credit of the qualified REIT subsidiary will be treated as assets, liabilities and items of income, deduction and credit of the REIT itself. Our qualified REIT subsidiaries will not be subject to U.S. federal income taxation, but may be subject to state and local taxation in some states.

Certain other entities also may be treated as disregarded entities for U.S. federal income tax purposes, generally including any domestic unincorporated entity that would be treated as a partnership if it had more than one owner. For U.S. federal income tax purposes, all assets, liabilities and items of income, deduction and credit of any such disregarded entity will be treated as assets, liabilities and items of income, deduction and credit of the owner of the disregarded entity. The Operating Partnership is currently treated as a disregarded entity for U.S. federal income tax purposes. As a result, its assets, liabilities and items of income, including its share of the assets, liabilities and items of income of any subsidiary partnership (or other entity treated as a partnership for U.S. federal income tax purposes), will be treated as our assets, liabilities and items of income for purposes of applying the REIT income and asset tests. As a result, to the extent that the Operating Partnership holds interests in partnerships that it does not control, the Operating Partnership may need to hold such interests indirectly through TRSs.

Income Tests Applicable to REITs

To qualify as a REIT, we must satisfy two gross income tests annually. First, at least 75% of our gross income, excluding gross income from prohibited transactions and certain other income and gains described below, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including “rents from real property,” gains on the disposition of real estate assets, including personal property treated as real estate assets, as discussed below (but not including certain debt instruments of publicly offered REITs that are not secured by mortgages on real property or interests on real property), dividends paid by another REIT and interest on obligations secured by mortgages on real property or on interests in real property, or from some types of temporary investments.

 

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Interest and gain on debt instruments issued by publicly offered REITs that are not secured by mortgages on real property or interests in real property are not qualifying income for the 75% test. Second, at least 95% of our gross income for each taxable year, excluding gross income from prohibited transactions and certain other income and gains described below, must be derived from any combination of income qualifying under the 75% test and dividends, interest and gain from the sale or disposition of stock or securities.

Rents we receive will qualify as rents from real property in satisfying the gross income requirements for a REIT described above only if several conditions are met. First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of receipts or sales. Our former parent, Penn, received a private letter ruling from the IRS that concluded certain rental formulas under the Penn Master Lease will not cause any amounts received under the Penn Master Lease to be treated as other than rents from real property. While we do not expect to seek similar rulings for additional leases we enter into that have substantially similar terms as the Penn Master Lease, we intend to treat amounts received under those leases consistent with the conclusions in the ruling, though there can be no assurance that the IRS will not challenge such treatment. Second, rents received from a “related party tenant” will not qualify as rents from real property in satisfying the gross income tests unless the tenant is a TRS and either (i) at least 90% of the property is leased to unrelated tenants and the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space, or (ii) the property leased is a “qualified lodging facility,” as defined in Section 856(d)(9)(D) of the Code, or a “qualified health care property,” as defined in Section 856(e)(6)(D)(i), and certain other conditions are satisfied. A tenant is a related party tenant if the REIT, or an actual or constructive owner of 10% or more of the REIT, actually or constructively owns 10% or more of the tenant. Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.

Generally, for rents to qualify as rents from real property for the purpose of satisfying the gross income tests, we may provide directly only an insignificant amount of services, unless those services are “usually or customarily rendered” in connection with the rental of real property and not otherwise considered “rendered to the occupant.” Accordingly, we may not provide “impermissible services” to tenants (except through an independent contractor from whom we derive no revenue and that meets other requirements or through a TRS) without giving rise to “impermissible tenant service income.” Impermissible tenant service income is deemed to be at least 150% of the direct cost to us of providing the service. If the impermissible tenant service income exceeds 1% of our total income from a property, then all of the income from that property will fail to qualify as rents from real property. If the total amount of impermissible tenant service income from a property does not exceed 1% of our total income from the property, the services will not disqualify any other income from the property that qualifies as rents from real property, but the impermissible tenant service income will not qualify as rents from real property.

We have not derived, and do not anticipate deriving, rents based in whole or in part on the income or profits of any person, rents from related party tenants and/or rents attributable to personal property leased in connection with real property that exceeds 15% of the total rents from that property in sufficient amounts to jeopardize our status as REIT. We also have not derived, and do not anticipate deriving, impermissible tenant service income that exceeds 1% of our total income from any property if the treatment of the rents from such property as nonqualifying rents would jeopardize our status as a REIT. The Operating Partnership and its subsidiaries may receive other amounts of nonqualifying income, but we intend to structure our interests in those sources of nonqualifying income as needed to preserve our REIT status, such as by conducting such activities through a TRS.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for that year if we are entitled to relief under the Code. These relief provisions generally will be available if our failure to meet the tests is due to reasonable cause and not due to willful neglect, we attach a schedule of the sources of our income to our U.S. federal income tax return

 

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and otherwise comply with the applicable Treasury Regulations. It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally incur unexpectedly exceeds the limits on nonqualifying income, the IRS could conclude that the failure to satisfy the tests was not due to reasonable cause. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will fail to qualify as a REIT. Even if these relief provisions apply, a tax would be imposed based on the amount of nonqualifying income.

Asset Tests Applicable to REITs

At the close of each quarter of our taxable year, we must satisfy five tests relating to the nature of our assets:

 

  (1)

at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S. Government securities. Real estate assets include interests in real property (such as land, buildings, leasehold interest in real property and personal property leased with real property if the rents attributable to the personal property would be rents from real property under the income tests discussed above), interests in mortgages on real property or on interests in real property, shares in other qualifying REITs, and stock or debt instruments held for less than one year purchased with the proceeds from an offering of shares of our stock or certain debt and debt instruments issued by publicly offered REITs;

 

  (2)

not more than 25% of the value of our total assets may be represented by securities other than those in the 75% asset class;

 

  (3)

except for equity investments in REITs, qualified REIT subsidiaries, other securities that qualify as “real estate assets” for purposes of the test described in clause (1) or securities of our TRSs: the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets; we may not own more than 10% of any one issuer’s outstanding voting securities; and we may not own more than 10% of the value of the outstanding securities of any one issuer;

 

  (4)

not more than 20% of the value of our total assets may be represented by securities of one or more TRSs; and

 

  (5)

not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs that are not secured by mortgages on real property or interests in real property.

Securities for purposes of the asset tests may include debt securities that are not fully secured by a mortgage on real property (or treated as such). However, the 10% value test does not apply to certain “straight debt” and other excluded securities, as described in the Code including, but not limited to, any loan to an individual or estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, (a) a REIT’s interest as a partner in a partnership is not considered a security for purposes of applying the 10% value test to securities issued by the partnership; (b) any debt instrument issued by a partnership (other than straight debt or another excluded security) will not be considered a security issued by the partnership if at least 75% of the partnership’s gross income is derived from sources that would qualify for the 75% REIT gross income test; and (c) any debt instrument issued by a partnership (other than straight debt or another excluded security) will not be considered a security issued by the partnership to the extent of the REIT’s interest as a partner in the partnership. In general, straight debt is defined as a written, unconditional promise to pay on demand or at a specific date a fixed principal amount, and the interest rate and payment dates on the debt must not be contingent on profits or the discretion of the debtor. In addition, straight debt may not contain a convertibility feature.

We believe that our assets comply with the above asset tests and that we can operate so that we can continue to comply with those tests. However, our ability to satisfy these asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a

 

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precise determination and for which we will not obtain independent appraisals. For example, we may hold significant assets through our TRSs or hold significant non-real estate assets (such as certain goodwill), and we cannot provide any assurance that the IRS might not disagree with our determinations.

After initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT if we fail to satisfy the 25%, 20%, and 5% asset tests and the 10% value limitation at the end of a later quarter solely by reason of changes in the relative values of our assets (including changes in relative values as a result of fluctuations in foreign currency exchange rates). If the failure to satisfy the 25%, 20% or 5% asset tests or the 10% value limitation results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient non-qualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests and to take any available actions within 30 days after the close of any quarter as may be required to cure any noncompliance with the 25%, 20% or 5% asset tests or 10% value limitation. If we fail the 5% asset test or the 10% asset test at the end of any quarter, and such failure is not cured within 30 days thereafter, we may dispose of sufficient assets or otherwise satisfy the requirements of such asset tests within six months after the last day of the quarter in which our identification of the failure to satisfy those asset tests occurred to cure the violation, provided that the non- permitted assets do not exceed the lesser of 1% of the total value of our assets at the end of the relevant quarter or $10,000,000. If we fail any of the other asset tests, or our failure of the 5% and 10% asset tests is in excess of this amount, as long as the failure was due to reasonable cause and not willful neglect and, following our identification of the failure, we filed a schedule in accordance with the Treasury Regulations describing each asset that caused the failure, we are permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps to satisfy the requirements of the applicable asset test within six months after the last day of the quarter in which our identification of the failure to satisfy the REIT asset test occurred, including the disposition of sufficient assets to meet the asset tests and paying a tax equal to the greater of $50,000 or the product of (x) the net income generated by the nonqualifying assets during the period in which we failed to satisfy the relevant asset test and (y) the highest U.S. federal income tax rate then applicable to U.S. corporations.

Annual Distribution Requirements Applicable to REITs

To qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders each year in an amount at least equal to (1) the sum of (a) 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gain and (b) 90% of the net income, after tax, from foreclosure property, minus (2) the sum of certain specified items of noncash income. For purposes of the distribution requirements, any built-in gain (net of the applicable tax) we recognize during the applicable recognition period that existed on an asset at the time we acquired it from a C corporation in a carry-over basis transaction will be included in our REIT taxable income. See “ — Tax on Built-in Gains of Former C Corporation Assets” for a discussion of the possible recognition of built-in gain. These distributions must be paid either in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the prior year and if paid with or before the first regular dividend payment date after the declaration is made.

To the extent that we do not distribute (and are not deemed to have distributed) all of our net capital gain or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be subject to U.S. federal income tax on these retained amounts at regular corporate tax rates.

We will be subject to a nondeductible 4% excise tax on the excess of the required distribution over the sum of amounts actually distributed and amounts retained for which U.S. federal income tax was paid, if we fail to distribute during each calendar year at least the sum of:

(1) 85% of our REIT ordinary income for the year;

(2) 95% of our REIT capital gain net income for the year; and

(3) any undistributed taxable income from prior taxable years.

 

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A REIT may elect to retain, rather than distribute, all or a portion of its net capital gains and pay the tax on the gains. In that case, the REIT’s stockholders must include their proportionate share of the undistributed net capital gains in income as long-term capital gains and would receive a credit for their share of the tax paid by the REIT. For purposes of the 4% excise tax described above, any retained amounts would be treated as having been distributed.

We believe we have made and intend to continue to make timely distributions sufficient to satisfy the annual distribution requirements.

We anticipate that we will generally have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement and to distribute such greater amount as may be necessary to avoid U.S. federal income and excise taxes. It is possible, however, that, from time to time, we may not have sufficient cash or other liquid assets to fund required distributions as a result, for example, of differences in timing between our cash flow and the recognition of income for U.S. federal income tax purposes, the effect of non-deductible capital expenditures, limitations on interest expense or net operating loss deductibility, the creation of reserves, payment of required debt service or amortization payments, or the need to make additional investments in qualifying real estate assets. The insufficiency of our cash flow to cover our distribution requirements could require us to (1) sell assets in adverse market conditions, (2) borrow on unfavorable terms, (3) distribute amounts that would otherwise be invested in future acquisitions or capital expenditures or used for the repayment of debt, (4) pay dividends in the form of taxable stock dividends or (5) use cash reserves, in order to comply with the REIT distribution requirements.

Under some circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying dividends to stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. We will refer to such dividends as “deficiency dividends.” Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends. We will, however, be required to pay interest based upon the amount of any deduction taken for deficiency dividends.

Tax on Built-in Gains of Former C Corporation Assets

If a REIT acquires an asset from a C corporation in a transaction in which the REIT’s basis in the asset is determined by reference to the basis of the asset in the hands of the C corporation (e.g., a tax-free reorganization under Section 368(a) of the Code), the REIT may be subject to an entity-level tax upon a taxable disposition during a 5-year period following the acquisition date. The amount of the tax is determined by applying the highest regular corporate tax rate, which is currently 21%, to the lesser of (i) the excess, if any, of the asset’s fair market value over the REIT’s basis in the asset on the acquisition date, or (ii) the gain recognized by the REIT in the disposition. The amount described in clause (i) is referred to as “built-in gain.”

We currently hold significant assets with built-in gain that would be subject to this corporate tax if sold today. In particular, we held substantial assets with built-in gain on January 1, 2014, the date of our REIT conversion, attributable to the carryover basis transactions occurring substantially contemporaneously with the Spin-Off. In addition, we acquired a substantial amount of assets from Pinnacle and from the Meadows seller in carryover basis transactions. Furthermore, we expect to acquire assets in the future in carryover basis transactions. The sale of any such assets within the five-year period following the date we acquire the asset would cause us to be subject to the corporate tax described above.

Prohibited Transactions

Net income derived from prohibited transactions is subject to a 100% tax. The term “prohibited transactions” generally includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business. Whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the specific facts and circumstances. The Code provides a safe harbor pursuant to which sales of properties held for at least two years and meeting certain additional requirements will not be treated as prohibited transactions,

 

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but compliance with the safe harbor may not always be practical. We have conducted and intend to continue to conduct our operations so that no asset that we own (or are treated as owning) will be treated as, or as having been, held as inventory or for sale to customers and that a sale of any such asset will not be treated as having been in the ordinary course of our business. We intend to hold our properties for investment with a view to long-term appreciation, to engage in the business of owning and operating properties and to make sales of properties that are consistent with our investment objectives, however, no assurance can be given that any particular property in which we hold a direct or indirect interest will not be treated as property held for sale to customers, or that the safe-harbor provisions will apply. The 100% tax will not apply to gains from the sale of property held through a TRS or other taxable corporation, although such income will be subject to U.S. federal income tax at regular corporate income tax rates. The potential application of the prohibited transactions tax could cause us to forego potential dispositions of other property or to forego other opportunities that might otherwise be attractive to us (such as developing property for sale), or to undertake such dispositions or other opportunities through a TRS, which would generally result in corporate income taxes being incurred.

Foreclosure Property

Foreclosure property is real property (including interests in real property) and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was made, entered into or acquired by the REIT at a time when default was not imminent or anticipated and (3) for which such REIT makes an election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 21%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary course of a trade or business.

Hedging Transactions and Foreign Currency Gains

We may enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swaps or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent provided by Treasury Regulations, any income from a hedging transaction, including gain from the disposition or termination of such a transaction, will not constitute gross income for purposes of the 95% gross income test and the 75% gross income test if the hedging transaction (1) is made in the normal course of our business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred by us to acquire or own real estate assets, (2) is entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests (or any property that generates such income or gain), or, (3) hedges against transactions described in clause (1) or (2) and entered into in connection with the extinguishment of debt or sale of property that is being hedged against by the transactions described in clause (1) or (2), and which complies with certain identification requirements. To the extent we enter into other types of hedging transactions or do not make proper tax identifications, as applicable, the income from those transactions is likely to be treated as non-qualifying income for purposes of both the 75% and 95% gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our ability to qualify as a REIT.

In addition, certain foreign currency gains may be excluded from gross income for purposes of one or both of the REIT gross income tests, provided we do not deal in or engage in substantial and regular trading in securities.

 

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Investments in Loans

Except as provided below, in cases where a mortgage loan is secured by both real property and other property, if the outstanding principal balance of a mortgage loan during the year exceeds the value of the real property securing the loan at the time we committed to acquire the loan, a portion of the interest accrued during the year will not be qualifying income for purposes of the 75% gross income test applicable to REITs. In addition, except as provided below, if the value of a mortgage loan exceeds the greater of the current value of the real property securing the loan and the value of the real property securing the loan at the time we committed to acquire the loan, such excess will not be a qualifying real estate asset. However, notwithstanding the foregoing, a mortgage loan secured by both real property and personal property is treated as a wholly qualifying real estate asset and all interest shall be qualifying income for purposes of the 75% income test if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property, even if the real property collateral value is less than the outstanding principal balance of the loan.

We could originate or acquire mortgage or mezzanine loans. The IRS has provided a safe harbor with respect to the treatment of a mezzanine loan as a mortgage loan and therefore as a qualifying asset for purposes of the REIT asset tests, but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, it will be treated by the IRS as a qualifying real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. However, structuring a mezzanine loan to meet the requirements of the safe harbor may not always be practical. To the extent that any of our mezzanine loans do not meet all of the requirements for reliance on the safe harbor, such loans might not be properly treated as qualifying mortgage loans for REIT purposes.

Tax Aspects of The Operating Partnership

In General.    We will own all or substantially all of our assets through the Operating Partnership, and the Operating Partnership in turn will own a substantial portion of its assets through interests in various partnerships and limited liability companies.

The Operating Partnership is currently a disregarded entity. As such, we are treated as directly earning its items of income, gain, loss, deduction and credit for purposes of computing the REIT taxable income. Except in the case of any subsidiaries that elect REIT or TRS status, we expect that the Operating Partnership’s partnership and limited liability company subsidiaries will be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are classified as partnerships for U.S. federal income tax purposes are treated as “pass-through” entities that are not required to pay U.S. federal income taxes. Rather, partners or members of such entities are allocated their share of the items of income, gain, loss, deduction and credit of the entity and are potentially required to pay tax on that income without regard to whether the partners or members receive a distribution of cash from the entity. We will include in our income our allocable share of the foregoing items for purposes of computing our REIT taxable income, based on the applicable operating agreement. For purposes of applying the REIT income and asset tests, we will include the Operating Partnership’s income and assets as if they were directly earned and held by us, and we will include the Operating Partnership’s share of the income and assets of any subsidiary partnerships and limited liability companies treated as partnerships for U.S. federal income tax purposes, based on our capital interests in such entities. See “— Ownership of Partnership Interests and Disregarded Subsidiaries by a REIT.”

Our ownership interests in such subsidiaries involve special tax considerations, including the possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities, as opposed to associations taxable as corporations, for U.S. federal income tax purposes. If the Operating Partnership or one or more of its subsidiary partnerships or limited liability companies intended to be taxed as partnerships or disregarded entities, were treated as an association, it would be taxable as a corporation and would be subject to U.S. federal income taxes on its income. In that case, the character of the entity and

 

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its income would change for purposes of the asset and income tests applicable to REITs and could prevent us from satisfying these tests. See “— Asset Tests Applicable to REITs” and “— Income Tests Applicable to REITs.” This, in turn, could prevent us from qualifying as a REIT. See “— Failure to Qualify as a REIT” for a discussion of the effect of our failure to meet these tests for a taxable year.

We believe that the Operating Partnership and other subsidiary partnerships and limited liability companies that do not elect REIT or TRS status have been and/or will be classified as partnerships or disregarded entities for U.S. federal income tax purposes, and the remainder of the discussion under this section “— Tax Aspects of The Operating Partnership” is based on such classification.

Although a domestic unincorporated entity is generally treated as a partnership (if it has more than one owner) or a disregarded entity (if it has a single owner) for U.S. federal income tax purposes, in certain situations such an entity may be treated as a corporation for U.S. federal income tax purposes, including if the entity is a “publicly traded partnership” that does not qualify for an exemption based on the character of its income. A partnership is a “publicly traded partnership” under Section 7704 of the Code if:

 

   

interests in the partnership are traded on an established securities market; or

 

   

interests in the partnership are readily tradable on a “secondary market” or the “substantial equivalent” of a secondary market.

A partnership will not be treated as a publicly traded partnership if it qualifies for certain safe harbors, one of which applies to certain partnerships with fewer than 100 partners. Because the Operating Partnership is a disregarded entity, it is currently not subject to the publicly traded partnership rule