In December 2019, certain subsidiaries of the Company (collectively, the “Tenant”) and certain subsidiaries of VICI PropCo (collectively, the “Landlord”) entered into the sale and leaseback transaction for the Acquired Casino properties. The Tenant entered into the Master Lease with the Landlord to lease the real estate assets of the Acquired Casinos. The Master Lease does not transfer control of the Acquired Casino properties to VICI PropCo subsidiaries. On December 1, 2022, the Master Lease was amended (the “Master Lease Amendment”) to provide for (i) modifications with respect to certain project work to be done by the Company related to Century Casino Caruthersville, (ii) modifications to rent under the Master Lease and (iii) other related modifications.

The Company accounts for the transaction as a failed sale-leaseback financing obligation. When cash proceeds are exchanged, a failed sale-leaseback financing obligation is equal to the proceeds received for the assets that are sold and then leased back. The value of the failed sale-leaseback financing obligations recognized in this transaction was determined to be the fair value of the leased real estate assets. In subsequent periods, a portion of the periodic payment under the Master Lease will be recognized as interest expense with the remainder of the payment reducing the failed sale-leaseback financing obligation using the effective interest method. The failed sale-leaseback obligations will not be reduced to less than the net book value of the leased real estate assets as of the end of the lease term, which is estimated to be $28.5 million.

The fair values of the real estate assets and the related failed sale-leaseback financing obligation were estimated based on the present value of the estimated future payments over the term plus renewal options of 35 years, using an imputed discount rate of approximately 10.1%. The value of the failed sale-leaseback financing obligation is dependent upon assumptions regarding the amount of the payments and the estimated discount rate of the payments required by a market participant.

The Master Lease provides for the lease of land, buildings, structures and other improvements on the land (including barges and riverboats), easements and similar appurtenances to the land and improvements relating to the operations of the leased properties. The Master Lease has an initial term of 15 years with no purchase option (which term will be extended for 15 years from the date of the Master Lease amendment). At the Company’s option, the Master Lease may be extended for up to four five year renewal terms beyond the initial 15 year term. The Company exercised one five year renewal option when the Master Lease was amended on December 1, 2022. The renewal terms are effective as to all, but not less than all, of the property then subject to the Master Lease. The Company does not have the ability to terminate its obligations under the Master Lease prior to its expiration without the Landlord’s consent.

The Master Lease has a triple-net structure, which requires the Tenant to pay substantially all costs associated with the Company’s Missouri and West Virginia properties, including real estate taxes, insurance, utilities, maintenance and operating costs. The Master Lease contains certain covenants, including minimum capital improvement expenditures. The Company has provided a guarantee of the Tenant’s obligations under the Master Lease.

The rent payable under the Master Lease, as amended by the Master Lease Amendment on December 1, 2022, is:

The Rent will escalate at a rate of 1.01% for the 2^nd and 3^rd years and the greater of either 1.0125% (the “Base Rent Escalator”) or the increase in the Consumer Price Index (“CPI”) for each year starting in the 4^th year. In addition, Rent will increase by approximately $4.2 million on the “CapEx Project Incremental Rent Increase Date” (as defined in the Master Lease Amendment).

The Base Rent Escalator is subject to adjustment from and after the 6^th year if the Minimum Rent Coverage Ratio (as defined in the Master Lease) is not satisfied.

The estimated future payments include the payments and adjustments to reflect estimated payments as described in the Master Lease, including an annual escalator of up to 1.0125%. The estimated future payments are not adjusted for increases based on the CPI. Rent adjusted for CPI for the year ended December 31, 2023 is estimated to be $27.5 million, excluding the increased rent due to the Rocky Gap Acquisition discussed below.

Total payments and interest expense related to the Master Lease for the three months ended March 31, 2023 and 2022 were as follows:


	For the three months ended
	March 31,
Amounts in thousands	2023		2022
Payments made	$	6,866	$	4,250
Interest expense on financing obligation	$	7,120	$	7,008

The estimated future payments related to the Master Lease financing obligation with the Landlord at March 31, 2023 were as follows:


Amounts in thousands
2023	$	17,214
2024		26,144
2025		26,471
2026		26,802
2027		27,137
Thereafter		875,958
Total payments		999,726
Less imputed interest		(743,060)
Residual value		28,492
Total	$	285,158

As discussed in Note 1, pursuant to a real estate purchase agreement, dated August 24, 2022, VICI PropCo Buyer agreed to acquire the real estate assets relating to Rocky Gap for approximately $203.9 million. In connection with the Rocky Gap Acquisition, the Tenant and Landlord will enter into an amendment to the Master Lease to (i) add Rocky Gap to the Master Lease, (ii) provide for an initial annual rent for Rocky Gap of approximately $15.5 million and (iii) extend the initial Master Lease term for 15 years from the date of the amendment (subject to the existing four five year renewal options).