Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of VICI Properties Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of VICI Properties Inc. and subsidiaries (the "Company") as of December 31, 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows, for the period from October 6, 2017 (Formation Date) to December 31, 2017, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the period from October 6, 2017 to December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

March 28, 2018

We have served as the Company's auditor since 2016.

VICI PROPERTIES INC.

CONSOLIDATED BALANCE SHEET

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

	December 31, 2017
Assets
Investment in direct financing leases, net	$	8,268,643
Real Estate Investments:
Accounted for using the operating method	1,110,400
Land	73,600
Property and equipment used in operations, net	74,300
Cash and cash equivalents	183,646
Restricted cash	13,760
Other assets	15,363
Total assets	$	9,739,712
Liabilities
Debt, net	$	4,785,756
Accrued interest	21,595
Deferred financing liability	73,600
Deferred revenue	68,117
Accounts payable and accrued expenses	10,562
Deferred income taxes	3,718
Total liabilities	4,963,348
Commitments and Contingencies (Note 11)
Shareholders’ equity
Common stock, $0.01 par value, 700,000,000 shares authorized and 300,278,938 shares issued and outstanding at December 31, 2017	3,003
Preferred stock, $0.01 par value, 50,000,000 shares authorized, 12,000,000 shares issued and no shares outstanding at December 31, 2017	—
Additional paid in capital	4,645,824
Retained earnings	42,662
Total VICI shareholders’ equity	4,691,489
Non-controlling interests	84,875
Total shareholders’ equity	4,776,364
Total liabilities and shareholders’ equity	$	9,739,712

See accompanying Notes to Consolidated Financial Statements.

VICI PROPERTIES INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

	Period from October 6 to December 31, 2017
Revenues
Earned income from direct financing leases	$	150,171
Rental income from operating leases	11,529
Tenant reimbursement of property taxes	19,558
Golf-related	6,351
Net revenues	187,609
Operating expenses
General and administrative	9,939
Depreciation	751
Property taxes	19,558
Golf-related	4,126
Acquisition and transaction expenses	9,039
Total operating expenses	43,413
Operating income	144,196
Interest expense	(63,354		)
Interest income	282
Loss from extinguishment of debt	(38,488		)
Income before income taxes	42,636
Income tax benefit	1,901
Net income	44,537
Less: Net income attributable to noncontrolling interests	1,875
Net income attributable to common shareholders	$	42,662
Weighted average number of common shares outstanding
Basic	227,828,844
Diluted	227,985,455
Common per share data
Basic earnings per common share	$	0.19
Diluted earnings per common share	$	0.19

See accompanying Notes to Consolidated Financial Statements.

VICI PROPERTIES INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(AMOUNTS IN THOUSANDS)

	Common Stock				Preferred Stock				Additional paid-in capital				Retained Earnings				Total VICI Shareholders’ Equity				Non-controlling interests				Total Shareholders’ Equity
Balance at October 6, 2017	$	1,772			$	120			$	3,431,781			$	—			$	3,433,673			$	83,000			$	3,516,673
Net income	—				—				—				42,662				42,662				1,875				44,537
Issuance of common stock:
Preferred stock conversion	514				(120		)		(394		)		—				—				—				—
Mandatory debt conversion	176				—				249,811				—				249,987				—				249,987
Private equity placement	541				—				963,241				—				963,782				—				963,782
Non-cash stock compensation	—				—				1,385				—				1,385				—				1,385
Balance at December 31, 2017	$	3,003			$	—			$	4,645,824			$	42,662			$	4,691,489			$	84,875			$	4,776,364

See accompanying Notes to Consolidated Financial Statements.

VICI PROPERTIES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

	Period from October 6 to December 31, 2017
Cash flows from operating activities
Net income	$	44,537
Adjustments to reconcile net income to cash flows provided by operating activities:
Share-based compensation	1,385
Depreciation	751
Amortization of debt issuance costs and original issue discount	156
Deferred income taxes	(1,912		)
Change in operating assets and liabilities:
Investment in direct financing leases, net	(8,443		)
Other assets	(7,159		)
Accrued interest	21,595
Deferred revenue	68,081
Accounts payable and accrued expenses	10,449
Net cash provided by operating activities	129,440
Cash flows from investing activities
Acquisition of investment in direct financing leases	(1,136,200		)
Acquisition of property and equipment, net of change in related payables	(51		)
Net cash used in investing activities	(1,136,251		)
Cash flows from financing activities
Proceeds from private placement of common stock	963,782
Proceeds from issuance of Term B Loan Facility, net	2,194,686
Proceeds from issuance of Revolving Credit Facility, net	298,000
Payment of Prior Term Loan	(1,638,387		)
Payment of Prior First Lien Notes	(311,721		)
Payment of Mezzanine Debt	(400,000		)
Debt issuance costs	(31,501		)
Proceeds from unrecognized sale of real estate	73,600
Mandatory debt conversion costs	(13		)
Net cash provided by financing activities	1,148,446
Net increase in cash and cash equivalents	141,635
Cash, cash equivalents and restricted cash, beginning of period	55,771
Cash, cash equivalents and restricted cash, end of period	$	197,406
Supplemental Cash Flow Information:
Cash paid for interest	$	36,779
Cash paid for income taxes	—

See accompanying Notes to Consolidated Financial Statements.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In these notes, the words “VICI REIT,””VICI,” “Company,” “we,” “our,” and “us” refer to VICI Properties Inc., unless otherwise stated or the context requires otherwise.

“CEOC” refers to Caesars Entertainment Operating Company, Inc., a Delaware corporation, prior to the October 6, 2017 (the “Formation Date”), and following the Formation Date, CEOC, LLC, a Delaware limited liability company. “Caesars” or “CEC” refers to Caesars Entertainment Corporation.

“VICI PropCo” refers to VICI Properties 1 LLC, a Delaware limited liability company, which through its subsidiaries own the real estate assets transferred by CEOC to VICI on the Formation Date and “CPLV” refers to the Caesars Palace Las Vegas facility located in the Las Vegas Strip, which was owned by CEOC prior to the Formation Date and whose related real estate assets were transferred by CEOC to us on the Formation Date.

Note 1 — Business Formation and Basis of Presentation

Business Formation

VICI is a Maryland corporation that was created to hold certain real estate assets owned by Caesars Entertainment Operating Company (“CEOC”), upon CEOC’s emergence from bankruptcy. Pursuant to CEOC’s Plan of Reorganization, on October 6, 2017 (the “Formation Date”), the historical business of CEOC was separated by means of a spin-off transaction whereby the real property assets (“Formation Properties”) of CEOC and certain of its subsidiaries, including four golf course businesses, were transferred through a series of transactions to VICI. Following the Formation Date, VICI is a stand-alone entity that was initially owned by certain former creditors of CEOC. VICI is primarily engaged in the business of owning and acquiring gaming, hospitality and entertainment destinations. VICI leases the Formation Properties and Harrah’s Las Vegas, which was acquired on December 22, 2017, to subsidiaries of Caesars. VICI conducts its real property business through an operating partnership and its golf course business through a taxable REIT subsidiary (“TRS”), VICI Golf LLC.

VICI intends to make an election on its Federal income tax return for its taxable year ended December 31, 2017 to be treated as a real estate investment trust (“REIT”).

Basis of Presentation

The accompanying consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and with the applicable rules and regulations of the Securities and Exchange Commission. The consolidated statements of operations, shareholders’ equity and cash flows are presented for the period beginning with the date that the Company initiated its operations, October 6, 2017, through the end of 2017.

On the Formation Date, the Company adopted fresh-start reporting in accordance with provisions of ASC 852, “Reorganizations” (“ASC 852”). In the application of fresh start accounting, VICI allocated the enterprise value to the fair value of assets and liabilities in conformity with the guidance for the acquisition method of accounting for business combinations under ASC 805, “Business Combinations” (“ASC 805”).

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s most significant assumptions and estimates relate to the establishment of the fair value of investment in direct financing leases and real estate investments under ASC 852 at the date of emergence and the computation of lease revenue under ASC 840, “Leases” (“ASC 840”). These estimates are based on assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.

Principles of Consolidation and Non-controlling Interest

The accompanying consolidated Financial Statements include the accounts of VICI, its wholly owned subsidiaries and a single variable interest entity (VIE) where VICI is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We consolidate all subsidiaries in which we have a controlling financial interest and VIEs for which we or one of our consolidated subsidiaries is the primary beneficiary.

We identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of VIE. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We identify the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. We consolidate our investment in a VIE when we determine that we are the primary beneficiary. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. We perform this analysis on an ongoing basis. The consolidated financial statements of VICI include the accounts of our Operating Partnership, a VIE of which we are the primary beneficiary, as well as its wholly owned and majority-owned subsidiaries. VICI’s maximum exposure to loss is the carrying value of the assets and liabilities of the Operating Partnership, which represents the substantial majority of VICI’s assets and liabilities. As VICI holds what is deemed a majority voting interest in the Operating Partnership through its ownership of the Operating Partnership’s sole general partner, it qualifies for the exemption from providing certain of the required disclosures associated with investments in VIEs.

VICI presents non-controlling interest and classifies such interest as a component of consolidated shareholders’ equity, separate from VICI shareholders equity. Non-controlling interest in VICI represents a 20% third party ownership of Harrah’s Joliet LandCo LLC, the entity that owns the Harrah’s Joliet facility and the related Joliet Lease Agreement.

Reportable Segments

Our real property business and our golf course business represent two reportable segments. The real property business segment consists of leased real property and represents the substantial majority of our business. The golf course business segment consists of four golf courses, each of which is an operating segments and is aggregated into one reportable segment.

Corporate and overhead costs are allocated to reportable segments based upon revenue or headcount. Management believes that the assumptions and methodologies used in the allocation of such expenses are reasonable.

Note 2 — Summary of Significant Accounting Policies

Cash, Cash Equivalents, and Restricted Cash

Cash consists of cash-on-hand and cash-in-bank. Any short-term investments with an original maturity of three months or less from the date of purchase are considered cash equivalents and are stated at the lower of cost or market value.

Restricted cash is comprised of funds paid monthly by Caesars for the CPLV rent that are held in a restricted cash management account for the purpose of funding debt service or impositions related to CPLV debt issued by us. Once all debt service and impositions are paid out of restricted cash, the remaining funds are returned to the Company’s unrestricted operating account.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported with the Balance Sheet to the total of the same such amounts presented in the Statement of Cash Flows.

(In thousands)		December 31, 2017
Cash and cash equivalents		$	183,646
Restricted cash		13,760
Total cash, cash equivalents and restricted cash shown in the Statement of Cash Flows		$	197,406

Concentrations of Credit Risk

Following the formation transactions in October 2017, all of the real estate holdings of VICI (other than VICI Golf LLC) is leased by VICI to CEOC or other affiliates of Caesars, and most of VICI’s revenues are derived from the Master Leases that VICI has with affiliates of Caesars. Other than VICI having a single tenant from which it will derive most of its revenue, management does not believe there are any other significant concentrations of credit risk.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investment in direct financing leases, net and Real Estate Investments

Under guidance in ASC 840, the initial Lease Agreements are bifurcated between operating leases and direct financing leases. The fair value assigned to certain portions of the land qualify for operating lease treatment while the fair value assigned to the buildings is classified as a direct financing lease, and the portion of the land which was not bifurcated is also classified as part of direct financing lease.

Land accounted for under the operating method has an indefinite useful life and is not depreciated.

As described in Note 5—Property Transactions, the Company sold certain land parcels to Caesars for $73.6 million. Due to a put/call option on the land parcels, it was determined that the transaction does not meet the requirements of a completed sale for accounting purposes. As a result, we reclassified $73.6 million from Real estate investments accounted for using the operating method to Land. Additionally, the Company recorded a $73.6 million Deferred financing liability in its Balance Sheet.

For real estate investments accounted for using the operating method, we continually monitor events and circumstances that could indicate that the carrying amount of our real estate investments may not be recoverable or realized. When events or changes in circumstances indicate that a potential impairment has occurred or that the carrying value of a real estate investment may not be recoverable, we use an estimate of the undiscounted value of expected future operating cash flows to determine whether the real estate investment is impaired. If the undiscounted cash flows plus net proceeds expected from the disposition of the asset is less than the carrying value of the assets, we recognize an impairment charge equivalent to the amount required to reduce the carrying value of the asset to its estimated fair value. We group our real estate investments together by property, the lowest level for which identifiable cash flows are available, in evaluating impairment. In assessing the recoverability of the carrying value, we must make assumptions regarding future cash flows and other factors. Factors considered in performing this assessment include current operating results, market and other applicable trends and residual values, as well as the effect of obsolescence, demand, competition and other factors. If these estimates or the related assumptions change in the future, we may be required to record an impairment loss.

If and when an investment in direct financing leases is identified for impairment evaluation, the Company will apply the guidance in both ASC 310 "Receivables" ("ASC 310") and ASC 360 "Property, Plant and Equipment" ("ASC 360"). Under ASC 310, the lease receivable portion of the net investment in direct financing lease is identified for impairment when it becomes probable to the Company, as the lessor, will be unable to collect all rental payments associated with our investment in direct financing leases. Under ASC 360, the residual value portion of the net investment in direct financing leases is monitored for impairment under the same method the Company applies to real estate investments.

There were no impairments identified on our real estate investments or our investment in direct financing leases, net in 2017.

Property and Equipment Used in Operations

Property and equipment used in operations represents assets for VICI Golf LLC, our golf operations, and were recorded at fair value of $75.0 million at the Formation Date. Judgments are made in determining their estimated useful lives and salvage values and if or when an asset (or asset group) has been impaired. The accuracy of these estimates affects the amount of depreciation expense recognized in our financial results and whether we have a gain or loss on the disposal of an asset. We assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset.

We review the carrying value of our assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Other factors considered by management in performing this assessment may include current operating results, trends, prospects, and third-party appraisals, as well as the effect of demand, competition, and other economic, legal, and regulatory factors. In estimated expected future cash flows for determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which is the aggregate of the four golf courses. We typically estimate the fair value of assets starting with a “Replacement Cost New” approach and then deduct appropriate amounts for both functional and economic obsolescence to arrive at the fair value estimates. These analyses are sensitive to management assumptions and the estimates of the obsolescence factors. Changes in these assumptions and estimates could have a material impact on the analyses and the Financial Statements. In 2017, no impairment on assets was recorded.

Additions to property used in operations are stated at cost. We capitalize the costs of improvements that extend the life of the asset. We expense maintenance and repair costs as incurred. Gains or losses on the dispositions of property and equipment are recognized

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in the period of disposal. With respect to golf course improvements (included in land improvements), only costs associated with original construction, complete replacements of items such as tee boxes and putting greens, or the addition of new trees, sand traps, fairways or putting greens are capitalized. All other related costs are expensed as incurred. For building improvements, only costs that extend the useful life of the building are capitalized.

Certain land improvements include site preparations that prepare land for its intended use as a golf course. Like the land itself, these improvements are inexhaustible and therefore not depreciated. Examples include excavation, filling, grading and preparation of fairways and roughs. Depreciable land improvements are defined as improvements made to land that have determinable estimated useful lives and deteriorate with use or passage of time. These improvements were built or installed to enhance or facilitate the use of land for a particular purpose. Depreciable land improvements associated with the golf courses include greens, bunkers, tee boxes, cart paths, fences and gates, landscaping and sprinkler systems.

Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease as follows:

Depreciable land improvements	2-50 years
Building and improvements	5-25 years
Furniture and equipment	2-5 years

Revenue Recognition

Lease Revenue

As a REIT, the majority of our revenues are derived from rent received from our tenants under long-term triple-net leases. The accounting guidance under ASC 840 is complex and requires the use of judgments and assumptions by management to determine the proper accounting treatment of a lease. We perform a lease classification upon lease inception to determine if we will account for the lease as a capital or operating lease.

Under ASC 840, for leases of both building and land, if the fair value of the land is 25% or more of the total fair value of the leased property at lease inception, we consider the land and building separately for lease classification. In these cases, if the building element of the lease meets the criteria to be classified as a capital lease, then we account for the building element as a capital lease and the land separately as an operating lease. If the building element does not meet the criteria to be classified as a capital lease, then we account for the building and land elements as a single operating lease.

To determine if the building portion of a lease triggers capital lease treatment, we conduct the four lease tests in ASC 840 outlined below. If a lease meets any of the four criteria below, it is accounted for as a capital lease.

•	Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title.

•	Bargain purchase option. The lease contains a bargain purchase option, which is a provision allowing the lessee, at its option, to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable. In addition, the exercise of the option must be reasonably assured at lease inception.

•	Lease term. The lease term is equal to 75% or more of the estimated economic life of the leased property. However, if the beginning of the lease term falls within the last 25% of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for purposes of classifying the lease. This test is conducted on a property by property basis.

•

Minimum lease payments. The present value of the minimum lease payments at the beginning of the lease term, excluding that portion of the payments representing executory costs such as insurance, maintenance and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90% of the fair value of the leased property to the lessor at lease inception less any related investment tax credit retained by the lessor and expected to be realized by the lessor. If the

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

beginning of the lease term falls within the last 25% of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for purposes of classifying the lease.

The tests outlined above, as well as the resulting calculations, require subjective judgments, such as determining, at lease inception, the fair value of the assets, the residual value of the assets at the end of the lease term, the likelihood a tenant will exercise all renewal options (in order to determine the lease term), the estimated remaining economic life of the leased assets, the incremental borrowing rate of the lessee and the interest rate implicit in the lease. A change in estimate or judgment can result in a materially different financial statement presentation.

The revenue recognition model is different under capital leases and operating leases.

Under the operating lease model, as the lessor, at lease inception the land is recorded as Real estate investments accounted for using the operating method in our Balance Sheet and we record rental income from operating leases on a straight-line basis over the lease term. The amount of annual minimum lease payments attributable to the land element after deducting executory costs, including any profit thereon, is determined by applying our incremental borrowing rate to the value of the land. We record this lease income as Rental income from operating leases in our Statement of Operations.

Under the direct financing lease model, as lessor, at lease inception we record the lease receivable as Investment in direct financing leases, net in our Balance Sheet. Under the direct financing lease method, we recognize fixed amounts due on an effective interest basis at a constant rate of return over the lease term. As a result, the cash payments accounted for under direct financing leases will not equal the earned income from direct financing leases. A portion of the cash rent we receive is recorded as Earned income from direct financing leases in our Statement of Operations and a portion is recorded as a change to the Investment in direct financing leases, net.

Additionally, in accordance with ASC 605, “Revenue Recognition”, the Company records revenue for real estate taxes paid by its tenants on the leased properties with an offsetting expense in real estate taxes with the Statement of Operations as the Company has concluded it is the primary obligor.

Golf-related Revenue

On the Formation Date, subsidiaries of VICI Golf LLC, a subsidiary of the VICI REIT, entered into a golf course use agreement (the “Golf Course Use Agreement”) with New CEOC and Caesars Enterprise Services, LLC (“CES”) (collectively, the “users”), whereby the users were granted certain priority rights and privileges with respect to access and use of certain golf course properties. Payments under the Golf Course Use Agreement are comprised of a $10.0 million annual membership fee, $3.0 million of use fees and approximately $1.1 million of minimum rounds fees. The annual membership fee, use fees and minimum round fees are subject to an annual escalator beginning at the times provided under the Golf Course Use Agreement. Revenue from the Golf Course Use Agreement is recognized in accordance with ASC 606, “Revenue From Contracts With Customers.”

Additional revenues from golf course operations, food and beverage and merchandise sales are recognized at the time of sale or when the service is provided and are reported net of sales tax. Golf memberships sold to individuals are not refundable and are deferred and recognized within golf revenue in the Statements of Operations over the expected life of an active membership, which is typically one year or less.

Income Taxes-REIT Qualification

We intend to elect to be taxed and qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2017, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT beyond that taxable year end. 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, determined without regard to the dividends paid deduction and excluding any net capital gains. As a REIT, we generally will not be subject to federal income tax on income that we pay as distributions to our shareholders. If we fail 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 distributions paid to our shareholders would not be deductible by us in computing taxable income. Additionally, any resulting corporate liability created if we fail to qualify as a REIT could be substantial and could materially and adversely affect our net income and net cash available for distribution to shareholders. 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.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The TRS operations (represented by the four golf course businesses) are able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS operations are subject to federal and state income taxes.

Debt Issuance Costs

Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the contractual term of the underlying indebtedness. In accordance with ASC 835, “Interest,” the Company records debt net of unamortized debt issuance costs on its Balance Sheet. At December 31, 2017, the Company has $31.1 million of unamortized debt issuance costs associated with the $2,200.0 million Term B Loan Facility.

In addition, the Company has $7.5 million of unamortized debt issuance costs at December 31, 2017, associated with obtaining the $400.0 million Revolving Credit Facility commitment recorded as Other assets.

Other Comprehensive Income

There are no other comprehensive income items for the period from October 6, 2017 through December 31, 2017 and, as such, the Company's comprehensive income is equal to net income for 2017.

Share-Based Compensation

The VICI Properties Inc. 2017 Stock Incentive Plan (the “2017 Stock Incentive Plan”) provides for the Company to issue awards to certain key persons (employees and non-employee directors). Awards under the 2017 Stock Incentive Plan may include incentive stock options; non-qualified stock options; stock appreciation rights; dividend equivalent rights; restricted stock; restricted stock units and unrestricted stock.

The Company accounts for stock compensation under ASC 718, Compensation - Stock Compensation (“ASC 718”), which requires the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of grant. The method for calculating the fair value of the Company’s time-based restricted stock awards is determined by the Compensation Committee of the Board of Directors and is typically equivalent to the 10-day volume weighted average price using the 10 trading days ending on the grant date. The fair value of certain awards granted in connection with our Formation were determined based on an independent appraisal of the value of the Company’s common stock as of our Formation Date.

The unrecognized compensation relating to awards under the Plan will be amortized to expense over the awards’ remaining vesting periods. Vesting periods for award of equity instruments range from zero to four years.

See Note 14—Share-Based Compensation for further information related to the share-based compensation.

Earnings Per Share

Earnings per share (”EPS”) is calculated in accordance with ASC 260, “Earnings Per Share.” Basic EPS is computed by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially-dilutive securities including those from the 2017 Stock Incentive Plan.

See Note 13—Earnings Per Share for the detailed 2017 EPS calculation.

Note 3 — Recently Issued Accounting Pronouncements

Derivatives and Hedging - August 2017: The amendments refine and expand hedge accounting for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. The transition guidance provides the option of early adoption using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. We do not believe the effect of adopting this standard would have a material impact on our current Financial Statements. However, we will continue to assess the impact that this guidance might have on the accounting and disclosure of potential hedge transactions that we may enter into in the future.

Compensation - Stock Compensation - May 2017: Amendments in this update provide guidance regarding which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

for the effects of a modification unless all of the following are met: (i) the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as before the original award was modified. Amendments in this update are effective for all periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Application of amended guidance should be applied prospectively to an award modified on or after the adoption date. We believe that the adoption of this standard will not have a material impact on our Financial Statements.

Business Combinations - January 2017: Updated amendments intend to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for acquisitions (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. Specifically, the new guidance provides a screen to determine when an integrated set of assets and activities is not a business. Under the new guidance, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the assets do not represent a business. Amendments should be applied on a prospective basis on or after the effective date. No disclosures are required at transition. The amendments are effective to annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is allowed as follows: (1) transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in Financial Statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in Financial Statements that have been issued or made available for issuance. The adoption of this standard could have a material impact on our Financial Statements should we have future acquisitions.

Leases - February 2016 (amended January 2017): The amended guidance requires most lease obligations to be recognized as a right-of-use asset with a corresponding liability on the balance sheet. The guidance also requires additional qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance should be implemented for the earliest period presented using a modified retrospective approach, which includes optional practical expedients primarily focused on leases that commence before the effective date. We are evaluating the impact of adopting this new standard on our Financial Statements but do not expect the adoption of the new guidance to have a material impact on the accounting treatment of our triple-net tenant leases, which are the primary source of our revenues.

Revenue from Contracts with Customers - May 2014 (amended January 2017): The new guidance is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP applicable to revenue transactions. Existing industry guidance will be eliminated. The FASB has recently issued several amendments to the standard, including clarification on accounting for and identifying performance obligations. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The guidance should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. We are adopting this standard effective January 1, 2018, retrospectively. We have completed our evaluation of the impact of adopting this new guidance and determined that there will not be a material impact to our Financial Statements. The majority of our revenue recognition policies will not be impacted by the new standard, as leases, which represent the substantial majority of our revenues, are excluded from the new guidance. The adoption of this guidance does not change the timing or process in which we recognize golf revenue.

Income Taxes - October 2016: Amended guidance addresses intra-entity transfers of assets other than inventory, which requires the recognition of any related income tax consequences when such transfers occur. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Amendments are effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early adoption is permitted. We do not expect this standard will have a material impact on our Financial Statements.

Statement of Cash Flows - August 2016: Amended guidance addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments should be applied retrospectively to each period presented. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We have adopted this standard for our December 31, 2017 Statement of Cash Flows.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Statement of Cash Flows - November 2016: Amended guidance requiring that a statement of cash flows explain the change during the period in the total cash, cash equivalents and restricted cash. Previous guidance does not provide specific guidance on the cash flow classification and presentation of changes in restricted cash other than limited guidance for not-for-profit entities. This guidance is required to be adopted for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early adoption is permitted. We have adopted this standard for our December 31, 2017 Statement of Cash Flows.

Note 4 — Fresh-Start Reporting

On the Formation Date, the Company adopted fresh-start reporting in accordance with provisions of ASC 852. In the application of fresh start accounting, VICI allocated the enterprise value to the fair value of assets and liabilities in conformity with the guidance for the acquisition method of accounting for business combinations under ASC 805. The amount remaining after allocation of the enterprise value to the fair value of identified tangible and intangible assets and liabilities, if any, would be reflected as goodwill and subject to periodic evaluation for impairment. In addition to fresh start accounting, VICI’s Financial Statements reflect all effects of the transactions contemplated by the Plan of Reorganization. Accordingly, VICI’s Balance Sheet at December 31, 2017 is not comparable to any balance sheet for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the Plan.

Under ASC 852, fresh-start reporting is required upon emergence from Chapter 11 if (i) the value of the assets of the emerging entity immediately before the date of confirmation is less than the total of all post-petition liabilities and allowed claims; and (ii) holders of existing voting shares immediately before confirmation receive less than 50% of the voting shares of the emerging entity. Accordingly, VICI qualified for and adopted fresh-start reporting as of October 6, 2017. Adopting fresh-start reporting results in a new reporting entity with no beginning retained earnings or deficits. It also includes the issuance of new shares of the reorganized entity caused by change of control under ASC 852.

The net book value of the real estate assets contributed to VICI by CEOC under the Plan of Reorganization was $4,831.0 million.

Based upon the analysis completed by the Company with the assistance of outside third-party valuation experts, it concluded the fair value of these assets were $8,300.0 million, net of non-controlling interests related to the Joliet facilities of $83.0 million.

Real estate assets are valued using an income approach and, more specifically, the discounted cash flow (“DCF”) technique. Future lease payments for the properties are modeled according to the terms contained in the initial Lease Agreements. Although management believes the length of the leases with CEOC will extend to the full thirty-five years lease term (assuming the exercise of tenant renewal options) per the initial Lease Agreements, the real property valuation analysis contemplates typical market participant oriented nine- and fourteen-year hold periods as a best methodology to estimate the value of the cash flow during the full term of the lease. Appropriate expenses are estimated and deducted from the future contract rent to derive expected future cash flows. Terminal or reversion values are calculated for both hold period scenarios based on estimated market terminal capitalization rates. The DCF technique estimates value by discounting back to present value the anticipated future cash flows for the interim periods in the DCF model plus the present value of the terminal values using an appropriate discount rate. The discount rate was derived based upon a weighted average cost of capital (“WACC”). The WACC was estimated based upon observations of a peer group of guideline companies whose stock was publicly traded on recognized exchanges as such guideline companies were considered comparable to VICI REIT. Factors considered in deriving a WACC included general market rates of return at the valuation date, business risks associated with the industry in which VICI REIT operates, and other specific risk factors deemed appropriate. An estimated discount rate of 9.0% was selected as a base rate for all properties. Individual property discount rates were then adjusted based on the specific additional aforementioned risk factors and, once adjusted, ranged from 7.5% to 17.5%.

The following fresh-start balance sheet illustrates the financial effects on the Company of the implementation of the Plan and the adoption of fresh-start reporting. It reflects the effect of the completion of the transactions included in the Plan, including the issuance of equity and the contribution of properties.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands)	Fair Value as of Formation Date (October 6, 2017)
Assets
Investment in direct financing leases	$	7,124,000
Real Estate Investments:
Accounted for using the operating method	1,184,000
Property and equipment used in operations, net	75,000
Cash and cash equivalents	55,771
Other assets	681
Total assets	$	8,439,452
Liabilities
Debt	$	4,917,000
Deferred income taxes	5,631
Accounts payable and accrued expenses	149
Total liabilities	4,922,780
Redeemable preferred stock	759,000
Shareholders’ Equity
Common stock	1,772
Additional paid-in capital	2,672,900
Total VICI shareholders’ equity	2,674,672
Non-controlling interests	83,000
Total shareholders’ equity	2,757,672
Total liabilities and shareholders’ equity	$	8,439,452

Note 5 — Property Transactions

Purchase of Harrah’s Las Vegas Real Estate

On November 29, 2017, an indirect wholly owned subsidiary of VICI (the “HLV Purchaser”), and Harrah’s Las Vegas, LLC (the “HLV Seller”), a subsidiary of Caesars, entered into an agreement, pursuant to which the HLV Purchaser agreed to acquire from the HLV Seller all of the land and real property improvements associated with the property commonly known as Harrah’s Las Vegas Hotel & Casino (“Harrah’s Las Vegas”) for a purchase price of $1,136.2 million. HLV Purchaser acquired the equity in a new entity (“HLV Owner”), which at the time of closing of the transaction on December 22, 2017 (“Closing Date”), became the owner of Harrah’s Las Vegas.

On the Closing Date, HLV Owner, as landlord, entered into an amended and restated lease with the HLV Seller, as tenant, whereby the HLV Seller leased back Harrah’s Las Vegas from HLV Owner. Under the terms of the HLV Lease Agreement, the HLV Seller is responsible for ongoing costs relating to the property, including property taxes, insurance, and maintenance and repair costs that arise from the use of the property and the HLV Seller is required to continue to invest in the property and related equipment ($171.0 million for the period commencing January 1, 2017 and ending December 31, 2021 with additional amounts stipulated thereafter).

The HLV Lease Agreement has an initial 15 year term with four five-year renewal terms exercisable at the option of the HLV Seller (subject to certain conditions) and provides for a fixed base rent for each of the first seven years of the lease term equal to $87.4 million annually. In the eighth year of the lease, rent is split into an 80% fixed base rent component and 20% variable rent component, which is adjusted periodically from time to time. In addition, the HLV Lease Agreement contains an annual rent escalator on the fixed base rent equal to (i) 1% commencing in the second year of the lease and (ii) the greater of 2% or the increase in the Consumer Price Index commencing in the sixth year of the lease (subject to certain conditions).

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In conjunction with the closing, HLV Owner and a subsidiary of Caesars entered into a Guaranty of Lease whereby, a subsidiary of Caesars guarantees the HLV Seller’s payment obligation under the HLV Lease Agreement.

We recorded this purchase using the Direct Financing Method in our Balance Sheet.

Sale of Eastside Property

On November 29, 2017, Vegas Development LLC, an indirect wholly owned subsidiary of VICI (the “Land Seller”), and a subsidiary of Caesars (the “Land Purchaser”), entered into an agreement, pursuant to which the Land Purchaser agreed to acquire from the Land Seller an entity owning approximately 18.4 acres of certain parcels located in Las Vegas, Nevada, east of Harrah’s Las Vegas (“Eastside Property”). The sales price for the membership interests in the owner of the Eastside Property was $73.6 million.

Pursuant to this agreement, Land Purchaser is responsible for the remediation of the flood plain mechanism on the Eastside Property. The costs of the remediation work will be borne fifty percent (50%) by Land Seller and fifty percent (50%) by Land Purchaser, pari passu, until such time as the total cost incurred in connection with the remediation work is equal to $12.0 million. Any costs in excess of $12.0 million incurred in connection with the remediation work shall be the sole responsibility of Land Purchaser.

On November 29, 2017, VICI delivered a Guaranty (the “Guaranty”), in which VICI 1 guaranteed to the HLV Seller the payment in full of any Seller Liquidated Damages Amount (as defined in the Purchase Agreement) and to the Land Purchaser the payment of losses resulting from the breach by Land Seller of certain warranties under the Eastside Property Sales Agreement.

The Eastside Property sales transaction also closed on December 22, 2017. Due to the put/call option on the land parcels, as described below, it was determined that the transaction does not meet the requirements of a completed sale for accounting purposes. As a result, we reclassified $73.6 million from Real estate investments accounted for using the operating method to Land. Additionally, the Company recorded a $73.6 million Deferred financing liability in its Balance Sheet.

The Company incurred transaction-related costs in conjunction with the purchase of Harrah’s Las Vegas and the sale of the Eastside property comprised primarily of valuation and legal expenses of approximately $9.0 million. The Company recorded this as Transaction and acquisition costs in its Statement of Operations.

Put-Call Agreement

On the Closing Date, the HLV Purchaser and certain subsidiaries of Caesars (collectively, “Owner”), the owners of certain parcels of real property located adjacent to the Harrah’s Las Vegas (including the Eastside Property) (collectively, the “Designated Property”), all or a portion of which Designated Property may in the future be improved by a convention center (in such case, the “Eastside Convention Center Property”), entered into a put-call right agreement (the “Put-Call Agreement”), which provides HLV Purchaser and Owner with certain rights and obligations in connection with: (i) a put right in favor of Owner, which, if exercised, would result in the sale by Owner to the HLV Purchaser and simultaneous leaseback by the HLV Purchaser to Owner of the Convention Center Property (the “Put Right”); (ii) if Owner exercises the Put Right and, among other things, the sale of the Eastside Convention Center Property to HLV Owner does not close for certain reasons more particularly described in the Put-Call Agreement, then a repurchase right in favor of Owner, which, if exercised, would result in the sale by HLV Purchaser to Owner of Harrah’s Las Vegas; and (iii) a call right in favor of HLV Purchaser, which, if exercised, would result in the sale by Owner to HLV Purchaser and simultaneous leaseback by HLV Purchaser to Owner of the Eastside Convention Center Property.

Amended and Restated Right of First Refusal Agreement

On the Closing Date, VICI Properties L.P., a wholly-owned subsidiary of the Company (“VICI LP”), and Caesars entered into an Amended and Restated Right of First Refusal Agreement pursuant to which VICI LP will have a right, subject to certain exclusions, (i) to acquire (and lease to Caesars) any of the gaming facilities of Centaur Holdings, LLC, which are proposed to be acquired by Caesars, (ii) to acquire (and lease to Caesars) any domestic gaming facilities located outside of the Gaming Enterprise District of Clark County, Nevada, proposed to be acquired or developed by Caesars, and (iii) to acquire certain income-producing improvements if built by Land Purchaser in lieu of a large-scale convention center on the Eastside Property, subject to certain exclusions.

Note 6 — Investment in Direct Financing Leases, Net and Real Estate Investments

Amounts were recorded at fair value for real estate assets under lease through the initial Lease Agreements and the reclassification of such real estate assets to Investments in direct financing leases, net and Real estate investments accounted for using the operating

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

method. The fair value assigned to the buildings is classified as an Investment in direct financing leases, while the fair value assigned to certain portions of land is recorded as Real Estate Investments accounted for using the operating method.

The weighted average remaining lease term for both operating and direct financing leases at December 31, 2017 was 34.9 years.

VICI’s investment in direct financing leases, net consisted of the following as of December 31, 2017

(In thousands)	December 31, 2017
Minimum lease payments receivable (1)	$	29,302,166
Estimated residual values of leased property (unguaranteed)	1,987,651
Gross investment in direct financing leases	31,289,817
Unamortized initial direct costs	—
Less: Unearned income	(23,021,174		)
Net investment in direct financing leases, net	$	8,268,643

---

(1)	Minimum lease payments do not include contingent rent that may be received under the Lease Agreements. There was no contingent rent for the period ended December 31, 2017.

At December 31, 2017, minimum lease payments owed to VICI for each of the five succeeding years are as follows:

(In thousands)	Minimum Lease Payments
2018	$	725,875
2019	730,060
2020	734,320
2021	738,656
2022	744,647

Due to the put/call option on the Eastside Property, it was determined that the transaction does not meet the requirements of a completed sale for accounting purposes. As a result, we reclassified $73.6 million from Real estate investments accounted for using the operating method to Land. Additionally, the Company recorded a $73.6 million Deferred financing liability in its Balance Sheet.

Note 7 — Property and Equipment Used in Operations, Net

Property and Equipment Used in Operations is primarily attributable to golf-related land, building and improvements and consists of the following:

(In thousands)	December 31, 2017
Land and land improvements	$	57,901
Buildings and improvements	14,572
Furniture and equipment	2,578
Total property and equipment	75,051
Less: accumulated depreciation	(751		)
Total property and equipment, net	$	74,300

(In thousands)	Period from October 6 to December 31, 2017
Depreciation expense	$	751

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 — Accounts Payable and Accrued Expenses

(In thousands)	December 31, 2017
Accounts payable	5,207
Accrued payroll and other compensation	2,559
Other accrued expenses	2,796
Total accrued expenses	$	10,562

Note 9 — Debt

Outstanding Indebtedness on December 31, 2017:

(Dollars in thousands)		December 31, 2017
Description of Debt		Final Maturity		Rate(s)(1)		Face Value				Book Value
VICI PropCo Senior Secured Credit Facilities
Senior Secured Revolving Credit Facility (“Revolving Credit Facility”) (3)		2022		Variable		$	300,000			$	300,000
First Lien Senior Secured Term Loan (“Term B Loan Facility”) (2)(3)(4)		2024		Variable		2,200,000				2,168,864
Second Priority Senior Secured Notes (“Second Lien Notes”)(5)		2023		8.00%		766,892				766,892
CPLV Debt
CPLV CMBS Debt (6)		2022		4.36%		1,550,000				1,550,000
Total Debt						$	4,816,892			$	4,785,756

---

(1)	Interest rate is fixed, except where noted.

(2)	Book value is net of unamortized original issue discount and unamortized debt issuance costs incurred in conjunction with debt.

(3)	Interest is payable quarterly at a rate per annum and equal to LIBOR plus 2.25%.

(4)	Final maturity is 2024 or three months prior to the maturity date of the Second Lien Notes, whichever is earlier.

(5)	Interest is payable semi-annually.

(6)	Interest is payable monthly.

The following is a schedule of future minimum repayments of long-term debt as of December 31, 2017:

(Dollars in thousands)
2018	$	21,918
2019	21,699
2020	21,483
2021	21,269
2022	1,871,057
Thereafter	2,859,466
Total minimum repayments	$	4,816,892

Senior Secured Credit Facilities

On December 22, 2017, VICI PropCo entered into a credit agreement with Goldman Sachs Bank USA, as administrative agent, and other parties thereto (the “Credit Agreement”) comprised of a $2,200.0 million Term B Loan Facility and a $400.0 million Revolving Credit Facility, $300.0 million of which was borrowed (the Term B Loan Facility and the Revolving Credit Facility together, the “Senior Secured Credit Facilities”). The Senior Secured Credit Facilities initially bear interest at LIBOR plus 2.25%; provided that following an underwritten public offering of the equity interests of any parent entity of VICI PropCo which results in such equity interests being listed on a national securities exchange and generates gross cash proceeds of at least $500.0 million, such interest rate will be reduced by 25 basis points. The Term B Loan Facility was funded with an original issue discount of

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

0.25%. The Revolving Credit Facility will mature in 2022, and the Term B Loan Facility will mature in 2024 or the date that is three months prior to the maturity date of the Second Lien Notes, whichever is earlier. The Term B Loan Facility is subject to amortization of 1.0% of principal per annum payable in equal quarterly installments.

VICI PropCo used the net proceeds of the Term B Loan Facility and the Revolving Credit Facility drawn on the closing date of the Credit Agreement, together with the proceeds from the equity issuance by the Company on December 22, 2017 (See Note 12, Shareholders' Equity), to complete (i) the consummation of the acquisition of the Harrah’s Las Vegas Property (See Note 5, Property Transactions), (ii) the refinancing of the existing credit agreement of VICI PropCo, dated as of October 6, 2017 including the Prior Term Loan of $1,638.4 million, (iii) the redemption of the Prior First Lien Notes due 2022, issued on October 6, 2017, with an outstanding principal amount of $311.7 million plus accrued interest, (iv) the repurchase of (A) $200.0 million aggregate principal amount of CPLV existing indebtedness outstanding pursuant to that certain Mezzanine A (Senior tranche) Loan Agreement and (B) $200.0 million aggregate principal amount of CPLV existing indebtedness outstanding pursuant to that certain Mezzanine B (Intermediate tranche) Loan Agreement and (v) the payment of certain fees and expenses incurred in connection with the foregoing.

The Senior Secured Credit Facilities are guaranteed by each of VICI PropCo’s existing and subsequently acquired wholly-owned material domestic restricted subsidiaries, and secured by a first priority lien on substantially all of the VICI PropCo’s and such restricted subsidiaries’ material assets, including mortgages on their respective real estate, subject to customary exclusions. None of VICI, certain subsidiaries of VICI PropCo, including CPLV and its subsidiaries, are subject to the covenants of the Credit Agreement or are guarantors of the Senior Secured Credit Facilities.

The Credit Agreement provides for customary events of default, including, without limitation, (i) payment defaults, (ii) inaccuracies of representations and warranties, (iii) covenant defaults, (iv) cross-defaults to certain other indebtedness in excess of specified amounts, (v) certain events of bankruptcy and insolvency, (vi) judgment defaults in excess of specified amounts, (vii) actual or asserted invalidity or impairment of any loan documentation, (viii) the security documents cease to create a valid and perfected first priority lien on any material portion of the collateral, (ix) ERISA defaults, (x) termination of CEOC LLC’s initial master lease, dated as of October 6, 2017 and (xi) change of control.

The Credit Agreement also contains customary covenants that, among other things, limit the ability of VICI PropCo and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) merge with a third party or engage in other fundamental changes; (iii) make restricted payments; (iv) enter into, create, incur or assume any liens; (v) make certain sales and other dispositions of assets; (vi) enter into certain transactions with affiliates; (vii) make certain payments on certain other indebtedness; (viii) make certain investments; and (ix) incur restrictions on the ability of restricted subsidiaries to make certain distributions, loans or transfers of assets to VICI PropCo or any restricted subsidiary. These covenants are subject to a number of important exceptions and qualifications, including, with respect to the restricted payments covenant, the ability to make unlimited restricted payments to maintain the REIT status of the Company. Commencing with the first full fiscal quarter ending after the Closing Date, if there is 30% utilization of the Revolving Credit Facility, VICI PropCo will be required to maintain a maximum total net debt to adjusted asset ratio.

The Senior Secured Credit Facilities may be voluntarily prepaid at VICI PropCo’s option, in whole or in part, at any time, and are subject to mandatory prepayment in the event of receipt by VICI PropCo or any of its restricted subsidiaries of the proceeds from the occurrence of certain events, including asset sales, casualty events and issuance of certain indebtedness.

Second Lien Notes

The Second Lien Notes were issued on October 6, 2017, pursuant to an indenture (the “Indenture”) by and among VICI Properties 1 LLC and VICI FC Inc., a wholly owned subsidiary of VICI PropCo, as issuers (together, the “Issuers”), the subsidiary guarantors party thereto, and UMB Bank National Association, as trustee. The Second Lien Notes are guaranteed by each of the Issuers’ existing and subsequently acquired wholly owned material domestic restricted subsidiaries, and secured by a second priority lien on substantially all of the Issuers’ and such restricted subsidiaries’ material assets, including mortgages on their respective real estate, subject to customary exclusions. None of VICI or certain subsidiaries of VICI PropCo, including CPLV and its subsidiaries, are subject to the covenants of the Indenture or are guarantors of the Second Lien Notes.

The Indenture contains covenants that limit the Issuers’ and their restricted subsidiaries’ ability to, among other things: (i) incur additional debt; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on certain assets to secure debt; (vii) consolidate, merge, sell or otherwise dispose of

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

all or substantially all of their assets; (viii) enter into certain transactions with their affiliates; and (ix) designate their subsidiaries as unrestricted subsidiaries.

The Second Lien Notes are redeemable at the option of the Issuers, in whole or in part, at any time, from time to time, at a price set forth in the Indenture with the option to redeem up to 35% of the original aggregate principal amount thereof with the net cash proceeds of certain issuances of common or preferred equity by VICI PropCo or VICI REIT, at a price equal to 108% of such principal amount of the Second Lien Notes redeemed plus accrued and unpaid interest to the redemption date.

CPLV CMBS Debt

The CPLV CMBS Debt is secured by all of the assets of CPLV Borrower, including, but not limited to, the CPLV Borrower’s (1) fee interest (except as provided in (2)) in and to CPLV, (2) leasehold interest with respect to Octavius Tower, and (3) interest in the CPLV Lease Agreements and all related agreements, including the Lease Agreements. The CPLV CMBS Debt will be a first priority lien, subject only to permitted encumbrances (which are as set forth in the loan documentation), and an obligation to repay a specified sum with interest at 4.36% per annum. The CPLV CMBS Debt will be evidenced by one or more promissory notes and secured by, among other things, a mortgage, deed of trust or other similar security instrument that creates a mortgage lien on the fee and/or leasehold interest of the CPLV Borrower.

The loan documents governing the CPLV CMBS Debt contain covenants limiting CPLV Borrower’s ability to, among other things: (i) incur additional debt; (ii) enter into certain transactions with its affiliates; (iii) consolidate, merge, sell or otherwise dispose of its assets; and (iv) allow transfers of its direct or indirect equity interests.

Debt-related transactions since Formation Date:

		Face Value (In thousands)
Description of Debt		Debt At Formation				Mandatory Conversion				Refinancing Transactions				Debt at December 31, 2017
VICI PropCo Senior Secured Credit Facilities
Senior Secured Revolving Credit Facility (“Revolving Credit Facility”) (3)		$	—			$	—			$	300,000			$	300,000
First Lien Senior Secured Term Loan (“Term B Loan Facility”)										2,200,000				2,200,000
First Lien Term Loan (“Prior Term Loan”)		1,638,387				—				(1,638,387		)		—
First Priority Senior Secured Notes (“Prior First Lien Notes”)		311,721				—				(311,721		)		—
Second Priority Senior Secured Notes (“Second Lien Notes”)		766,892				—				—				766,892
CPLV Debt
CPLV CMBS Debt		1,550,000				—				—				1,550,000
CPLV Mezzanine Debt
Senior tranche		200,000				—				(200,000		)		—
Intermediate tranche		200,000				—				(200,000		)		—
Junior tranche		250,000				(250,000		)		—				—
Total Debt		$	4,917,000			$	(250,000	)		$	149,892			$	4,816,892

Mandatory Conversion

The CPLV mezzanine debt junior tranche of $250.0 million was automatically exchanged for 17,630,700 shares of the Company’s common stock on November 6, 2017.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Additional Redemptions and Prepayments

On February 5, 2018, the Company completed an initial public offering of 69,575,000 shares of common stock at an offering price of $20.00 per share for an aggregate offering value of $1,391.5 million, resulting in net proceeds of $1,307.0 million after commissions and expenses. The Company utilized a portion of the proceeds from the stock offering to: (a) pay down $300.0 million of indebtedness outstanding under the Revolving Credit Facility; (b) redeem $268.4 million in aggregate principal amount of the Second Lien Notes at a redemption price of 108% plus accrued and unpaid interest to the date of the redemption; and (c) repay $100.0 million of the Term Loan B Facility.

Note 10 — Fair Value

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate:

Cash, Cash Equivalents, and Restricted Cash

The fair value of the Company’s cash, cash equivalents and restricted cash approximate their carrying value due to the short maturity of these instruments.

Debt

The fair value of notes under the Senior Secured Credit Facilities and the CPLV CMBS debt is estimated based on quoted prices in active markets and as such is a Level 1 measurement as defined under ASC 820.

The estimated fair values of the Company’s financial instruments at December 31, 2017 are as follows:

	December 31, 2017
(In thousands)	Carrying Amount				Fair Value
Financial assets:
Cash and cash equivalents	$	183,646			$	183,646
Restricted cash	13,760				13,760
Financial liabilities:
VICI PropCo Senior Secured Credit Facilities
Senior Secured Revolving Credit Facility (“Revolving Credit Facility”)	$	300,000			$	300,000
First Priority Senior Secured Notes (“Term B Loan Facility”)	2,168,864				2,200,000
Second Priority Senior Secured Notes (“Second Lien Notes”)	766,892				853,167
CPLV Debt
CPLV CMBS Debt	1,550,000				1,559,486

Note 11 — Commitments and Contingent Liabilities

Litigation

In the ordinary course of business, from time to time, the Company may be subject to legal claims and administrative proceedings, none of which are currently outstanding, which the Company believes could have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations, liquidity or cash flows.

Operating Lease Commitments

The Company is liable under various operating leases for: (i) land at the Cascata golf course, which expires in 2039 and (ii) offices in Las Vegas, Nevada and New Orleans, Louisiana, which expire in 2018 and 2019, respectively. Total rental expense under these agreements, included in golf-related and general and administrative expenses in our Statement of Operations, was approximately $0.3 million for the period from October 6, 2017 through December 31, 2017.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The future minimum lease commitments relating to the base lease rent portion of noncancelable operating leases at December 31, 2017 are as follows:

(In thousands)		Lease Commitments
2018		$	1,073
2019		948
2020		908
2021		926
2022		945
2023 and thereafter		17,966
Total minimum rental commitments		$	22,766

Other golf-related commitments

The TRS utilizes a third-party golf maintenance company for its Rio Secco and Cascata golf courses. The agreements are for five years and expire in February 2019 and include all labor and equipment necessary to maintain both golf course grounds. Total expense under these agreements included as golf-related expenses in our Statement of Operations was approximately $0.7 million for the period from October 6, 2017 through December 31, 2017.

Total commitments relating to golf-related maintenance agreements at December 31, 2017 are as follows:

(In thousands)		Golf-related maintenance agreements
2018		$	2,969
2019		225
Total golf-related maintenance agreement commitments		$	3,194

Note 12 — Shareholders' Equity

Pre-Formation

In conjunction with VICI’s conversion to a corporation under the laws of the State of Maryland, the Company authorized 100,000,000 shares of common stock with a par value of $0.01 per share. On May 5, 2017, VICI REIT issued 1,000 shares of common stock to CEOC.

Formation

Effective on the Formation Date, the Company had authority to issue 750,000,000 shares of stock, consisting of 700,000,000 shares of Common Stock, $0.01 par value per share and 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”), of which 12,000,000 shares has been classified as Series A Convertible Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”).

On the Formation Date, the Company issued 177,160,494 shares of common stock and 12,000,000 shares of Series A preferred stock with an aggregate liquidation preference of $300.0 million ($25 per share) to CEOC and certain of its subsidiaries in exchange for the Properties and Caesars Entertainment Outdoor. CEOC distributed such shares to certain of its creditors and to certain backstop parties.

Pursuant to the Plan and a Backstop Commitment Agreement dated September 12, 2017, the backstop purchasers agreed, or otherwise had the right, to purchase a specified number of the shares of the Series A preferred stock for cash, with the cash proceeds of such purchases being paid to certain creditors of CEOC. An aggregate of 6,002,907 shares of Series A preferred stock were purchased by the backstop purchasers on the Formation Date (the “Backstop Shares”) at a price of $20.83 per share and an aggregate of 5,997,093 shares of Series A preferred stock were issued to certain creditors of CEOC as a portion of the recovery on account of their claims.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Post-Formation

Mandatory Conversions

On November 6, 2017, all of the Series A preferred stock automatically converted into 51,433,692 shares of the Company’s common stock (the “Mandatory Preferred Conversion”). No additional consideration was payable in connection with the Mandatory Preferred Conversion.

In addition, on the Formation Date, CPLV Mezz 3 LLC, a special-purpose parent entity of CPLV Mezz 2 LLC (which itself is the special-purpose parent entity of CPLV Mezz 1 LLC, the special-purpose parent entity of CPLV Property Owner LLC (the mortgage borrower under the CPLV CMBS Debt and the owner of CPLV)), issued a junior tranche of CPLV mezzanine debt in an amount of $250.0 million to institutional accredited investors, which debt automatically converted into an aggregate of 17,630,700 shares of the Company’s common stock on November 6, 2017 (the “Mandatory Mezzanine Conversion”). No additional consideration was payable in connection with the Mandatory Mezzanine Conversion.

Private Equity Placement

In November 2017, we entered into a common stock purchase agreement with certain of our existing investors, which certain additional investors joined in December 2017, pursuant to which we agreed to sell, contemporaneously with the consummation of the acquisition of the Harrah’s Las Vegas property, an aggregate of 54,054,052 shares of our common stock at a price of $18.50 per share in a private placement transaction, for gross proceeds of approximately $1.0 billion. The net proceeds from the transaction of approximately $963.8 million was used to partially fund the purchase price for the Harrah’s Las Vegas property and for working capital and general corporate purposes. At the closing of the private placement, on December 22, 2017, we made a cash payment equal to 2% of the committed amount, or $17.0 million in the aggregate, to the investors who entered into the purchase agreement with us in November 2017. In addition, at the private placement closing, we entered into a registration rights agreement with the investors, which provides, among other things, for us to file a shelf registration statement for the benefit of the investors within 75 days following the closing.

As a result of the Formation and Post-Formation equity transactions, the Company has 300,278,938 shares of Common Stock issued and outstanding and no shares of Preferred Stock outstanding at December 31, 2017.

Initial Public Offering

On February 5, 2018, the Company completed an initial public offering of 69,575,000 shares of common stock at an offering price of $20.00 per share for an aggregate offering value of $1,391.5 million, resulting in net proceeds of $1,307.0 million after commissions and expenses. After giving effect to the offering, the Company has 369,853,938 shares of Common Stock issued and outstanding.

Note 13 — Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the period, excluding net income attributable to participating securities (unvested restricted stock awards). Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities such as stock options, unvested restricted shares and unvested performance-based restricted shares. The following table reconciles the weighted-average common shares outstanding used in the calculation of basic earnings per share to the weighted-average common shares outstanding used in the calculation of diluted earnings per share for the period ended December 31, 2017:

(In thousands)	Period from October 6 to December 31, 2017
Determination of shares:
Weighted-average common shares outstanding	227,829
Assumed conversion of restricted stock	156
Diluted weighted-average common shares outstanding	227,985

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Basic and Diluted Earnings Per Share
(In thousands, except per share data)	Period from October 6 to December 31, 2017
Basic:
Net income attributable to common shareholders	$	42,662
Weighted-average common shares outstanding	227,829
Basic EPS	$	0.19
Diluted:
Net income attributable to common shareholders	$	42,662
Diluted weighted-average common shares outstanding	227,985
Diluted EPS	$	0.19

Note 14 — Share-Based Compensation

The 2017 Stock Incentive Plan is designed to provide long-term equity based compensation to directors and employees of the Company and its subsidiaries. The 2017 Stock Incentive Plan was adopted by the Board of Directors upon Formation and is administered by the Compensation Committee of the Board of Directors.

Awards under the 2017 Stock Incentive Plan may be granted with respect to an aggregate of 12,750,000 shares of common stock and may be issued in the form of: (a) incentive stock options, (b) non-qualified stock options, (c) stock appreciation rights, (d) dividend equivalent rights, (e) restricted stock, (f) restricted stock units or (g) unrestricted stock.

The 2017 Stock Incentive Plan limits the total number of shares of common stock with respect to which awards may be granted to any employee or director during any one calendar year.

During 2017, we granted a total of 174,572 restricted stock awards, 145,062 of which were valued based on an independent appraisal of the value of the Company’s common stock as of the Formation Date and 29,510 of which were valued based on the 10-day volume weighted average price using the 10 trading days ending on the grant date.

Total shared-based compensation expense recorded as General and administrative expense in the Statement of Operations totaled $1.4 million for the period from October 6, 2017 to December 31, 2017. Compensation expense is recognized on a straight-line basis for awards with only service conditions.

Restricted Stock Activity
	Units			Wtd Avg Fair Value
Outstanding as of Formation Date	—			$	—
Granted	174,572			15.41
Vested	(50,962	)		14.90
Forfeited	—			—
Canceled	—			—
Outstanding as of December 31, 2017	123,610			$	15.61

Restricted shares that vested in 2017 were issued as common stock in February 2018.

As of December 31, 2017, there was $1.8 million of unrecognized compensation cost related to non-vested share-based compensation arrangements under the 2017 Stock Incentive Plan. This cost is expected to be recognized over a weighted average period of 3.6 years.

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15 — Income Taxes

We intend to elect to be taxed and qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2017. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. The Company intends to meet those requirements and as a result, we generally will not be subject to federal income tax except for the TRS operations.

The TRS operations (represented by the four golf course businesses) are able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain activities of the Company which occur within its TRS operations are subject to federal and state income taxes. Accordingly, the Company's tax provision and deferred tax analysis are primarily from the results of TRS activities.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”), was enacted on December 22, 2017, which significantly changes U.S. tax law by, among other things, a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Accordingly, we have recorded a reduction to our net deferred tax liability of $2.4 million, and a corresponding increase to income tax benefit during the period.

The composition of our income tax expense (benefit) for the period from October 6, 2017 to December 31, 2017 was as follows:

(In thousands)	Current				Deferred				Total
Federal	$	—			$	(1,909	)		$	(1,909	)
State	11				(3		)		8
Income tax expense (benefit)	$	11			$	(1,912	)		$	(1,901	)

At December 31, 2017, the net effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were:

(In thousands)	December 31, 2017
Deferred tax assets:
Federal net operating loss	$	55
Accruals, reserves and other	24
Total deferred tax assets	79
Deferred tax liabilities:
Land, buildings and equipment, net	(3,797		)
Total deferred tax liabilities	(3,797		)
Net deferred tax liability	$	(3,718	)

The following table reconciles our effective income tax rate to the historical federal statutory rate of 35%.

(Amounts in thousands)	Amount				Percent
Federal income tax expense at statutory rate	$	15,414			35.0	%
REIT income not subject to federal income tax	(14,897		)		(33.8	)
State income taxes, net of federal benefits	5				—
Impact of Tax Reform on deferred tax liability	(2,423		)		(5.5	)
Income tax expense (benefit)	$	(1,901	)		(4.3	)%

VICI PROPERTIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16 — Segment Information

The following tables present certain information with respect to the Company’s segments.

Our real property business and our golf course business represent two reportable segments. The real property business segment consists of leased real property and represents the substantial majority of our business. The golf course business segment consists of four golf courses, with each being operating segments that are aggregated into one reportable segment.

The results of each reportable segment presented below are consistent with the way VICI management assesses these results and allocates resources, which is a consolidated view that adjusts for the impact of certain transactions between reportable segments within VICI, as described below. Accordingly, the results of certain reportable segments presented in this footnote differ from the financial statement information presented in their standalone reports.

		Period Ended December 31, 2017
(In thousands)		Real Property Business				Golf Course Business				VICI Consolidated
Net revenues		$	181,258			$	6,351			$	187,609
Operating income		142,722				1,474				144,196
Interest expense		(63,354		)		—				(63,354		)
Loss on extinguishment of debt		(38,488		)		—				(38,488		)
Income before income taxes		41,162				1,474				42,636
Provision for income taxes		—				1,901				1,901
Net income		41,162				3,375				44,537
Depreciation		—				751				751
Total assets		$	9,660,244			$	79,468			$	9,739,712

All of our real estate holdings (other than those related to the Golf Course Business) are leased to Caesars and certain of its subsidiaries, and substantially all of our revenues are derived from the Lease Agreements, which represents a concentration of credit risk due to the single tenant nature of our leases. Management does not believe there are any other significant concentrations of credit risk.

Note 17 — Subsequent Events

On February 5, 2018, the Company completed an initial public offering of 69,575,000 shares of common stock at an offering price of $20.00 per share for an aggregate offering value of $1,391.5 million, resulting in net proceeds of $1,307.0 million after commissions and expenses. The Company utilized a portion of the proceeds from the stock offering to: (a) pay down $300.0 million of indebtedness outstanding under the Revolving Credit Facility; (b) redeem $268.4 million in aggregate principal amount of the Second Lien Notes at a redemption price of 108% plus accrued and unpaid interest to the date of the redemption; and (c) repay $100.0 million of the Term Loan B Facility.

After giving effect to the offering, the Company has 369,853,938 shares of Common Stock issued and outstanding as of the date of this Annual Report on Form 10-K.

Note 18 — Quarterly Results of Operations (Unaudited)

As VICI began operations on October 6, 2017, our first quarter of operations is represented in our Consolidated Statement of Operations.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of VICI Properties Inc.

Opinion on the Financial Statements

We have audited the accompanying combined balance sheets of Caesars Entertainment Outdoor (the "Business") as of October 5, 2017 and December 31, 2016, the related combined statements of operations, equity, and cash flows for the period from January 1, 2017 to October 5, 2017 and for each of the two years in the period ended December 31, 2016, and the related notes to the combined financial statements (collectively referred to as the "Financial Statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Business as of October 5, 2017 and December 31, 2016, and the results of its operations and its cash flows for the period from January 1, 2017 to October 5, 2017 and for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Business’ management. Our responsibility is to express an opinion on the Business’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Business in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Business is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Business’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

March 28, 2018

We have served as the Business’ auditor since 2016.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

COMBINED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

	October 5, 2017				December 31, 2016
Assets
Current assets
Cash	$	111			$	920
Receivables, net	269				77
Inventories	480				371
Prepayments	84				276
Total current assets	944				1,644
Property and equipment, net	88,309				88,831
Total assets	$	89,253			$	90,475
Liabilities and Equity
Current liabilities
Accounts payable	$	272			$	305
Accrued expenses	647				705
Current portion of long-term debt	—				14
Total current liabilities	919				1,024
Deferred income taxes	4,944				5,043
Liabilities subject to compromise	249				265
Total liabilities	6,112				6,332
Commitments and contingencies (Note 9)
Equity
Net investment	83,091				84,091
Retained earnings	50				52
Total equity	83,141				84,143
Total liabilities and equity	$	89,253			$	90,475

See accompanying Notes to Combined Financial Statements

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

COMBINED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS)

	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Revenues
Golf ($5,685, $6,353 and $5,146 attributable to related parties)	$	11,412			$	14,558			$	14,071
Food and beverage	1,361				2,150				2,150
Retail and other	1,363				2,077				1,856
Net revenues	14,136				18,785				18,077
Operating expenses
Direct
Golf	5,204				7,082				6,767
Food and beverage	1,144				1,828				1,936
Retail and other	1,066				1,691				1,581
Property costs	2,895				3,138				3,133
Depreciation	2,445				3,030				2,882
Administrative and other	1,382				2,009				1,760
Total operating expenses	14,136				18,778				18,059
Income from operations	—				7				18
Interest expense	—				(7		)		(18		)
Income before taxes	—				—				—
Income tax (expense) benefit	(2		)		—				3
Net income (loss)	$	(2	)		$	—			$	3

See accompanying Notes to Combined Financial Statements

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

COMBINED STATEMENTS OF EQUITY

(AMOUNTS IN THOUSANDS)

	Net Investment				Retained Earnings				Total Equity
Balance at January 1, 2015	$	87,304			$	49			$	87,353
Net income	—				3				3
Transactions with parent, net	(1,981		)		—				(1,981		)
Balance at December 31, 2015	$	85,323			$	52			$	85,375
Net income	—				—				—
Transactions with parent, net	(1,232		)		—				(1,232		)
Balance at December 31, 2016	$	84,091			$	52			$	84,143
Net income (loss)	—				(2		)		(2		)
Transactions with parent, net	(1,000		)		—				(1,000		)
Balance at October 5, 2017	$	83,091			$	50			$	83,141

See accompanying Notes to Combined Financial Statements

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

COMBINED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Cash flows from operating activities
Net income (loss)	$	(2	)		$	—			$	3
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation	2,445				3,030				2,882
Net gain on asset sales	—				—				(38		)
Deferred income taxes	(99		)		(111		)		(101		)
Provisions for (recoveries of) bad debt	12				(10		)		31
Change in current assets and liabilities:
Receivables	(203		)		116				(137		)
Other current assets	—				12				69
Inventories	(109		)		71				(5		)
Prepayments	192				(223		)		6
Accounts payable	(49		)		(39		)		52
Accrued expenses	(58		)		(125		)		126
Cash flows provided by operating activities	2,129				2,721				2,888
Cash flows from investing activities
Acquisitions of property and equipment, net of change in related payables	(1,924		)		(869		)		(798		)
Proceeds from sale of assets	—				—				66
Cash flows used in investing activities	(1,924		)		(869		)		(732		)
Cash flows from financing activities
Repayments for capital leases	(14		)		(51		)		(45		)
Transactions with parent, net	(1,000		)		(1,232		)		(1,981		)
Cash flows used in financing activities	(1,014		)		(1,283		)		(2,026		)
Net increase (decrease) in cash and cash equivalents	(809		)		569				130
Cash and cash equivalents, beginning of period	920				351				221
Cash and cash equivalents, end of period	$	111			$	920			$	351

Supplemental Cash Flow Information:	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Cash paid for interest	$	—			$	7			$	18

See accompanying Notes to Combined Financial Statements

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS

In these notes, the words “Caesars Entertainment Outdoor,” “Business,” “Outdoor Business,” “we,” “our,” and “us” refer to the business and operation of the golf courses listed in Note 1 that were wholly-owned by Caesars Entertainment Operating Company, Inc. through October 5, 2017.

“CEOC” refers to the Caesars Entertainment Operating Company, Inc. “CEC”, “Caesars” and “Caesars Entertainment” refer to Caesars Entertainment Corporation. On October 6, 2017 (the “Formation Date”), CEOC merged with and into CEOC LLC, a Delaware limited liability company (“New CEOC”) with New CEOC surviving the merger.

We also refer to (i) our Combined Financial Statements as our “Financial Statements,” (ii) our Combined Statements of Operations as our “Statements of Operations,” and (iii) our Combined Balance Sheets as our “Balance Sheets.”

Note 1 — Business and Basis of Presentation

Organization

Prior to the Formation Date, the Outdoor Business was a wholly-owned business of CEOC, and included the operations of the Cascata golf course in Boulder City, Nevada, the Rio Secco golf course in Henderson, Nevada, the Grand Bear golf course in Biloxi, Mississippi, and the Chariot Run golf course in Elizabeth, Indiana. Caesars Entertainment Golf, Inc., Rio Development Company, Inc., Grand Casinos of Biloxi, LLC, and Riverboat Casino, LLC, directly owned these golf courses, respectively, and were debtor-in-possession subsidiaries of CEOC.

The golf courses generate revenue through fees charged for general golf course usage (including green fees, golf club rentals, and cart charges), annual or corporate memberships (at Rio Secco, Grand Bear and Chariot Run), a school of golf (at Rio Secco), and food, beverage, and merchandise sales.

Bankruptcy

On January 15, 2015, CEOC and certain of its subsidiaries (the “Caesars Debtors”) voluntarily filed for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court”). As a result of this filing, CEOC operated as a debtor-in-possession under the Bankruptcy Code. Because each of the four golf courses were owned by Caesars Debtor entities, the Outdoor Business was also considered a debtor-in-possession prior to the Formation Date. CEOC’s plan of reorganization (the “Plan”) was confirmed by the Bankruptcy Court on January 17, 2017.

Transfer of Operations and Assets to VICI

On the Formation Date, pursuant to the Bankruptcy Plan, subsidiaries of CEOC contributed the ownership of the Business to VICI Properties Inc. (“VICI”). Following the Formation, the assets, liabilities and operations of the Business are now included in VICI Golf LLC (“VICI Golf”), a Delaware limited-liability company. VICI Golf is a wholly-owned subsidiary of VICI. VICI is a separate entity initially owned by certain former creditors of CEOC.

In addition, on the Formation Date, subsidiaries of VICI Golf, entered into a golf course use agreement (the “Golf Course Use Agreement”) with New CEOC and Caesars Enterprise Services, LLC (“CES”) (collectively, the “users”), whereby the users were granted certain priority rights and privileges with respect to access and use of certain golf course properties. Payments under the Golf Course Use Agreement are comprised of a $10.0 million annual membership fee, $3.0 million in annual use fees and minimum rounds fees of at least $1.1 million. The annual membership fee, use fees and minimum round fees are subject to an annual escalator beginning at the times provided under the Golf Course Use Agreement.

Basis of Presentation

The Business’ Financial Statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”).

The Financial Statements were derived from the financial statements of CEOC, prepared on a “carve-out” basis, to present the financial position and results of operations of the Outdoor Business on a stand-alone basis. The legal entities that own the Grand Bear and the Chariot Run golf courses also include non-golf course operations that are excluded from these carve-out financial statements.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

The Financial Statements include allocations of certain revenue amounts and general corporate expenses among affiliated entities. Such allocated revenue and expenses may not reflect the results we would have incurred if we had operated as a stand-alone company nor are they necessarily indicative of our future results. Management believes the assumptions and methodologies used in the allocation of these revenues and expenses are reasonable. Actual amounts could differ from those estimates.

Golf revenue from CEOC and Caesars' affiliates includes reimbursement for below market-rate golf tee times and free play for certain casino guests. Variable golf fees provided by CEOC and Caesars affiliates are based on revenue shortfalls necessary to cover the cost of maintaining the courses in appropriate playing conditions for casino guests. The variable fee is dependent upon the number of rounds played, the types of rounds played (market-rate or discounted rate), and costs incurred to allow the golf course to continue to offer golf as an amenity to its gaming customers. These reimbursements and adjustments are included in golf revenue in the Statements of Operations.

Each of the golf courses represents a separate operating segment and we aggregate all such operations into one reportable segment.

The Business’ Financial Statements reflect the application of ASC 852. This guidance requires that transactions and events directly associated with the reorganization be distinguished from the ongoing operations of the business. In addition, the guidance provides for changes in the accounting and presentation of liabilities.

Note 2 — Summary of Significant Accounting Policies

Cash

Cash consists of cash-on-hand and cash-in-bank.

Receivables

Accounts receivable are non-interest bearing and are initially recorded at cost. They include amounts for sponsorship and other golf tournament fees, amounts due for hosted private events, and amounts due from credit card clearing activities. The allowance for doubtful accounts is established and maintained based on our best estimate of accounts receivable collectibility. Management estimates collectibility by specifically analyzing accounts receivable aging, known troubled accounts and other historical factors that affect collections. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded into income when received. Trade receivables are due within one year or less and approximates fair value.

Allowance for Doubtful Accounts

	(In thousands)
	2017				2016				2015
Balance as of January 1,	$	7			$	19			$	1
Charges (credits) to income	12				(10		)		31
Write-offs less recoveries	(11		)		(2		)		(13		)
Balance as of October 5, 2017; December 31, 2016; and December 31, 2015, respectively	$	8			$	7			$	19

Inventory

Inventory, which consists primarily of food and beverages and merchandise held for resale, is stated at the lower of cost or market. Losses on obsolete or excess inventory are not material.

Long-Lived Assets

The Business has significant capital invested in long-lived assets and judgments are made in determining their estimated useful lives and salvage values and if or when an asset (or asset group) has been impaired. The accuracy of these estimates affects the amount of depreciation and amortization expense recognized in the financial results and whether a gain or loss should be recognized on the disposal of an asset. Lives assigned to the assets are based on standard policy, established by management as representative of the useful life of each category of asset.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

The carrying value of our long-lived assets is reviewed whenever events and circumstances indicate the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. The factors considered by management in performing this assessment may include current operating results, trends, prospects, as well as the effect of demand, competition, and other economic, legal, and regulatory factors. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which in this case, is the four golf courses combined together as an asset group. These analyses are sensitive to management assumptions and the estimates of the obsolescence factors. Changes in these assumptions and estimates could have a material impact on the analyses and the Financial Statements. For the period from January 1, 2017 to October 5, 2017 and the years ended December 31, 2016 and 2015, no impairment on long-lived assets was recorded.

Additions to property and equipment are stated at cost. Costs of improvements that extend the life of the asset are capitalized. Maintenance and repair costs are expensed as incurred. Gains or losses on the dispositions of property and equipment are recognized in the period of disposal. With respect to golf course improvements (included in land improvements), only costs associated with original construction, complete replacements of items such as tee boxes and putting greens, or the addition of new trees, sand traps, fairways or putting greens are capitalized. All other related costs are expensed as incurred. For building improvements, only costs that extend the useful life of the building are capitalized.

Certain land improvements include site preparations that prepare land for its intended use as a golf course. Like the land itself, these improvements are inexhaustible and therefore not depreciated. Examples include excavation, filling, grading and preparation of fairways and roughs. Depreciable land improvements are defined as improvements made to land that have determinable estimated useful lives and deteriorate with use or passage of time. These improvements were built or installed to enhance or facilitate the use of the land for a particular purpose. Depreciable land improvements associated with the golf courses include greens, bunkers, tee boxes, cart paths, fences and gates, landscaping and sprinkler systems.

Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease, as follows:

Useful Lives
Land improvements	12-60 years
Buildings and leasehold improvements	40 years
Building improvements	5-15 years
Furniture, fixtures, and equipment	2-10 years

Leasehold improvements are amortized over the shorter of the term of the respective lease or their useful life using the straight-line method.

Liabilities Subject to Compromise

Under bankruptcy law, actions by creditors to collect amounts owed prior to the Petition Date are stayed and certain other prepetition contractual obligations may not be enforced against the companies that own the Business. Substantially all liabilities of the Debtors as of the Petition Date, except those paid under certain first day motions filed with the Bankruptcy Court, have been classified as liabilities subject to compromise in the Balance Sheets. Liabilities subject to compromise, including claims that became known after the bankruptcy petition was filed, are reported using our best estimates of the expected amount of the total allowed claim.

Revenue Recognition

Revenues from golf course operations, food and beverage and merchandise sales are recognized at the time of sale or when the service is provided and are reported net of sales tax. Golf memberships sold are typically to individuals and are not refundable and are deferred and recognized within golf revenue in the Statements of Operations over the expected life of an active membership, which is typically one year or less.

Included in golf revenue are market-rate fees received from public customers as well as discounted fees received from CEOC and Caesars-affiliated customers or associates. In addition, certain VIP casino guests play the golf courses for free. In these cases, the golf course receives amounts paid by CEOC and Caesars’ affiliates at an agreed upon rate for the free play provided to their VIP guests. The reimbursement for free play was approximately $611,000 for the period January 1, 2017 to October 5, 2017, and $620,000 and $708,000 for the years ended December 31, 2016 and 2015, respectively.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

There are additional variable golf fees provided by CEOC and Caesars’ affiliates based on revenue shortfalls necessary to cover the cost of operating the courses at a high level appropriate for casino guests. The variable fee is dependent upon the number of rounds played, the types of rounds played (market-rate or discounted rate), and costs incurred to allow the golf course to continue to offer golf as an amenity to its gaming customers. Variable golf fees included in golf revenue were approximately $4,692,000 for the period January 1, 2017 to October 5, 2017 and $4,862,000 and $3,669,000 for the years ended December 31, 2016 and 2015, respectively.

Advertising Expense

The golf courses are marketed through advertising and other promotional activities. Advertising expense is charged to income during the period incurred. Advertising expense totaled approximately $63,000 for the period January 1, 2017 to October 5, 2017, and $118,000 and $74,000 for the years ended December 31, 2016 and 2015, respectively, and is included in Administrative and other in the Statements of Operations.

Property Costs

Property costs are charged to income during the period incurred and include land rent, utilities and general repairs and maintenance.

Income Taxes

Historically, the Outdoor Business has been included in the consolidated federal income tax return of Caesars, as well as certain state tax returns where Caesars or one of its subsidiaries files a state tax return. The provisions of ASC 740, “Income Taxes,” was applied and the provision for income taxes was computed on a separate return basis. The separate return method applies the accounting guidance for income taxes to the stand-alone combined Financial Statements as if the Business was a separate taxpayer and a stand-alone enterprise for the periods presented. As discussed in Note 7, these Financial Statements include certain allocations of income and expense amongst affiliated entities. The tax provision was calculated assuming such allocations were appropriate for income tax reporting purposes and do not include any transfer pricing adjustments with respect to such allocations. The calculation of income taxes on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. Management believes that the assumptions and estimates used to compute these tax amounts are reasonable. However, the Financial Statements may not necessarily reflect our income tax expense or tax payments in the future, or what tax amounts would have been if the Business had been a stand-alone enterprise during the periods presented.

Federal and state income taxes currently payable are settled though our net investment equity account. Certain taxes provided for are deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal income tax credits are recorded as a reduction of income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Accruals for tax uncertainties are classified within other liabilities in our combined balance sheets. Amounts accrued relate to any potential income tax liabilities resulting from uncertain tax positions, as well as potential interest or penalties associated with those liabilities.

Note 3 — Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued the following authoritative guidance amending the FASB Accounting Standards Codification.

Business Combinations - January 2017: Updated amendments intend to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective to annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is allowed as follows: (1) Transactions for which acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in Financial Statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

has not been reported in Financial Statements that have been issued or made available for issuance. The adoption of this standard could have a material impact on our Financial Statements should we have a future acquisition of a business.

Leases - February 2016 (amended January 2017): The amended guidance requires most lease obligations to be recognized as a right-of-use asset with a corresponding liability on the balance sheet. The guidance also requires additional qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance should be implemented for the earliest period presented using a modified retrospective approach, which includes optional practical expedients primarily focused on leases that commence before the effective date. The qualitative and quantitative effects of adoption are still being analyzed. We are in the process of evaluating the full impact the new guidance will have on our Financial Statements.

Revenue from Contracts with Customers - May 2014 (amended January 2017): The new guidance is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP applicable to revenue transactions. Existing industry guidance will be eliminated. The FASB has recently issued several amendments to the standard, including clarification on accounting for and identifying performance obligations. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The guidance should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. We are adopting this standard effective January 1, 2018, retrospectively, and determined that there will not be a material impact to our Financial Statements. The adoption of this guidance does not change the timing or process in which we recognize golf revenue.

Income Taxes - October 2016: Amended guidance that addresses intra-entity transfers of assets other than inventory, which requires the recognition of any related income tax consequences when such transfers occur. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Amendments are effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early adoption is permitted. We do not expect this standard will have a material impact on our Financial Statements.

Statement of Cash Flows - August 2016: Amended guidance addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments should be applied retrospectively to each period presented. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We have adopted this standard for our October 5, 2017 Statement of Cash Flows.

Note 4 — Property and Equipment, Net

	(In thousands)
	October 5, 2017				December 31, 2016
Land and non-depreciable land improvements	$	35,525			$	35,525
Depreciable land improvements	40,183				40,174
Buildings and improvements	35,153				35,133
Furniture and equipment (including capital leases)	4,833				5,445
Construction in progress	1,831				—
Total property and equipment	117,525				116,277
Less: accumulated depreciation	(29,216		)		(27,446		)
Total property and equipment, net	$	88,309			$	88,831

	(In thousands)
	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Depreciation expense (including capital lease amortization)	$	2,445			$	3,030			$	2,882

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Note 5 — Accrued Expenses

	(In thousands)
	October 5, 2017				December 31, 2016
Accrued utilities	$	269			$	87
Accrued real estate taxes and other taxes	166				130
Advance deposits	102				112
Deferred revenue	49				125
Accrued legal and professional fees	41				23
Payroll and other compensation	12				228
Other accruals	8				—
Total accrued expenses	$	647			$	705

Note 6 — Liabilities Subject to Compromise

In March 2015, the Bankruptcy Court entered an order establishing May 26, 2015 as the bar date for potential general creditors to file proofs of claims and established the required procedures with respect to filing such claims. A bar date is the deadline by which creditors must file a proof of claim against the Debtors for the claim to be allowed. In addition, a bar date of July 14, 2015 was established as a deadline for claims from governmental units.

As of October 5, 2017, the Business had received 55 proofs of claim, a portion of which assert, in part or in whole, unliquidated claims. These proofs of claims include 9 claims that were carved out of the legal entities that own the Business and that have additional claims, which do not correspond to the Business. In addition, the Business has been assigned by the court an additional 13 claims. In the aggregate, total asserted liquidated proofs of claim for approximately $122.2 million had been filed against or assigned to the Business. Based on reasonable current estimates, the Business expects to ask the Bankruptcy Court to disallow 19 claims representing approximately $116.3 million of such claims. These claims are classified by the Business as amended and replaced, duplicate, redundant or non-Caesars Debtor claims.

As of October 5, 2017 and December 31, 2016, liabilities subject to compromise was approximately $249,000 and $265,000, respectively, and consisted of accounts payable-related liabilities.

On October 6, 2017, the Business settled claims included in liabilities subject to compromise for $125,000 recognizing a reorganization gain of $124,000. In addition, approximately $5.1 million of claims are still disputed and unresolved and have been transferred to New CEOC for final resolution.

Note 7 — Income Taxes

Income Tax (Provision)/Benefit
	(In thousands)
	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Current:
Federal	$	(100	)		$	(111	)		$	(98	)
State	—				—				—
Deferred	98				111				101
Income Tax Benefit	$	(2	)		$	—			$	3

Since the Outdoor Business does not have a formal tax sharing agreement in place with Caesars Entertainment for federal income tax purposes, Caesars Entertainment pays all of the Outdoor Business’ federal income taxes. The Outdoor Business’ portion was approximately $100,000 for the period January 1, 2017 to October 5, 2017 and $111,000 and $98,000 for the years ended December 31, 2016 and 2015, respectively.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Income Tax Expense Reconciliation
	(In thousands)
	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Expected federal tax at the statutory tax rate	$	—			$	—			$	—
Increases/(decreases) in tax resulting from:
State taxes, net of federal tax benefit	—				—				—
Federal tax credits	—				—				3
Other	(2		)		—				—
Income tax (expense)/benefit	$	(2	)		$	—			$	3

Temporary Differences Resulting in Deferred Tax Assets and Liabilities
	(In thousands)
	As of October 5, 2017				As of December 31, 2016
Deferred tax assets:
Federal net operating loss	$	5,561			$	5,847
State net operating loss	378				392
Federal tax credits	82				82
Other	8				9
Subtotal	6,029				6,330
Less: valuation allowance	1,930				1,930
Total deferred tax assets	4,099				4,400
Deferred tax liabilities:
Depreciation and other property related items	(9,006		)		(9,423		)
Accrued expenses	(37		)		(20		)
Total deferred tax liabilities	(9,043		)		(9,443		)
Net deferred tax liability	$	(4,944	)		$	(5,043	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of October 5, 2017 and December 31, 2016, we had federal NOL carryforwards of $19.2 million and $20.1 million, respectively. These NOL carryforwards will begin to expire in 2032. In addition, we have federal general business tax credit carryforwards of approximately $82 thousand which will begin to expire in 2032. As of October 5, 2017 and December 31, 2016, we had state NOL carryforwards of $15.1 million and $15.5 million, respectively. These NOL carryforwards will begin to expire in 2032.

Reconciliation of Unrecognized Tax Benefit
	(In thousands)
	Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Balance at beginning of period	$	1,309			$	1,309			$	1,309
Additions based on tax positions related to the current period	—				—				—
Balance at end of period	$	1,309			$	1,309			$	1,309

We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our balance sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts related to potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

We accrue interest and penalties related to unrecognized tax benefits in income tax expense. There were no adjustments to our accrual for the period ending October 5, 2017 and the years ending December 31, 2016 and 2015, respectively, for accrued interest or penalties. There are no unrecognized tax benefits included in the balances of unrecognized tax benefits as of October 5, 2017, December 31, 2016 and 2015 that, if recognized, would impact the effective tax rate.

Note 8 — Related Party Transactions

We had transactions with CEOC resulting in net distributions of approximately $1.0 million for the period January 1, 2017 to October 5, 2017 and $1.2 million and $2.0 million for the years ending December 31, 2016 and 2015, respectively. The net distributions are the result of cash generated by the operations of the Business and proceeds from the sale of assets, partially offset by amounts contributed by CEOC to fund capital improvements and capital lease obligations. These transactions are included as transactions with parent, net in our Combined Statements of Equity.

Related Party Fees and Expenses

The following amounts are recorded with respect to the related-party transactions described in this section:

				(In thousands)
Transaction type		Recorded as:		Period from January 1, 2017 to October 5, 2017				Year Ended December 31, 2016				Year Ended December 31, 2015
Insurance expense		Administrative and other		$	37			$	45			$	55
Allocation of indirect expenses from CEOC and Caesars’ affiliates (1)		Administrative and other		214				330				318
Golf revenue from CEOC and Caesars’ affiliates (2)		Golf revenue		5,304				5,482				4,377
Pass-through revenue with CEOC and Caesars’ affiliates (3)		Golf revenue		382				871				769
	Food and beverage revenue		107				83				66
	Retail and other revenue		116				143				102

---

(1)

The Statements of Operations include allocated overhead costs for certain functions historically performed by CEOC and Caesars’ affiliates, including allocations of direct and indirect operating and maintenance costs and expenses for procurement, logistics and general and administrative costs and expenses related to executive oversight, marketing, information technology, accounting, treasury, tax, and legal. These costs were allocated on the basis of either revenue or payroll costs.

(2)	See Summary of Significant Accounting Policies - Revenue Recognition.

(3)	Primarily includes transactions where CEOC and Caesars affiliates’ customers charge their golf, food and beverage and retail purchases directly to their hotel bill. Amounts collected from the customer by the hotel are remitted to the golf course.

Savings and Retirement Plans

CEOC maintains a defined contribution savings and retirement plan that allows certain employees of the Business to make pre-tax and after-tax contributions. Under the plan, participating employees may elect to contribute up to 50% of their eligible earnings, subject to IRS rules and regulations, and are eligible to receive a company match of up to $600. Participating employees become vested in matching contributions on a pro-rata basis over five years of credited service. Our contribution expense, included in direct operating expenses and administrative and other expense, was approximately $27,000 for the period January 1, 2017 to October 5, 2017 and $34,000 and $39,000 for the years ended December 31, 2016 and 2015, respectively.

Note 9 — Litigation, Contractual Commitments and Contingent Liabilities

Litigation

The Business and its operations may be subject to litigation involving employment matters, personal injuries, and other matters that arise in the normal course of business. We do not expect the outcome of such ordinary and routine litigation to have a material effect on our combined financial position, results of operations, or cash flows.

CAESARS ENTERTAINMENT OUTDOOR

(DEBTOR-IN-POSSESSION)

NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Contingent Liabilities

In January 2015, a majority of the Trustees of the National Retirement Fund (“NRF”), a multi-employer defined benefit pension plan, voted to expel Caesars and certain of its affiliates from the plan. The NRF has advised Caesars and Caesars Entertainment Resort Properties, LLC (“CERP”) that this expulsion triggered a withdrawal liability with a present value of approximately $360 million, payable in 80 quarterly payments of about $6 million. The NRF filed a similar claim against each Caesars Debtor in CEOC’s bankruptcy. Although the Business’ employees did not participate in this plan, because the entities that own the Business are a member of the Caesars Group (as defined below), such entities are jointly and severally liable with Caesars and CEOC for any liability under the NRF’s claims.

On March 13, 2017, CEOC, CEC, CERP, the Caesars employers that contribute to the NRF, and the NRF and certain of its related parties entered into a settlement agreement resolving all issues related to the disputes with the NRF. Under the terms of the settlement, CEC, or a person on CEC’s behalf, was required to pay a total of $45 million to the NRF on the Formation Date.

Under the Caesars Debtors’ Plan, the NRF is barred from asserting any claims against the Company and its subsidiaries to the extent such claims arose prior to the Formation Date.

Operating Lease Commitments

The Business is liable under operating leases for land at the Cascata golf course, equipment and other miscellaneous assets, which expire at various dates through 2039. Total rental expense under these agreements included in direct golf operating expenses and property costs in our Statements of Operations were approximately $0.7 million for the period January 1, 2017 to October 5, 2017 and approximately $1.0 million for each of the years ended December 31, 2016 and 2015, respectively.

The future minimum lease commitments relating to the base lease rent portion of noncancelable operating leases at October 5, 2017 are as follows:

	(In thousands)
	Operating Leases
2017	$	214
2018	873
2019	891
2020	908
2021	926
2022 and thereafter	18,911
Total minimum rental commitments	$	22,723

Other Commitments

The Business utilizes a third-party golf maintenance company for its Rio Secco and Cascata golf courses. The agreements are for five years and expire in February 2019 and include all labor and equipment necessary to maintain both golf course grounds. Total expense under these agreements included in direct golf operating expenses in the Statements of Operations were approximately $2.1 million for the period January 1, 2017 to October 5, 2017 and $2.9 million and $2.8 million for the years ended December 31, 2016 and 2015, respectively.

The future commitments relating to these agreements at October 5, 2017 are as follows:

	(In thousands)
	Maintenance Agreements
2017	$	775
2018	2,969
2019	225
Total maintenance agreement commitments	$	3,969

COMBINED STATEMENT OF INVESTMENTS OF REAL ESTATE ASSETS TO BE CONTRIBUTED TO VICI PROPERTIES INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Caesars Entertainment Operating Company, Inc.

We have audited the accompanying combined statement of investments (the “combined statement”) of real estate assets to be contributed to VICI Properties Inc. as of December 31, 2016. Our audit also included the financial statement schedule listed in the Index to the financial statements. This combined statement and financial statement schedule are the responsibility of Caesars Entertainment Operating Company, Inc.’s (the “Company”) management. Our responsibility is to express an opinion on this combined statement and financial statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement is free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such combined statement presents fairly, in all material respects, real estate assets to be contributed to VICI Properties Inc. as of December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic combined statement taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche, LLP

Las Vegas, Nevada

May 12, 2017

COMBINED STATEMENT OF INVESTMENTS OF REAL ESTATE ASSETS TO BE CONTRIBUTED TO VICI PROPERTIES INC.

(In millions)		December 31, 2016
Assets
Property, net		$	4,856.6
	Total assets	$	4,856.6

See accompanying Notes to Combined Statement of Investments of Real Estate Assets to be Contributed to VICI Properties, Inc.

NOTES TO COMBINED STATEMENT OF INVESTMENTS OF REAL ESTATE ASSETS

TO BE CONTRIBUTED TO VICI PROPERTIES INC.

In these notes, we refer to the Combined Statement of Investments of Real Estate Assets to be Contributed to VICI Properties Inc. as the “Combined Statement of Investments of Real Estate Assets.”

Note 1 — Business Formation and Basis of Presentation

Business Formation

Caesars Entertainment Operating Company, Inc. (“CEOC”) owns, operates and manages gaming and resort properties. On January 15, 2015, CEOC and certain of its subsidiaries (the “Debtors”) voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court”). As a result of this filing, CEOC operates as a debtor-in-possession under the Bankruptcy Code. CEOC’s plan of reorganization (the “Plan”) was confirmed by the Bankruptcy Court on January 17, 2017.

VICI Properties Inc. (“VICI REIT”) was organized as a limited liability company in Delaware on July 5, 2016 and was subsequently converted to a corporation under the laws of the State of Maryland. VICI REIT intends to elect to be treated as a “real estate investment trust” (“REIT”) for federal income tax purposes. CEOC intends to engage in a series of transactions in connection with its emergence from bankruptcy in which subsidiaries of CEOC will transfer certain real estate assets (the “Properties”) and the assets and operations comprising CEOC’s historical golf course business (the “Caesars Entertainment Outdoor”) to VICI REIT (the “Transactions”). Following effectiveness of the Plan, VICI REIT will be an owner, acquirer and developer of gaming, hospitality and entertainment destinations.

The accompanying Combined Statement of Investments of Real Estate Assets reflects certain owned real estate gaming and related facilities that will be transferred from CEOC to VICI REIT upon effectiveness of the Plan.

Basis of Presentation

The accompanying Combined Statement of Investments of Real Estate Assets reflects the assets directly attributable to CEOC’s real estate holdings to be owned by VICI REIT, with the exception of the four golf course businesses. The Combined Statement of Investments of Real Estate Assets is combined on the basis of common control and is prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Management believes the assumptions underlying the Combined Statement of Investments of Real Estate Assets are reasonable; however, the Combined Statement of Investments of Real Estate Assets may not necessarily reflect VICI REIT’s financial position in the future or what their financial position would have been had VICI REIT operated as a stand-alone company.

The Properties

Bally’s Atlantic City		Harrah’s Reno
Bluegrass Downs		Harvey’s Lake Tahoe
Caesars Atlantic City		Horseshoe Bossier City
Caesars Palace Las Vegas		Horseshoe Council Bluffs
Harrah’s Gulf Coast		Horseshoe Hammond
Harrah’s Council Bluffs		Horseshoe Southern Indiana
Harrah’s Joliet		Horseshoe Tunica
Harrah’s Lake Tahoe		Louisiana Downs
Harrah’s Metropolis		Tunica Roadhouse
Harrah’s North Kansas City		Other property (1)

---

(1) Consists primarily of miscellaneous vacant land holdings.

NOTES TO COMBINED STATEMENT OF INVESTMENTS OF REAL ESTATE ASSETS

TO BE CONTRIBUTED TO VICI PROPERTIES INC. (CONTINUED)

Going Concern

The Combined Statement of Investments of Real Estate Assets has been prepared on a going concern basis. The following information reflects the results of management’s assessment of VICI REIT’s ability to continue as a going concern.

Although the Plan was confirmed by order of the Bankruptcy Court on January 17, 2017, several issues must be resolved before CEOC successfully emerges from bankruptcy. VICI REIT’s ability to continue as a going concern is dependent upon CEOC’s ability to restructure its indebtedness and emerge from bankruptcy. The Debtors’ emergence from bankruptcy is still subject to numerous conditions and third party approvals, including a favorable resolution to the continued ability to use cash collateral. These uncertainties raise substantial doubt about VICI REIT’s ability to continue as a going concern. The Combined Statement of Investments of Real Estate Assets does not include any adjustments that might result from the outcome of uncertainties. There can be no assurance that the restructuring of the Debtors will be completed as contemplated in the Plan.

Note 2 — Summary of Significant Accounting Policies

Long-Lived Assets

We have significant capital invested in our long-lived assets, and judgments are made in determining their estimated useful lives and salvage values and if or when an asset (or asset group) has been impaired. The accuracy of these estimates affects the amount of depreciation and amortization expense recognized in our financial results and whether we have a gain or loss on the disposal of an asset. We assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset.

We review the carrying value of our long-lived assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Other factors considered by management in performing this assessment may include current operating results, trends, prospects, and third-party appraisals, as well as the effect of demand, competition, and other economic, legal, and regulatory factors. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which, for most of our assets, is the individual property. We typically estimate the fair value of assets starting with a “Replacement Cost New” approach and then deduct appropriate amounts for both functional and economic obsolescence to arrive at the fair value estimates. These analyses are sensitive to management assumptions and the estimates of the obsolescence factors. Changes in these assumptions and estimates could have a material impact on the analyses and the Combined Statement of Investments of Real Estate Assets.

Land is recorded at cost and buildings are recorded at cost, less accumulated depreciation. Additions to property and equipment are stated at cost. We capitalize the costs of improvements that extend the life of the asset. We expense maintenance and repair costs as incurred. Gains or losses on the dispositions of property and equipment are recognized in the period of disposal.

Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease as follows:

Land improvements	12 years
Building and improvements	5 to 40 years

Note 3 — Property, Net

(In millions)		December 31, 2016
Land and improvements		$	2,492.6
Building and improvements		3,571.7
	Total property	6,064.3
Less: accumulated depreciation		(1,207.7		)
	Total property, net	$	4,856.6

Note 4 — Concentration of Credit Risks

Following the Transactions, all of the real estate holdings of VICI REIT (other than Caesars Entertainment Outdoor) will be leased to CEOC, and substantially all of VICI REIT’s revenues will be derived from the leases with CEOC. Other than VICI REIT having a single tenant from which it will derive substantially all of its revenue, management does not believe there are any other significant concentrations of credit risk.

Note 5 — Subsequent Events

Events subsequent to December 31, 2016 were evaluated through May 12, 2017, the date this audited Combined Statement of Investments of Real Estate Assets was available to be issued, and no events were identified requiring further disclosure.