MGM Growth Properties 10Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-37733 (MGM Growth Properties LLC)

Commission File No. 333-215571 (MGM Growth Properties Operating Properties LP)

MGM Growth Properties LLC

MGM Growth Properties Operating Partnership LP

(Exact name of registrant as specified in its charter)


Delaware	(MGM Growth Properties LLC)	47-5513237
Delaware	(MGM Growth Properties Operating Partnership LP)	81-1162318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1980 Festival Plaza Drive, Suite #750, Las Vegas, NV 89135

(Address of principal executive offices)

(702) 669-1480

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Shares, no par value	MGP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

MGM Growth Properties LLC Yes X No

MGM Growth Properties Operating Partnership LP Yes X No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

MGM Growth Properties LLC Yes X No

MGM Growth Properties Operating Partnership LP Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

MGM Growth Properties LLC

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

MGM Growth Properties Operating Partnership LP

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

MGM Growth Properties LLC Yes ☐ No ☒

MGM Growth Properties Operating Partnership LP Yes ☐ No ☒

As of October 29, 2020, 131,455,410 shares of MGM Growth Properties LLC Class A shares, no par value, and 1 share of MGM Growth Properties LLC Class B share, no par value, were outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2020, of MGM Growth Properties LLC, a Delaware limited liability corporation, and MGM Growth Properties Operating Partnership LP, a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “MGP” or “the Company” refer to MGM Growth Properties LLC together with its consolidated subsidiaries, including MGM Growth Properties Operating Partnership LP. Unless otherwise indicated or unless the context requires otherwise, all references to the “Operating Partnership” refer to MGM Growth Properties Operating Partnership LP together with its consolidated subsidiaries.

MGP is a real estate investment trust (“REIT”), and the owner of the sole general partner of the Operating Partnership. As of September 30, 2020, MGP owned approximately 43.3% of the Operating Partnership units, each such unit representing limited partnership interests in the Operating Partnership (“Operating Partnership units”). The remaining approximately 56.7% of the Operating Partnership’s units are owned by subsidiaries of our parent, MGM Resorts International (“MGM”). As the owner of the sole general partner of the Operating Partnership, MGP has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control.

We believe combining the quarterly reports on Form 10-Q of MGP and the Operating Partnership into this single report results in the following benefits:

•enhances investors’ understanding of MGP and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MGP and the Operating Partnership, which we believe will assist investors in getting all relevant information on their investment in one place rather than having to access and review largely duplicative reports; and

•creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are a few differences between MGP and the Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand the differences between MGP and the Operating Partnership in the context of how we operate as an interrelated consolidated company. MGP is a REIT, whose only material assets consist of Operating Partnership units and sole beneficial ownership of the general partner of the Operating Partnership. As a result, MGP does not conduct business itself, other than acting as the owner of the sole general partner of the Operating Partnership, but it may from time to time issue additional public equity in the form of Class A shares. The Operating Partnership holds all the assets of the Company. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from certain offerings of Class A shares by MGP, which were contributed to the Operating Partnership in exchange for Operating Partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s issuance of indebtedness or through the issuance of Operating Partnership units.

The presentation of noncontrolling interest, shareholders’ equity and partners’ capital are the main areas of difference between the condensed consolidated financial statements of MGP and those of the Operating Partnership. The Operating Partnership units held by subsidiaries of MGM are accounted for as partners’ capital in the Operating Partnership’s condensed consolidated financial statements and as noncontrolling interest within equity in MGP’s condensed consolidated financial statements. The Operating Partnership units held by MGP in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s condensed consolidated financial statements and within Class A shareholders’ equity in MGP’s condensed consolidated financial statements. These differences in the presentations between shareholders’ equity in MGP’s condensed consolidated financial statements and partners’ capital in the Operating Partnership’s condensed consolidated financial statements therefore result from the differences in the equity and limited partnership interests issued at the MGP and Operating Partnership levels, respectively.

To help investors understand the significant differences between MGP and the Operating Partnership, this report presents the condensed consolidated financial statements separately for MGP and the Operating Partnership.

As the sole beneficial owner of MGM Growth Properties OP GP LLC, which is the sole general partner with control of the Operating Partnership, MGP consolidates the Operating Partnership for financial reporting purposes, and it does not have

any assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of MGP and the Operating Partnership are the same on their respective condensed consolidated financial statements. The separate discussions of MGP and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a condensed consolidated basis and how management operates the Company.

In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. §1350, this report also includes separate “Item 4. Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership.

All other sections of this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, are presented together for MGP and the Operating Partnership.

MGM GROWTH PROPERTIES LLC

FORM 10-Q

I N D E X


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	MGM Growth Properties LLC:
	Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September 30, 2019	4
	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	5
	MGM Growth Properties Operating Partnership LP:
	Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	7
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	8
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	9
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September 30, 2019	10
	Condensed Consolidated Statements of Partners’ Capital for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	11
	Notes to Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37
SIGNATURES		38

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)


	September 30, 2020		December 31, 2019
ASSETS
Real estate investments, net	$	8,369,090	$	10,827,972
Lease incentive asset	512,166		527,181
Investment in unconsolidated affiliate	807,936		0
Cash and cash equivalents	655,169		202,101
Prepaid expenses and other assets	26,537		31,485
Above market lease, asset	40,260		41,440
Operating lease right-of-use assets	280,430		280,093
Total assets	$	10,691,588	$	11,910,272

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities
Debt, net	$	3,516,477	$	4,307,354
Due to MGM Resorts International and affiliates	275		774
Accounts payable, accrued expenses and other liabilities	139,606		37,421
Accrued interest	50,753		42,904
Dividend and distribution payable	147,941		147,349
Deferred revenue	143,505		108,593
Deferred income taxes, net	29,909		29,909
Operating lease liabilities	340,106		337,956
Total liabilities	4,368,572		5,012,260
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest	700,000		0
Shareholders' equity
Class A shares*: no par value, 1,000,000,000 shares authorized, 131,455,410 and 113,806,820 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	0		0
Additional paid-in capital	2,970,905		2,766,325
Accumulated deficit	(400,294)		(244,381)
Accumulated other comprehensive loss	(52,583)		(7,045)
Total Class A shareholders' equity	2,518,028		2,514,899
Noncontrolling interest	3,104,988		4,383,113
Total shareholders' equity	5,623,016		6,898,012
Total liabilities, redeemable noncontrolling interest, and shareholders' equity	$	10,691,588	$	11,910,272

(*) Reflects all Class A shares outstanding. See Note 2 for discussion of redeemable noncontrolling interest.

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Rental revenue	$	188,303	$	219,847	$	580,138	$	636,575
Ground lease and other	6,039		6,164		18,116		18,618
Total Revenues	194,342		226,011		598,254		655,193

Expenses
Depreciation	58,240		71,957		178,692		223,062
Property transactions, net	0		9,921		194,990		11,344
Ground lease expense	5,920		5,920		17,760		17,760
Acquisition-related expenses	0		92		980		8,891
General and administrative	3,476		4,476		12,089		12,305
Total Expenses	67,636		92,366		404,511		273,362

Other income (expense)
Income from unconsolidated affiliate	25,210		0		64,026		0
Interest income	533		241		3,903		2,189
Interest expense	(59,974)		(63,048)		(164,549)		(190,973)
Gain (loss) on unhedged interest rate swaps, net	7,701		0		(2,831)		0
Other	(36)		(306)		(18,817)		(806)
	(26,566)		(63,113)		(118,268)		(189,590)
Income from continuing operations before income taxes	100,140		70,532		75,475		192,241
Provision for income taxes	(2,732)		(1,979)		(6,364)		(5,771)
Income from continuing operations, net of tax	97,408		68,553		69,111		186,470
Income from discontinued operations, net of tax	0		0		0		16,216
Net income	97,408		68,553		69,111		202,686
Less: Net income attributable to noncontrolling interest	(54,030)		(46,038)		(34,465)		(138,358)
Net income attributable to Class A shareholders	$	43,378	$	22,515	$	34,646	$	64,328

Weighted average Class A shares outstanding:
Basic	131,567,362		93,165,443		128,788,161		89,440,552
Diluted	131,699,969		93,322,940		128,935,079		89,645,109

Per Class A share data
Income from continuing operations per Class A share (basic)	$	0.34	$	0.24	$	0.27	$	0.67
Income from discontinued operations per Class A share (basic)	0		0		0		0.05
Earnings per Class A share (basic)	$	0.34	$	0.24	$	0.27	$	0.72

Income from continuing operations per Class A share (diluted)	$	0.34	$	0.24	$	0.27	$	0.67
Income from discontinued operations per Class A share (diluted)	0		0		0		0.05
Earnings per Class A share (diluted)	$	0.34	$	0.24	$	0.27	$	0.72

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	97,408	$	68,553	$	69,111	$	202,686
Other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedges	729		(19,270)		(101,982)		(65,657)
Other comprehensive income (loss)	729		(19,270)		(101,982)		(65,657)
Comprehensive income (loss)	98,137		49,283		(32,871)		137,029
Less: Comprehensive (income) loss attributable to noncontrolling interests	(54,443)		(33,001)		27,291		(93,298)
Comprehensive income (loss) attributable to Class A shareholders	$	43,694	$	16,282	$	(5,580)	$	43,731

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net income	$	69,111	$	202,686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations, net	0		(16,216)
Depreciation	178,692		223,062
Property transactions, net	194,990		11,344
Amortization of deferred financing costs and debt discount	7,314		9,602
Loss on retirement of debt	18,129		0
Non-cash ground lease, net	778		778
Deemed contributions - tax sharing agreement	6,364		5,599
Straight-line rental revenues, excluding amortization of lease incentive asset	38,046		29,783
Amortization of deferred revenue on non-normal tenant improvements	(1,134)		(1,636)
Loss on unhedged interest rate swaps, net	2,831		0
Share-based compensation	1,996		1,608
Deferred income taxes	0		(3,913)
Amortization of lease incentive asset	15,015		11,355
Income from unconsolidated affiliate	(64,026)		0
Distributions from unconsolidated affiliate	58,090		0
Park MGM transaction	0		(605,625)
Distributions received from discontinued operations and other	0		40,165
Change in operating assets and liabilities:
Prepaid expenses and other assets	1,003		(659)
Due to MGM Resorts International and affiliates	(499)		71
Accounts payable, accrued expenses and other liabilities	628		(3,832)
Accrued interest	7,849		11,311
Net cash provided by (used in) operating activities - continuing operations	535,177		(84,517)
Cash flows from investing activities
Proceeds from sale of Mandalay Bay real estate assets, net	58,615		0
Proceeds from Northfield OpCo transaction	0		3,779
Net cash provided by investing activities - continuing operations	58,615		3,779
Cash flows from financing activities
Net repayments under bank credit facility	(1,603,750)		(566,813)
Proceeds from issuance of bridge loan facility	1,304,625		0
Proceeds from issuance of debt	800,000		750,000
Deferred financing costs	(11,307)		(9,983)
Repayment of assumed debt and bridge facilities	0		(245,950)
Proceeds from issuance of Class A shares, net	524,616		699,362
Redemption of Operating Partnership units	(700,000)		0
Dividends and distributions paid	(453,778)		(395,005)
Other	(1,130)		(1,342)
Net cash provided by (used in) financing activities - continuing operations	(140,724)		230,269

Cash flows from discontinued operations, net
Cash flows provided by operating activities, net	0		15,591
Cash flows used in investing activities, net	0		(12)
Cash flows used in financing activities, net	0		(37,900)
Net cash used in discontinued operations	0		(22,321)

Change in cash and cash equivalents classified as assets held for sale	0		(22,321)

Cash and cash equivalents
Net increase for the period	453,068		149,531
Balance, beginning of period	202,101		3,995
Balance, end of period	$	655,169	$	153,526
Supplemental cash flow disclosures
Interest paid	$	143,604	$	169,646
Non-cash investing and financing activities
Accrual of dividend and distribution payable to Class A shareholders and Operating Partnership unit holders	$	147,941	$	138,730
Empire City transaction assets acquired	$	0	$	625,000
Redemption of Operating Partnership units relating to Northfield OpCo transaction	$	0	$	301,373
Investment in MGP BREIT Venture	$	802,000	$	0
MGP BREIT Venture assumption of bridge loan facility	$	1,304,625	$	0

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Class A
	Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Class A Shareholders' Equity		Noncontrolling Interest		Total Shareholders' Equity



















Balance at June 30, 2020	131,455	$	0	$	2,987,682	$	(379,587)	$	(52,899)	$	2,555,196	$	3,114,250	$	5,669,446
Net income*	—	—		—		43,378		—		43,378		45,871		89,249
Reclassification and remeasurements of temporary equity*	—	—		(17,055)		—		—		(17,055)		13,575		(3,480)
Cash flow hedges*	—	—		—		—		316		316		308		624
Share-based compensation*	—	—		277		—		—		277		308		585
Deemed contribution - tax sharing agreement*	—	—		—		—		—		—		2,335		2,335
Dividends and distributions declared ($0.4875 per Class A share)*	—	—		—		(64,085)		—		(64,085)		(71,660)		(135,745)
Other*	0	—		1		—		—		1		1		2
Balance at September 30, 2020	131,455	$	0	$	2,970,905	$	(400,294)	$	(52,583)	$	2,518,028	$	3,104,988	$	5,623,016

(*) Excludes amounts attributable to redeemable noncontrolling interest. See Note 2.


	Class A
	Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Class A Shareholders' Equity		Noncontrolling Interest		Total Shareholders' Equity
Balance at January 1, 2020	113,807	$	0	$	2,766,325	$	(244,381)	$	(7,045)	$	2,514,899	$	4,383,113	$	6,898,012
Net income*	—	—		—		34,646		—		34,646		27,865		62,511
Issuance of Class A shares*	17,524	—		443,363		—		(646)		442,717		63,481		506,198
MGP BREIT Venture Transaction*	—	—		8,228		—		59		8,287		55,617		63,904
Partial redemption of temporary equity*	—	—		(15,260)		—		(4,772)		(20,032)		12,500		(7,532)
Reclassification and remeasurements of temporary equity*	—	—		(233,913)		—		—		(233,913)		(1,177,617)		(1,411,530)
Cash flow hedges*	—	—		—		—		(40,226)		(40,226)		(47,799)		(88,025)
Share-based compensation*	—	—		816		—		—		816		933		1,749
Deemed contribution - tax sharing agreement*	—	—		—		—		—		—		5,317		5,317
Dividends and distributions declared ($1.4500 per share)*	—	—		—		(190,559)		—		(190,559)		(216,924)		(407,483)
Other*	124	—		1,346		—		47		1,393		(1,498)		(105)
Balance at September 30, 2020	131,455	$	0	$	2,970,905	$	(400,294)	$	(52,583)	$	2,518,028	$	3,104,988	$	5,623,016

(*) Excludes amounts attributable to redeemable noncontrolling interest. See Note 2.

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Class A Shares
	Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Class A Shareholders' Equity		Noncontrolling Interest		Total Shareholders' Equity



















Balance at June 30, 2019	92,639	$	0	$	2,237,385	$	(194,469)	$	(9,696)	$	2,033,220	$	4,353,312	$	6,386,532
Net income	—	—		—		22,515		—		22,515		46,038		68,553
Deemed contribution - tax sharing agreement	—	—		—		—		—		—		1,979		1,979
Dividends and distributions declared $0.4700 per Class A share)	—	—		—		(44,870)		—		(44,870)		(93,860)		(138,730)
Issuance of Class A shares	2,829	—		70,338		—		(200)		70,138		15,925		86,063
Share-based compensation	—	—		166		—		—		166		353		519
Cash flow hedges	—	—		—		—		(6,233)		(6,233)		(13,037)		(19,270)
Other	—	—		(426)		—		—		(426)		(916)		(1,342)
Balance at September 30, 2019	95,468	$	0	$	2,307,463	$	(216,824)	$	(16,129)	$	2,074,510	$	4,309,794	$	6,384,304


	Class A Shares
	Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Class A Shareholders' Equity		Noncontrolling Interest		Total Shareholders' Equity
Balance at January 1, 2019	70,911	$	0	$	1,712,671	$	(150,908)	$	4,208	$	1,565,971	$	4,279,535	$	5,845,506
Net income	—	—		—		64,328		—		64,328		138,358		202,686
Deemed contribution - tax sharing agreement	—	—		—		—		—		—		5,599		5,599
Dividends and distributions declared ($1.4025 per share)	—	—		—		(130,244)		—		(130,244)		(284,436)		(414,680)
Issuance of Class A shares	24,480	—		594,279		—		469		594,748		104,614		699,362
Northfield OpCo transaction	—	—		(27,441)		—		2		(27,439)		(271,518)		(298,957)
Empire City transaction	—	—		23,940		—		(195)		23,745		355,305		379,050
Park MGM transaction	—	—		2,512		—		(16)		2,496		29,379		31,875
Share-based compensation	—	—		494		—		—		494		1,114		1,608
Cash flow hedges	—	—		—		—		(20,597)		(20,597)		(45,060)		(65,657)
Other	77	—		1,008		—		—		1,008		(3,096)		(2,088)
Balance at September 30, 2019	95,468	$	0	$	2,307,463	$	(216,824)	$	(16,129)	$	2,074,510	$	4,309,794	$	6,384,304

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)

(unaudited)


	September 30, 2020		December 31, 2019
ASSETS
Real estate investments, net	$	8,369,090	$	10,827,972
Lease incentive asset	512,166		527,181
Investment in unconsolidated affiliate	807,936		0
Cash and cash equivalents	655,169		202,101
Prepaid expenses and other assets	26,537		31,485
Above market lease, asset	40,260		41,440
Operating lease right-of-use assets	280,430		280,093
Total assets	$	10,691,588	$	11,910,272
LIABILITIES, REDEEMABLE CAPITAL, AND PARTNERS' CAPITAL
Liabilities
Debt, net	$	3,516,477	$	4,307,354
Due to MGM Resorts International and affiliates	275		774
Accounts payable, accrued expenses and other liabilities	139,606		37,421
Accrued interest	50,753		42,904
Distribution payable	147,941		147,349
Deferred revenue	143,505		108,593
Deferred income taxes, net	29,909		29,909
Operating lease liabilities	340,106		337,956
Total liabilities	4,368,572		5,012,260
Commitments and contingencies (Note 11)
Redeemable capital	700,000		0
Partners’ capital
General partner	0		0
Limited partners*: 303,467,998 and 313,509,363 Operating Partnership units issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.	5,623,016		6,898,012
Total partners’ capital	5,623,016		6,898,012
Total liabilities, redeemable capital, and partners’ capital	$	10,691,588	$	11,910,272

(*) Reflects all Operating Partnership units outstanding. See Note 2 for discussion of redeemable capital.

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except unit and per unit amounts)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Rental revenue	$	188,303	$	219,847	$	580,138	$	636,575
Ground lease and other	6,039		6,164		18,116		18,618
Total Revenues	194,342		226,011		598,254		655,193

Expenses
Depreciation	58,240		71,957		178,692		223,062
Property transactions, net	0		9,921		194,990		11,344
Ground lease expense	5,920		5,920		17,760		17,760
Acquisition-related expenses	0		92		980		8,891
General and administrative	3,476		4,476		12,089		12,305
Total Expenses	67,636		92,366		404,511		273,362

Other income (expense)
Income from unconsolidated affiliate	25,210		0		64,026		0
Interest income	533		241		3,903		2,189
Interest expense	(59,974)		(63,048)		(164,549)		(190,973)
Gain (loss) on unhedged interest rate swaps, net	7,701		0		(2,831)		0
Other	(36)		(306)		(18,817)		(806)
	(26,566)		(63,113)		(118,268)		(189,590)
Income from continuing operations before income taxes	100,140		70,532		75,475		192,241
Provision for income taxes	(2,732)		(1,979)		(6,364)		(5,771)
Income from continuing operations, net of tax	97,408		68,553		69,111		186,470
Income from discontinued operations, net of tax	0		0		0		16,216
Net income	$	97,408	$	68,553	$	69,111	$	202,686

Weighted average Operating Partnership units outstanding
Basic	303,579,950		292,867,986		315,642,201		290,661,305
Diluted	303,712,557		293,025,483		315,789,119		290,865,862

Per Operating Partnership unit data
Income from continuing operations per Operating Partnership unit (basic)	$	0.32	$	0.23	$	0.22	$	0.64
Income from discontinued operations per Operating Partnership unit (basic)	0		0		0		0.06
Earnings per Operating Partnership unit (basic)	$	0.32	$	0.23	$	0.22	$	0.70

Income from continuing operations per Operating Partnership unit (diluted)	$	0.32	$	0.23	$	0.22	$	0.64
Income from discontinued operations per Operating Partnership unit (diluted)	0		0		0		0.06
Earnings per Operating Partnership unit (diluted)	$	0.32	$	0.23	$	0.22	$	0.70

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	97,408	$	68,553	$	69,111	$	202,686
Unrealized gain (loss) on cash flow hedges	729		(19,270)		(101,982)		(65,657)
Comprehensive income (loss)	$	98,137	$	49,283	$	(32,871)	$	137,029

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net income	$	69,111	$	202,686
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations, net	0		(16,216)
Depreciation	178,692		223,062
Property transactions, net	194,990		11,344
Amortization of deferred financing costs and debt discount	7,314		9,602
Loss on retirement of debt	18,129		0
Non-cash ground lease, net	778		778
Deemed contributions - tax sharing agreement	6,364		5,599
Straight-line rental revenues, excluding amortization of lease incentive asset	38,046		29,783
Amortization of deferred revenue on non-normal tenant improvements	(1,134)		(1,636)
Loss on unhedged interest rate swaps, net	2,831		0
Share-based compensation	1,996		1,608
Deferred income taxes	0		(3,913)
Amortization of lease incentive asset	15,015		11,355
Income from unconsolidated affiliate	(64,026)		0
Distributions from unconsolidated affiliate	58,090		0
Park MGM transaction	0		(605,625)
Distributions received from discontinued operations and other	0		40,165
Change in operating assets and liabilities:
Prepaid expenses and other assets	1,003		(659)
Due to MGM Resorts International and affiliates	(499)		71
Accounts payable, accrued expenses and other liabilities	628		(3,832)
Accrued interest	7,849		11,311
Net cash provided by (used in) operating activities - continuing operations	535,177		(84,517)
Cash flows from investing activities
Proceeds from sale of Mandalay Bay real estate assets, net	58,615		0
Proceeds from Northfield OpCo transaction	0		3,779
Net cash provided by investing activities - continuing operations	58,615		3,779
Cash flows from financing activities
Net repayments under bank credit facility	(1,603,750)		(566,813)
Proceeds from issuance of bridge loan facility	1,304,625		0
Proceeds from issuance of debt	800,000		750,000
Deferred financing costs	(11,307)		(9,983)
Repayment of assumed debt and bridge facilities	0		(245,950)
Proceeds from issuance of OP units by MGP	524,616		699,362
Redemption of OP units	(700,000)		0
Distributions paid	(453,778)		(395,005)
Other	(1,130)		(1,342)
Net cash provided by (used in) financing activities - continuing operations	(140,724)		230,269

Cash flows from discontinued operations, net
Cash flows provided by operating activities, net	0		15,591
Cash flows used in investing activities, net	0		(12)
Cash flows used in financing activities, net	0		(37,900)
Net cash used in discontinued operations	0		(22,321)

Change in cash and cash equivalents classified as assets held for sale	0		(22,321)

Cash and cash equivalents
Net increase for the period	453,068		149,531
Balance, beginning of period	202,101		3,995
Balance, end of period	$	655,169	$	153,526
Supplemental cash flow disclosures
Interest paid	$	143,604	$	169,646
Non-cash investing and financing activities
Accrual of distribution payable to Operating Partnership unit holders	$	147,941	$	138,730
Empire City transaction assets acquired	$	0	$	625,000
Redemption of Operating Partnership units relating to Northfield OpCo transaction	$	0	$	301,373
Investment in MGP BREIT Venture	$	802,000	$	0
MGP BREIT Venture assumption of bridge loan facility	$	1,304,625	$	0

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)


	General Partner		Limited Partners		Total Partners' Capital



















Balance at June 30, 2020	$	0	$	5,669,446	$	5,669,446
Net income*	—		89,249		89,249
Reclassification and remeasurements of temporary equity*	—		(3,480)		(3,480)
Cash flow hedges*	—		624		624
Share-based compensation*	—		585		585
Deemed contribution - tax sharing agreement*	—		2,335		2,335
Distributions declared ($0.4875 per unit)	—		(135,745)		(135,745)
Other*	—		2		2
Balance at September 30, 2020	$	0	$	5,623,016	$	5,623,016

(*) Excludes amounts attributable to redeemable capital. See Note 2.


	General Partner		Limited Partners		Total Partners' Capital
Balance at January 1, 2020	$	0	$	6,898,012	$	6,898,012
Net income*	—		62,511		62,511
Issuance of Operating Partnership units*	—		506,198		506,198
MGP BREIT Venture Transaction*	—		63,904		63,904
Partial redemption of temporary equity*	—		(7,532)		(7,532)
Reclassification and remeasurements of temporary equity*	—		(1,411,530)		(1,411,530)
Cash flow hedges*	—		(88,025)		(88,025)
Share-based compensation*	—		1,749		1,749
Deemed contribution - tax sharing agreement*	—		5,317		5,317
Distributions declared ($1.4500 per unit)*	—		(407,483)		(407,483)
Other*	—		(105)		(105)
Balance at September 30, 2020	$	0	$	5,623,016	$	5,623,016

(*) Excludes amounts attributable to redeemable capital. See Note 2.

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)


	General Partner		Limited Partners		Total Partners' Capital



















Balance at June 30, 2019	$	0	$	6,386,532	$	6,386,532
Net income	—		68,553		68,553
Deemed contribution - tax sharing agreement	—		1,979		1,979
Distributions declared ($0.4700 per unit)	—		(138,730)		(138,730)
Issuance of Operating Partnership units	—		86,063		86,063
Share-based compensation	—		519		519
Cash flow hedges	—		(19,270)		(19,270)
Other	—		(1,342)		(1,342)
Balance at September 30, 2019	$	0	$	6,384,304	$	6,384,304


	General Partner		Limited Partners		Total Partners' Capital
Balance at January 1, 2019	$	0	$	5,845,506	$	5,845,506
Net income	—		202,686		202,686
Deemed contribution - tax sharing agreement	—		5,599		5,599
Distributions declared ($1.4025 per unit)	—		(414,680)		(414,680)
Issuance of Operating Partnership units	—		699,362		699,362
Northfield OpCo transaction	—		(298,957)		(298,957)
Empire City transaction	—		379,050		379,050
Park MGM transaction	—		31,875		31,875
Share-based compensation	—		1,608		1,608
Cash flow hedges	—		(65,657)		(65,657)
Other	—		(2,088)		(2,088)
Balance at September 30, 2019	$	0	$	6,384,304	$	6,384,304

The accompanying notes are an integral part of these condensed consolidated financial statements.

MGM GROWTH PROPERTIES LLC AND MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — BUSINESS

Organization. MGM Growth Properties LLC (“MGP” or the “Company”) is a limited liability company that was organized in Delaware in October 2015. MGP conducts its operations through MGM Growth Properties Operating Partnership LP (the “Operating Partnership” and, together with the Company, the “Registrants”), a Delaware limited partnership that was formed in January 2016 and acquired by MGP in April 2016. The Company elected to be treated as a real estate investment trust (“REIT”) commencing with its taxable year ended December 31, 2016.

MGP is a publicly traded REIT primarily engaged through its investment in the Operating Partnership which owns, acquires, leases and invests in large-scale destination entertainment and leisure properties, whose tenants generally offer casino gaming, hotel, convention, dining, entertainment and retail and other amenities. A wholly owned subsidiary of the Operating Partnership leases its real estate properties back to a wholly owned subsidiary of MGM under a master lease agreement (the “MGM-MGP Master Lease”).

As of September 30, 2020, there were approximately 303.5 million Operating Partnership units outstanding in the Operating Partnership, of which MGM owned approximately 172.0 million, or 56.7%, and MGP owned the remaining 43.3%. MGM’s Operating Partnership units are exchangeable into Class A shares of MGP on a 1-to-one basis, or cash at the fair value of a Class A share. The determination of the settlement method is at the option of MGP’s independent conflicts committee, except as otherwise agreed to in connection with the waiver agreement, discussed in Note 2. MGM’s indirect ownership of these Operating Partnership units is recognized as a noncontrolling interest in MGP’s financial statements. A wholly owned subsidiary of MGP is the general partner of the Operating Partnership and operates and controls all of its business affairs. As a result, MGP consolidates the Operating Partnership and its subsidiaries. MGM also has ownership of MGP’s outstanding Class B share. The Class B share is a non-economic interest in MGP which does not provide its holder any rights to profits or losses or any rights to receive distributions from the operations of MGP or upon liquidation or winding up of MGP but which represents a majority of the voting power of MGP’s shares. As a result, MGP continues to be controlled by MGM through its majority voting rights and is consolidated by MGM.

MGP BREIT Venture Transaction

On February 14, 2020, the Operating Partnership and MGM completed a series of transactions (collectively the “MGP BREIT Venture Transaction”) pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place), were contributed to a newly formed entity (“MGP BREIT Venture”), which, following the transactions, is owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”). In exchange for the contribution of the Mandalay Bay real estate assets, the Operating Partnership received consideration of $2.1 billion, which was comprised of $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGM BREIT Venture, the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture, and the remainder in cash. In addition, MGM received approximately $2.4 billion of cash distributed from the MGP BREIT Venture as consideration for its contribution of the MGM Grand Las Vegas real estate assets, and, additionally, the Operating Partnership issued 2.6 million Operating Partnership units to MGM representing 5% of the equity value of the MGP BREIT Venture. In connection with the transactions, MGM provided a shortfall guaranty of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereto). On the closing date, BREIT also purchased 4.9 million Class A common shares of MGP for $150 million. Refer to Note 4 for additional details on the MGP BREIT Venture.

In connection with the transactions, MGP BREIT Venture entered into a lease with a subsidiary of MGM for the real estate assets of Mandalay Bay and MGM Grand Las Vegas. The lease (the “MGP BREIT Venture Lease”) provides for a term of 30 years with 2 ten-year renewal options and has an initial annual base rent of $292 million, escalating annually at a rate of 2% per annum for the first fifteen years and thereafter equal to the greater of 2% and the consumer price index (“CPI”) increase during the prior year subject to a cap of 3.0%. In addition, the lease requires the tenant to spend 3.5% of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and MGM to comply with certain financial covenants, which, if not met, would require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. MGM provided a guarantee of the tenant’s obligations under the lease.

In connection with the MGP BREIT Venture Transaction, the MGM-MGP Master Lease was modified to remove the Mandalay Bay property and the annual rent under the MGM-MGP Master Lease was reduced by $133 million. Refer to Note 5 for additional details on the modification to the MGM-MGP Master Lease.

Also, on January 14, 2020, the Operating Partnership, MGP, and MGM entered into an agreement for the Operating Partnership to waive its right to issue MGP Class A shares, in lieu of cash, to MGM in connection with MGM exercising its right to require the Operating Partnership to redeem Operating Partnership units it holds. The waiver provides that the units will be purchased at a price per unit equal to a 3% discount to the ten-day average closing price prior to the date of the notice of redemption. The waiver was effective upon closing of the transaction on February 14, 2020 and terminates on the earlier of February 14, 2022 or MGM receiving cash proceeds of $1.4 billion as consideration for the redemption of its Operating Partnership units. On May 18, 2020, the Operating Partnership redeemed 30.3 million of Operating Partnership units for $700 million. Refer to Note 2 for further discussion of redeemable equity.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Certain reclassifications have been made to conform the prior period presentation. The Company’s results for the operations of MGM Northfield Park (“Northfield OpCo”), which was transferred to a subsidiary of MGM on April 1, 2019, are reflected in discontinued operations in the condensed consolidated statements of operations for the nine months ended September 30, 2019.

The accompanying condensed consolidated financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.

Principles of consolidation. The Company identifies entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“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. The Company identifies 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. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. The Company may change its 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. The Company performs this analysis on an ongoing basis. The consolidated financial statements of MGP include the accounts of the Operating Partnership, a VIE of which the Company is the primary beneficiary, as well as its wholly owned and majority-owned subsidiaries, which represents all of MGP’s assets and liabilities. As MGP 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. The consolidated financial statements of the Operating Partnership include the accounts of its wholly owned subsidiary, MGP Lessor LLC, which is the MGM-MGP Master Lease landlord, a VIE of which the Operating Partnership is the primary beneficiary. As of September 30, 2020, on a consolidated basis, the MGP Lessor, LLC had total assets of $9.2 billion primarily related to its real estate assets, and total liabilities of $514.6 million primarily related to its deferred revenue and operating lease liabilities.

For entities not determined to be VIEs, the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. All intercompany balances and transactions are eliminated in consolidation. The Company’s investments in unconsolidated affiliates are accounted for under the equity method when the Company can exercise significant influence over, or has joint control of, the unconsolidated affiliate, such as MGP BREIT Venture.

Noncontrolling interest. MGP presents noncontrolling interest and classifies such interest as a component of consolidated shareholders’ equity, separate from the Company’s Class A shareholders’ equity. Noncontrolling interest in MGP represents Operating Partnership units currently held by subsidiaries of MGM. Comprehensive income or loss of the Operating Partnership is allocated to its noncontrolling interest based on the noncontrolling interest’s ownership percentage in the Operating Partnership except for income tax expenses. Ownership percentage is calculated by dividing the number of Operating Partnership units held by the noncontrolling interest by the total Operating Partnership units held by the noncontrolling interest

and the Company. Issuance of additional Class A shares and Operating Partnership units changes the ownership interests of both the noncontrolling interest and the Company. Such transactions and the related proceeds are treated as capital transactions.

MGM may tender its Operating Partnership units for redemption by the Operating Partnership in exchange for cash equal to the market price of MGP’s Class A shares at the time of redemption or for unregistered Class A shares on a 1-for-one basis. Such election to pay cash or issue Class A shares to satisfy an Operating Partnership unitholder’s redemption request is solely within the control of MGP’s independent conflicts committee. Refer to Note 1 above and to “Redeemable noncontrolling interest and redeemable capital” below for discussion of a waiver agreement relating to MGM’s cash redemption of Operating Partnership units.

Redeemable noncontrolling interest and redeemable capital. As discussed in Note 1, on January 14, 2020 the Operating Partnership agreed to waive its right following the closing of the MGP BREIT Venture Transaction to issue MGP Class A shares, in lieu of cash, to settle redemptions of Operating Partnership units held by MGM up to a maximum cash redemption amount of $1.4 billion. In connection with the waiver, the Operating Partnership and the Company reclassified, from permanent equity to temporary equity, the carrying value of Operating Partnership units that could require cash redemption and remeasured the units to their redemption value. The Operating Partnership units that comprised the $1.4 billion redemption amount were determined based on a 3% discount to the ten-day average closing price prior to the date of determination.

At each subsequent reporting period, the carrying value of temporary equity will be remeasured to the greater of: (1) the carrying value of the number of units then considered redeemable, inclusive of the comprehensive income and losses attributed based on a per unit or share basis in accordance with ASC 810 or (2) the redemption value of the number of units that are then redeemable based on the remaining aggregate cash redemption amount and the per share redemption value, except that decreases in the per unit or share redemption will be limited to the amount of previous increases, with the differences between the carrying value and the remeasured value being recorded as an adjustment in additional paid-in capital (in lieu of retained earnings) or limited partners’ capital. While the carrying amount of temporary equity may vary based upon the allocations and reclassifications described above and presented below, the Company’s maximum cash obligation for the redemption of units under the waiver agreement as of September 30, 2020 is $700 million, reflecting the $1.4 billion maximum cash redemption amount less the $700 million redeemed on May 18, 2020.

The Company’s redeemable noncontrolling interest and the Operating Partnership’s redeemable capital was comprised of the following:


(in thousands)
As of June 30, 2020	$	700,000
Reclassification and remeasurement adjustments	3,480
Attribution of:
Net income	8,159
Cash flow hedges	105
Share-based compensation	54
Deemed contribution - tax sharing agreement	397
MGP dividends and Operating Partnership distributions declared	(12,196)
Other	1
As of September 30, 2020	$	700,000


(in thousands)
As of January 14, 2020	$	0
Reclassification and remeasurement adjustments	1,411,530
Attribution of:
Net income	6,600
Partial redemption of temporary equity	(692,468)
MGP's issuance of Class A shares and Operating Partnership's issuance of units	18,418
MGP BREIT Venture Transaction	16,136
Cash flow hedges	(13,957)
Share-based compensation	247
Deemed contribution - tax sharing agreement	1,047
MGP dividends and Operating Partnership distributions declared	(46,887)
Other	(666)
As of September 30, 2020	$	700,000

Investments in and advances to unconsolidated affiliate. The Company has an investment in an unconsolidated affiliate accounted for under the equity method, which is currently comprised of MGP BREIT Venture. Under the equity method, carrying value is adjusted for the Company’s share of the investee’s earnings and losses, as well as distributions from the investee. The Company classifies its share of investee’s earnings as a component of “Other income (expense)”, as the Company’s investment in such unconsolidated affiliate is an extension of the Company’s core business operations.

The Company evaluates its investment in unconsolidated affiliate for impairment whenever events or changes in circumstances indicate that the carrying value of its investment may have experienced an “other-than-temporary” decline in value. If such conditions exist, the Company compares the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is “other-than-temporary” based on its assessment of all relevant factors, including consideration of the Company’s intent and ability to retain its investment.

Property transactions, net. Property transactions, net are comprised of transactions related to long-lived assets, such as gains and losses on the disposition of assets.

Fair value measurements. Fair value measurements are utilized in the accounting and impairment assessments of its real estate investments and certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The Company used the following inputs in its fair value measurements:

•Level 2 inputs for its debt fair value disclosures. See Note 6; and

•Level 2 inputs when measuring the fair value of its interest rate swaps. See Note 7.

Reportable segment. The Company’s operations consist of investments in real estate, both wholly-owned and through its investment in MGP BREIT Venture, for which all such real estate properties are similar to one another in that they consist of large-scale destination entertainment and leisure resorts and related offerings, whose tenants generally offer casino gaming, hotel, convention, dining, entertainment and retail amenities, have similar economic characteristics and are governed by triple-net operating leases. The operating results of the Company’s wholly-owned and equity method real estate investments are regularly reviewed, in the aggregate, by the chief operating decision maker. As such, the Company has 1 reportable segment.

Income tax provision. For interim income tax reporting, the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company’s effective income tax rate was 2.7% and 8.4% for the three and nine months ended September 30, 2020, respectively, and 2.8% and 3.0% on income from continuing operations for the three and nine months ended September 30, 2019, respectively.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The MGM-MGP Master Lease landlord is required to join in the filing of a New Jersey consolidated corporation business tax return under the New Jersey Casino Control Act and include in such return its income and expenses associated with its New Jersey assets and is thus subject to an entity level tax in New Jersey. Although the consolidated New Jersey return also includes MGM and certain of its subsidiaries, the Company is required to record New Jersey state income taxes in the accompanying combined and consolidated financial statements as if the MGM-MGP Master Lease landlord was taxed for state purposes on a stand-alone basis. The Company and MGM have entered into a tax sharing agreement providing for an allocation of taxes due in the consolidated New Jersey return. Pursuant to this agreement, the MGM-MGP Master Lease landlord will only be responsible for New Jersey taxes on any gain that may be realized upon a future sale of the New Jersey assets resulting solely from an appreciation in value of such assets over their value on the date they were contributed to the MGM-MGP Master Lease landlord by a subsidiary of MGM. MGM is responsible for all other taxes reported in the New Jersey consolidated return and, accordingly, the income tax balances related to such taxes are reflected within noncontrolling interest within the accompanying financial statements. No amounts were due to MGM under the tax sharing agreement as of September 30, 2020 or December 31, 2019.

Recently issued accounting standards. In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients for applying U.S. GAAP to reference rate reform related contracts, hedging relationships and other qualifying transactions. Application of these expedients preserve the presentation of derivative instruments consistent with past presentation. The guidance is optional and may be elected when or as reference rate reform activities occur. The Company is currently evaluating whether it will elect practical expedients if and when its hedging and related activities are impacted.

NOTE 3 — REAL ESTATE INVESTMENTS

As discussed in Note 1, on February 14, 2020, the Operating Partnership completed the MGP BREIT Venture Transaction pursuant to which the real estate assets of Mandalay Bay (including Mandalay Place), were contributed to MGP BREIT Venture. In exchange for the contribution of the Mandalay Bay real estate assets, the Operating Partnership received consideration of $2.1 billion, which was comprised of $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGM BREIT Venture, the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture, and the remainder in cash. Accordingly, the Company recorded the difference between the carrying value of the Mandalay Bay real estate assets of $2.3 billion and the consideration received of $2.1 billion, as well as the selling costs of $10.0 million, as a net loss on sale of assets of $193.1 million, which is reflected within property transactions, net.

The carrying value of real estate investments is as follows:


	September 30, 2020		December 31, 2019
	(in thousands)
Land	$	3,431,228	$	4,631,013
Buildings, building improvements, land improvements and integral equipment	7,426,639		9,293,483
	10,857,867		13,924,496
Less: Accumulated depreciation	(2,488,777)		(3,096,524)
	$	8,369,090	$	10,827,972

NOTE 4 — INVESTMENT IN UNCONSOLIDATED AFFILIATE

As of September 30, 2020, the Operating Partnership’s investment in unconsolidated affiliate was comprised of its 50.1% interest in MGP BREIT Venture. The Operating Partnership recorded its share of income of $25.2 million and $64.0 million for the three and nine months ended September 30, 2020, respectively, as “Income from unconsolidated affiliate” in the condensed

consolidated statements of operations. Additionally, the Operating Partnership received $22.9 million and $58.1 million in distributions from MGP BREIT Venture during the three and nine months ended September 30, 2020, respectively.

Summarized results of operations of MGP BREIT Venture are as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2020
	(in thousands)
Net revenues	$	98,681	$	247,800

Income from continuing operations	50,320		127,799
Net income	50,320		127,799

NOTE 5 — LEASES

MGM-MGP Master Lease. The MGM-MGP Master Lease is accounted for as an operating lease and has an initial lease term of ten years that began on April 25, 2016 (other than with respect to MGM National Harbor, as described below) with the potential to extend the term for 4 additional five-year terms thereafter at the option of the tenant. With respect to MGM National Harbor, the initial lease term ends on August 31, 2024. Thereafter, the initial term of the MGM-MGP Master Lease with respect to MGM National Harbor may be renewed at the option of the tenant for an initial renewal period lasting until the earlier of the end of the then-current term of the MGM-MGP Master Lease or the next renewal term (depending on whether MGM elects to renew the other properties under the MGM-MGP Master Lease in connection with the expiration of the initial ten-year term). If, however, the tenant chooses not to renew the lease with respect to MGM National Harbor after the initial MGM National Harbor term under the MGM-MGP Master Lease, the tenant would also lose the right to renew the MGM-MGP Master Lease with respect to the rest of the properties when the initial ten-year lease term ends related to the rest of the properties in 2026. The lease has a triple-net structure, which requires the tenant to pay substantially all costs associated with the lease, including real estate taxes, insurance, utilities and routine maintenance, in addition to the base rent. Additionally, the lease provides MGP with a right of first offer with respect to MGM Springfield and with respect to any future gaming development by MGM on the undeveloped land adjacent to Empire City, which MGP may exercise should MGM elect to sell either property in the future.

Rent under the lease consists of a “base rent” component and a “percentage rent” component. As of September 30, 2020, the base rent represents approximately 91% of the rent payments due under the lease and the percentage rent represents approximately 9% of the rent payments due under the lease. The base rent includes a fixed annual rent escalator of 2.0% for the second through the sixth lease years (as defined in the lease). Thereafter, the annual escalator of 2.0% will be subject to the tenant and, without duplication, the operating subsidiary sublessees of the tenant, collectively meeting an adjusted net revenue to rent ratio of 6.25:1.00 based on their net revenue from the leased properties subject to the lease (as determined in accordance with U.S. GAAP, adjusted to exclude net revenue attributable to certain scheduled subleases and, at the tenant’s option, reimbursed cost revenue). The percentage rent will initially be a fixed amount for approximately the first six years and will then be adjusted every five years based on the average actual annual net revenues of the tenant and, without duplication, the operating subtenants, from the leased properties subject to the lease at such time for the trailing five calendar-year period (calculated by multiplying the average annual net revenues, excluding net revenue attributable to certain scheduled subleases and, at the tenant’s option, reimbursed cost revenue, for the trailing five calendar-year period by 1.4%).

As discussed in Note 1, on February 14, 2020, in connection with the MGP BREIT Venture Transaction, the MGM-MGP Master Lease was modified to remove the Mandalay Bay property and the annual rent under the lease was reduced by $133 million. The Company reassessed the lease classification of the lease, which included estimating the fair value of the properties using an income approach and the residual value used in the determination of the implicit rate, and concluded that the lease will continue to be accounted for as an operating lease.

Additionally, in connection with the commencement of the fifth lease year on April 1, 2020, and the corresponding 2.0% fixed annual rent escalator that went into effect on such date, the base rent under the MGM-MGP Master Lease increased to $749.9 million, resulting in total annual rent under the MGM-MGP Master Lease of $827.8 million.

Straight-line rental revenues from the MGM-MGP Master Lease, which includes the lease incentive asset amortization, were $188.3 million and $580.1 million for the three and nine months ended September 30, 2020 respectively and were $219.8 million and $636.6 million for the three and nine months ended September 30, 2019, respectively. The Company also recognized revenue related to ground lease and other of $6.0 million and $18.1 million for the three and nine months ended

September 30, 2020, respectively, and $6.2 million and $18.6 million for the three and nine months ended September 30, 2019, respectively.

Under the MGM-MGP Master Lease, future non-cancelable minimum rental cash payments, which are the payments under the initial 10-year term through April 30, 2026 and do not include the 4 five-year renewal options and, with respect to National Harbor, through August 31, 2024, are as follows as of September 30, 2020:


Year ending December 31,	(in thousands)
2020 (excluding the nine months ended September 30, 2020	$	206,941
2021	839,012
2022	784,336
2023	764,861
2024	733,161
Thereafter	893,014
Total	$	4,221,325

NOTE 6 — DEBT

Debt consists of the following:


	September 30,		December 31,
	2020		2019
	(in thousands)
Senior secured credit facility:
Senior secured term loan A facility	$	0	$	399,125
Senior secured term loan B facility	0		1,304,625
Senior secured revolving credit facility	100,000		0
5.625% senior notes, due 2024	1,050,000		1,050,000
4.625% senior notes, due 2025	800,000		0
4.50% senior notes, due 2026	500,000		500,000
5.75% senior notes, due 2027	750,000		750,000
4.50% senior notes, due 2028	350,000		350,000
	3,550,000		4,353,750
Less: Unamortized discount and debt issuance costs	(33,523)		(46,396)
	$	3,516,477	$	4,307,354

Operating Partnership credit agreement and bridge facility. At September 30, 2020, the Operating Partnership senior credit facility consisted of a $1.35 billion revolving credit facility. At September 30, 2020, $100.0 million was drawn on the revolving credit facility and the interest rate on the revolving credit facility was 1.85%.

In February 2020, in connection with the MGP BREIT Venture Transaction, the Operating Partnership amended its senior secured credit facility to, among other things, allow for the transaction to occur, permit the incurrence by the Operating Partnership of a nonrecourse guarantee relating to the debt of the MGP BREIT Venture (refer to Note 11 for description of such guarantee), and permit the incurrence of the bridge loan facility. As a result of the transaction and the amendment, the Operating Partnership repaid its $1.3 billion outstanding term loan B facility in full with the proceeds of a bridge facility, which was then assumed by the MGP BREIT Venture as partial consideration for the Operating Partnership’s contribution. Additionally, the Operating Partnership used the proceeds from the settlement of the forward equity issuances made in connection with its November 2019 equity offering and from its “at-the-market offering” (“ATM”) program to pay off the outstanding balance of $399 million of its term loan A facility in full. The Operating Partnership incurred a loss on retirement of debt of $18.1 million recorded in “Other” in the condensed consolidated statements of operations. The Operating Partnership was in compliance with its financial covenants at September 30, 2020.

Refer to Note 7 for further discussion of the Company’s interest rate swap agreements.

Operating Partnership senior notes. In June 2020, the Operating Partnership issued $800 million in aggregate principal amount of 4.625% senior notes due 2025. The senior notes mature on June 15, 2025. Interest on the senior notes is payable on June 15 and December 15 of each year, commencing on December 15, 2020. The net proceeds from the offering were used in full to repay drawings under the Operating Partnership’s revolving credit facility.

Fair value of debt. The estimated fair value of the Operating Partnership’s debt was $3.7 billion at September 30, 2020 and $4.6 billion at December 31, 2019. Fair value was estimated using quoted market prices for the Operating Partnership’s senior notes and senior secured credit facility.

Deferred financing costs. The Company recognized non-cash interest expense related to the amortization of deferred financing costs of $2.6 million and $7.3 million during the three and nine months ended September 30, 2020, respectively, and $3.2 million and $9.6 million during the three and nine months ended September 30, 2019, respectively.

NOTE 7 — DERIVATIVES AND HEDGING ACTIVITIES

The Operating Partnership uses derivative instruments to mitigate the effects of interest rate volatility inherent in its variable rate senior credit facility and forecasted debt issuances for the duration and amount of its interest rate swap agreements, which such variable rate could unfavorably impact future earnings and forecasted cash flows. The Operating Partnership and the Company do not use derivative instruments for speculative or trading purposes.

The interest rate swaps as of September 30, 2020 are summarized in the table below.


	Notional Amount		Weighted Average Fixed Rate		Fair Value Asset (Liability)		Effective Date	Maturity Date
	(in thousands, except percentages)
Derivatives designated as hedges:
	$	300,000	1.158	%	$	(11,911)	September 6, 2019	December 31, 2024
	400,000		2.252	%	(56,080)		October 1, 2019	December 31, 2029
	900,000		1.801	%	(42,641)		November 30, 2021	December 31, 2024
	$	1,600,000			$	(110,632)

Derivatives not designated as hedges:
	$	1,200,000	1.844	%	$	(23,935)	May 3, 2017	November 30, 2021
	$	1,200,000			$	(23,935)
					$	(134,567)

The interest rate swaps as of December 31, 2019 are summarized in the table below.


	Notional Amount		Weighted Average Fixed Rate		Fair Value Asset (Liability)		Effective Date	Maturity Date
	(in thousands, except percentages)
Derivatives designated as hedges:
	$	600,000	1.902	%	$	(4,106)	May 3, 2017	November 30, 2021
	300,000		1.158	%	6,529		September 6, 2019	December 31, 2024
	400,000		2.252	%	(18,743)		October 1, 2019	December 31, 2029
	900,000		1.801	%	(4,915)		November 30, 2021	December 31, 2024
	$	2,200,000			$	(21,235)

Derivatives not designated as hedges:
	$	600,000	1.786	%	$	(2,736)	May 3, 2017	November 30, 2021
	$	600,000			$	(2,736)
					$	(23,971)

As of September 30, 2020 and December 31, 2019, the Operating Partnership’s interest rate swaps that are in a liability position are recorded within accounts payable, accrued expenses, and other liabilities. As of December 31, 2019, the Operating Partnership’s interest rate swaps that are in an asset position are recorded within prepaid expenses and other assets.

Changes in the fair value of the interest rate swaps that do not qualify for hedge accounting are reflected in earnings. For the three and nine months ended September 30, 2020, the Operating Partnership recorded a $7.7 million gain and a $2.8 million loss, respectively, within “Gain (loss) on unhedged interest rate swaps, net” on the accompanying statement of operations. There were no amounts recorded for unhedged interest rate swaps, net for the three and nine months ended September 30, 2019 as all interest rate swaps were designated as hedges for such periods.

NOTE 8 — SHAREHOLDERS’ EQUITY AND PARTNERS’ CAPITAL

MGP shareholders

Issuance of Class A shares. On January 31, 2019, the Company completed an offering of 19.6 million Class A shares representing limited liability company interests in a registered public offering, including 2.6 million Class A shares sold pursuant to the exercise in full by the underwriters of their over-allotment option, for net proceeds of approximately $548.4 million.

On April 30, 2019, the Company entered into an ATM program where the Company could offer and sell up to an aggregate sales price of $300 million of MGP’s Class A shares through its sales agents at prevailing market prices or agreed-upon prices. During the three months ended September 30, 2019, the Company issued 2.8 million Class A shares under the program for net proceeds of approximately $86.1 million. During the nine months ended September 30, 2019, the Company issued 4.9 million Class A shares under the program for net proceeds of approximately $151.0 million.

On February 12, 2020, the Company received net proceeds of approximately $18.7 million for 0.6 million of forward shares settled under the Company’s ATM program.

On February 11 through February 13, 2020, the Company received net proceeds of approximately $355.9 million for 12.0 million of forward shares settled related to the Company’s November 2019 equity offering.

On February 14, 2020, in connection with the MGP BREIT Venture Transaction, the Company completed a registered sale of 4.9 million Class A shares to BREIT for proceeds of $150.0 million.

Operating Partnership capital

Issuance of Operating Partnership units. On January 29, 2019, in connection with the Empire City transaction, the Operating Partnership issued 12.9 million Operating Partnership units to a subsidiary of MGM and MGP’s indirect ownership percentage in the Operating Partnership decreased from 26.7% to 25.4%.

On January 31, 2019, in connection with the Company’s registered offering of Class A shares, the Operating Partnership issued 19.6 million Operating Partnership units to the Company and MGP’s indirect ownership percentage in the Operating Partnership increased from 25.4% to 30.3%.

On March 7, 2019, in connection with the Park MGM transaction, the Operating Partnership issued 1.0 million Operating Partnership units to a subsidiary of MGM and MGP’s indirect ownership percentage in the Operating Partnership decreased from 30.3% to 30.2%.

During the three and nine months ended September 30, 2019, in connection with the Company’s issuance of Class A shares under the ATM program, the Operating Partnership issued 2.8 million and 4.9 million Operating Partnership units to the Company, respectively. MGP’s indirect ownership percentage in the Operating Partnership as of September 30, 2019 was 32.3%.

In connection with the Company’s settlement of 0.6 million of forward shares issued under the ATM program on February 12, 2020, the Operating Partnership issued 0.6 million Operating Partnership units to the Company. Additionally, in connection with the issuance of 12.0 million Class A shares by the Company under the forward sales agreements on February 11 through February 13, 2020, the Operating Partnership issued 12.0 million Operating Partnership units to the Company. As a

result of these issuances, the Company’s indirect ownership percentage in the Operating Partnership increased from 36.3% to 38.8%.

On February 14, 2020, in connection with the Company’s registered sale of Class A shares to BREIT, the Operating Partnership issued 4.9 million Operating Partnership units to the Company and MGP’s indirect ownership percentage in the Operating Partnership increased from 38.8% to 39.7%.

Northfield OpCo transaction. On April 1, 2019, in connection with the Northfield OpCo transaction, 9.4 million Operating Partnership units were redeemed by the Operating Partnership and MGP’s indirect ownership percentage in the Operating Partnership increased from 30.2% to 31.2%.

MGP BREIT Venture Transaction. On February 14, 2020, in connection with the MGP BREIT Venture Transaction, the Operating Partnership issued 2.6 million Operating Partnership units to MGM and the Company’s indirect ownership percentage in the Operating Partnership decreased from 39.7% to 39.4%.

Partial redemption of temporary equity. On May 18, 2020, in connection with the redemption waiver discussed in Note 1 and Note 2, the Operating Partnership redeemed 30.3 million Operating Partnership units from MGM for $700 million and the Company’s indirect ownership percentage in the Operating Partnership increased from 39.4% to 43.3%.

Accumulated Other Comprehensive Loss. Comprehensive income (loss) includes net income (loss) and all other non-shareholder changes in equity, or other comprehensive income (loss). Elements of the Company’s accumulated other comprehensive loss are reported in the accompanying condensed consolidated statement of shareholders’ equity. The following table summarizes the changes in accumulated other comprehensive loss by component for the three and nine months ended September 30, 2020:


	Cash Flow Hedges		Other		Total
	(in thousands)









Balance at June 30, 2020	$	(45,768)	$	(7,131)	$	(52,899)
Other comprehensive loss before reclassifications	(5,675)		0		(5,675)
Amounts reclassified from accumulated other comprehensive loss to interest expense	6,404		0		6,404
Other comprehensive income	729		0		729
Less: Other comprehensive income attributable to noncontrolling interest	(413)		0		(413)
Balance at September 30, 2020	$	(45,452)	$	(7,131)	$	(52,583)

Balance at December 31, 2019	$	(5,226)	$	(1,819)	$	(7,045)
Other comprehensive loss before reclassifications	(115,688)		0		(115,688)
Amounts reclassified from accumulated other comprehensive loss to interest expense	13,706		0		13,706
Other comprehensive loss	(101,982)		0		(101,982)
Other changes in accumulated other comprehensive loss:
Class A share issuances	0		(646)		(646)
Issuance of OP Units	0		59		59
Partial redemption of temporary equity	0		(4,772)		(4,772)
Other	0		47		47
Changes in accumulated other comprehensive loss:	(101,982)		(5,312)		(107,294)
Less: Other comprehensive loss attributable to noncontrolling interest	61,756		0		61,756
Balance at September 30, 2020	$	(45,452)	$	(7,131)	$	(52,583)

MGP dividends and Operating Partnership distributions. The Operating Partnership declares and pays distributions. MGP pays its dividends with the receipt of its share of the Operating Partnership’s distributions.

On October 15, 2020, the Company paid a dividend of $0.4875 per Class A share upon receipt of its share of the Operating Partnership’s distribution of $0.4875 per unit made the same day.

NOTE 9 — EARNINGS PER CLASS A SHARE

The table below provides earnings and the number of Class A shares used in the computations of “basic” earnings per share, which utilizes the weighted-average number of Class A shares outstanding without regard to dilutive potential Class A shares, and “diluted” earnings per share, which includes all such shares. Earnings per share has not been presented for the Class B shareholder as the Class B share is not entitled to any economic rights in the Company.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except share amounts)
Numerator:
Income from continuing operations, net of tax	$	97,408	$	68,553	$	69,111	$	186,470
Income from continuing operations attributable to noncontrolling interest	(54,030)		(46,038)		(34,465)		(126,924)
Adjustment related to redeemable noncontrolling interests	1,232		0		0		0
Income from continuing operations attributable to Class A shares - basic and diluted	44,610		22,515		34,646		59,546
Income from discontinued operations, net of tax	0		0		0		16,216
Income from discontinued operations attributable to noncontrolling interest	0		0		0		(11,434)
Income from discontinued operations attributable to Class A shares - basic and diluted	0		0		0		4,782
Net income attributable to Class A shares - basic and diluted	$	44,610	$	22,515	$	34,646	$	64,328
Denominator:
Weighted average Class A shares outstanding — basic	131,567,362		93,165,443		128,788,161		89,440,552
Effect of dilutive shares for diluted net income per Class A share (1)	132,607		157,497		146,918		204,557
Weighted average Class A shares outstanding — diluted	131,699,969		93,322,940		128,935,079		89,645,109

(1) Less than 0.1 million and 0.1 million shares related to outstanding share-based compensation awards were excluded due to being antidilutive for the three and nine months ended September 30, 2020, respectively. NaN shares related to outstanding share-based compensation awards were excluded due to being antidilutive for both the three and nine months ended September 30, 2019.

(2) Diluted earnings per Class A share does not assume conversion of the Operating Partnership units held by MGM as such conversion would be antidilutive.

NOTE 10 — EARNINGS PER OPERATING PARTNERSHIP UNIT

The table below provides earnings and the number of Operating Partnership units used in the computations of “basic” earnings per Operating Partnership unit, which utilizes the weighted-average number of Operating Partnership units outstanding without regard to dilutive potential Operating Partnership units, and “diluted” earnings per Operating Partnership units, which includes all such Operating Partnership units.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except share amounts)
Numerator:
Income from continuing operations, net of tax	$	97,408	$	68,553	$	69,111	$	186,470
Adjustment related to redeemable capital	1,232		0		0		0
Income from continuing operations, net of tax, attributable to unitholders - basic and diluted	98,640		68,553		69,111		186,470
Income from discontinued operations, net of tax - basic and diluted	0		0		0		16,216
Net income attributable to unitholders - basic and diluted	$	98,640	$	68,553	$	69,111	$	202,686
Denominator:
Weighted average Operating Partnership units outstanding — basic	303,579,950		292,867,986		315,642,201		290,661,305
Effect of dilutive shares for diluted net income per Operating Partnership unit (1)	132,607		157,497		146,918		204,557
Weighted average Operating Partnership units outstanding — diluted	303,712,557		293,025,483		315,789,119		290,865,862

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Litigation. In the ordinary course of business, from time to time, the Company expects to 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 position, results of operations, or cash flows.

MGP BREIT Venture guarantee. The Operating Partnership provides a guarantee for losses incurred by the lenders of the $3.0 billion indebtedness of the MGP BREIT Venture arising out of certain bad acts by the Operating Partnership, its venture partner, or the venture, such as fraud or willful misconduct, based on the party’s percentage ownership of the MGP BREIT Venture, which guarantee is capped at 10% of the principal amount outstanding at the time of the loss. The Operating Partnership and its venture partner have separately indemnified each other for the other party’s share of the overall liability exposure, if at fault. The guarantee is accounted for under ASC 460 at fair value; such value is immaterial.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements.

This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this quarterly report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2019, which were included in our annual report on Form 10-K, filed with the SEC on February 27, 2020.

Executive Overview

MGP is one of the leading publicly traded REITs engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts, whose tenant generally offers diverse amenities including casino gaming, hotel, convention, dining, entertainment and retail amenities.

MGP is a limited liability company that was formed in Delaware in October 2015. MGP conducts its operations through the Operating Partnership, a Delaware limited partnership formed in January 2016, which became a subsidiary of MGP in April 2016. We elected to be treated as a real estate investment trust (“REIT”) commencing with our taxable year ended December 31, 2016.

We generate all of our revenues by leasing our real estate properties pursuant to the MGM-MGP Master Lease which requires the tenant to pay substantially all costs associated with each property, including real estate taxes, ground lease rent, insurance, utilities and routine maintenance, in addition to the base rent and the percentage rent, each as described below. The lease has an initial lease term of ten years (other than with respect to MGM National Harbor, whose initial lease term ends on August 31, 2024) with the potential to extend the term for four additional five-year terms thereafter at the option of the tenant. Base rent and percentage rent that are known at the lease commencement date will be recorded on a straight-line basis over 30 years, which represents the initial ten-year non-cancelable lease term and all four five-year renewal terms under the lease, as we have determined such renewal terms to be reasonably certain.

On February 14, 2020, the Operating Partnership and MGM completed a series of transactions (collectively the “MGP BREIT Venture Transaction”) pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place) were contributed to a newly formed entity (“MGP BREIT Venture”), which, following the transactions, is owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”). In exchange for the contribution of the Mandalay Bay real estate assets, the Operating Partnership received consideration of $2.1 billion, which was comprised of $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGM BREIT Venture, the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture, and the remainder in cash. In addition, MGM received $2.4 billion of cash distributed from the MGP BREIT Venture as consideration for its contribution of the MGM Grand Las Vegas real estate assets, and, additionally, the Operating Partnership issued 2.6 million Operating Partnership units to MGM representing 5% of the equity value of the MGP BREIT Venture. In connection with the transactions, MGM provided a shortfall guaranty of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereto). On the closing date, BREIT also purchased 4.9 million Class A common shares of MGP for $150 million.

In connection with the transactions, MGP BREIT Venture entered into a lease with a subsidiary of MGM for the real estate assets of Mandalay Bay and MGM Grand Las Vegas. The lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $292 million, escalating annually at a rate of 2% per annum for the first fifteen years and thereafter equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3.0%. In addition, the lease requires the tenant to spend 3.5% of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and MGM to comply with certain financial covenants, which, if not met, would require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. MGM provided a guarantee of tenant’s obligations under the lease.

Also, on January 14, 2020, the Operating Partnership, MGP, and MGM entered into an agreement for the Operating Partnership to waive its right to issue MGP Class A shares, in lieu of cash, to MGM in connection with MGM exercising its right to require the Operating Partnership to redeem the Operating Partnership units it holds. The waiver provides that the units will be purchased at a price per unit equal to a 3% discount to the applicable cash amount as calculated in accordance with the operating agreement. The waiver was effective upon closing of the transaction on February 14, 2020 and terminates on the earlier of 24 months following the closing of the MGP BREIT Venture Transaction and MGM receiving cash proceeds of $1.4 billion as consideration for the redemption of its Operating Partnership units. On May 18, 2020, the Operating Partnership redeemed 30.3 million of Operating Partnership units held by MGM for $700 million.

Additionally, we expect to grow our portfolio through acquisitions with third parties and with MGM. In pursuing external growth initiatives, we will generally seek to acquire properties that can generate stable rental revenue through long-term, triple-net leases with tenants with established operating histories, and we will consider various factors when evaluating acquisitions.

As of September 30, 2020, our portfolio, including the MGP BREIT Venture, consisted of twelve premier destination resorts in Las Vegas and elsewhere across the United States, MGM Northfield Park in Northfield, Ohio, Empire Resort Casino in Yonkers, New York, as well as a retail and entertainment district, The Park in Las Vegas.

COVID-19 Update

The COVID-19 pandemic has not had a material impact on our operations; however, we cannot estimate the duration of the pandemic and potential impact on our business if our properties will be required to close again, or if the tenant (or the guarantor) is otherwise unable or unwilling to make rental payments. For further information regarding the potential impact of COVID-19 on our operations, refer to “Liquidity and Capital Resources” below as well as “Risk Factors” in Part II, Item 1A of this report.

Combined Results of Operations for MGP and the Operating Partnership

Overview

The following table summarizes our financial results for the three and nine months ended September 30, 2020 and September 30, 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Total revenues	$	194,342	$	226,011	$	598,254	$	655,193
Total expenses	67,636		92,366		404,511		273,362
Income from continuing operations, net of tax	97,408		68,553		69,111		186,470
Income from discontinued operations, net of tax	—		—		—		16,216
Net income	97,408		68,553		69,111		202,686
Net income attributable to Class A shareholders	43,378		22,515		34,646		64,328

Revenues

Rental revenue. Rental revenues, including ground lease and other, for the three months ended September 30, 2020 and 2019 were $194.3 million and $226.0 million, respectively. Rental revenues, including ground lease and other, for the nine months ended September 30, 2020 and 2019 were $598.3 million and $655.2 million, respectively. The $31.7 million, or 14.0%, decrease for the quarterly period was due primarily to a decrease in rental revenues as a result of the removal of Mandalay Bay from the MGM-MGP Master Lease relating to the MGP BREIT Venture Transaction in February 2020. The $56.9 million, or 8.7%, decrease for the year-to-date period was also due to the removal of Mandalay Bay from the MGM-MGP Master Lease, partially offset by a full period of revenue in the nine months ended September 30, 2020 related to the Park MGM transaction in March 2019 and the addition of MGM Northfield Park to the MGM-MGP Master Lease in April 2019.

Expenses

Depreciation. Depreciation expense for the three months ended September 30, 2020 and 2019 was $58.2 million and $72.0 million, respectively. Depreciation expense for the nine months ended September 30, 2020 and 2019 was $178.7 million

and $223.1 million, respectively. The $13.7 million, or 19.1%, decrease for the quarterly period and the $44.4 million, or 19.9%, decrease for the year-to-date period were both primarily due to the contribution of Mandalay Bay to the MGP BREIT Venture in February 2020.

Property transactions, net. Property transactions, net for the three months ended September 30, 2019 were $9.9 million which related to normal losses on disposition of assets. There were no property transactions, net for the three months ended September 30, 2020. Property transactions, net for the nine months ended September 30, 2020 and 2019 were $195.0 million and $11.3 million, respectively. The increase in 2020 is primarily due to the loss on sale of the Mandalay Bay real estate assets of $193.1 million which was comprised of the difference between the carrying value of the Mandalay Bay real estate assets of $2.3 billion and the consideration received of $2.1 billion, as well as the selling costs of $10.0 million.

Ground lease expense. Ground lease expense for each of the three months ended September 30, 2020 and 2019 was $5.9 million. Ground lease expense for each of the nine months ended September 30, 2020 and 2019 was $17.8 million.

Acquisition-related expenses. Acquisition-related expenses for the three months ended September 30, 2019 were $0.1 million. There were no acquisition-related expenses for the three months ended September 30, 2020. Acquisition-related expenses for the nine months ended September 30, 2020 and 2019 were $1.0 million and $8.9 million, respectively. The $7.9 million decrease is primarily due to expenses incurred relating to the Empire City acquisition in 2019, slightly offset by expenses incurred relating to the MGP BREIT Venture Transaction in February 2020.

General and administrative expenses. General and administrative expenses for the three months ended September 30, 2020 and 2019 were $3.5 million and $4.5 million, respectively. General and administrative expenses for the nine months ended September 30, 2020 and 2019 were $12.1 million and $12.3 million, respectively. The $1.0 million, or 22.3%, decrease for the quarter-to-date period was primarily due to a decrease in corporate support services.

Other Expenses

Income from unconsolidated affiliate. Income from unconsolidated affiliate for the three and nine months ended September 30, 2020 was $25.2 million and $64.0 million, respectively, and is attributable to income from our investment in MGP BREIT Venture. There was no income from unconsolidated affiliate for the three and nine months ended September 30, 2019.

Other expenses, excluding income from unconsolidated affiliate, for the three months ended September 30, 2020 and 2019 were $51.8 million and $63.1 million, respectively. The $11.3 million, or 18.0%, decrease for the quarterly period was primarily related to a decrease in interest expense due to the repayment of our term loan A and term loan B facilities in February 2020 and a net gain on unhedged interest rate swaps of $7.7 million, partially offset by an increase in interest expense due to our issuance of the $800 million 4.625% senior notes due 2025 in June 2020. Other expenses, excluding income from unconsolidated affiliate, for the nine months ended September 30, 2020 and 2019 were $182.3 million and $189.6 million, respectively. The $7.3 million, or 3.8%, decrease was primarily related to a decrease in interest expense due to the repayment of our term loan A and term loan B facilities in February 2020, partially offset by a net loss on unhedged interest rate swaps of $2.8 million and a loss on retirement of debt of $18.1 million relating to our repayment of the term loan A and term loan B facilities.

Discontinued Operations

Income from discontinued operations, net of tax for the nine months ended September 30, 2019 was $16.2 million and is attributable to the operations of MGM Northfield Park, which was transferred to a subsidiary of MGM in April 2019. There was no income from discontinued operations, net of tax for the three and nine months ended September 30, 2020 or the three months ended September 30, 2019.

Provision for Income Taxes

Our effective tax rate was 2.7% and 8.4% for the three and nine months ended September 30, 2020, respectively, compared to 2.8% and 3.0% on income from continuing operations for the three and nine months ended September 30, 2019, respectively. The effective tax rate in the nine months ended September 30, 2020 was impacted by the loss resulting from the MGP BREIT Venture Transaction, which provides no federal or state income tax benefit due to our REIT status, while the effective tax rate in the nine months ended September 30, 2019 was impacted by tax consequences related to the liquidation of the taxable REIT subsidiary that had owned MGM Northfield Park prior to transferring the operations to MGM Resorts in April 2019. Refer to Note 2 of the accompanying financial statements for additional discussion regarding income taxes.

Non-GAAP Measures

Unless otherwise indicated, our non-GAAP measures discussed herein are related to our continuing operations and not our discontinued operations. Funds From Operations (“FFO”) is net income (computed in accordance with U.S. GAAP), excluding gains and losses from sales or disposals of property (presented as property transactions, net), plus depreciation, as defined by the National Association of Real Estate Investment Trusts, plus our share of depreciation of our unconsolidated affiliate.

Adjusted Funds From Operations (“AFFO”) is FFO as adjusted for amortization of financing costs and cash flow hedges; our share of amortization of financing costs of our unconsolidated affiliate; non-cash compensation expense; straight-line rental revenue (which is defined as the difference between contractual rent and cash rent payments, excluding lease incentive asset amortization); our share of straight-line rental revenues of our unconsolidated affiliate; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements; acquisition-related expenses; non-cash ground lease rent, net; other expenses; loss on unhedged interest rate swaps, net; provision for income taxes related to the REIT; and other, net - discontinued operations.

Adjusted EBITDA is net income (computed in accordance with U.S. GAAP) as adjusted for gains and losses from sales or disposals of property (presented as property transactions, net); depreciation; our share of depreciation of our unconsolidated affiliate; amortization of financing costs and cash flow hedges; our share of amortization of financing costs of our unconsolidated affiliate; non-cash compensation expense; straight-line rent; our share of straight-line rental revenues of our unconsolidated affiliate; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements; acquisition-related expenses; non-cash ground lease rent, net; other expenses; loss on unhedged interest rate swaps, net; our share of provision for income taxes of our unconsolidated affiliate; other, net - discontinued operations; interest income; interest expense (including amortization of financing costs and cash flow hedges); our share of interest expense (including amortization of financing costs) of our unconsolidated affiliate; and provision for income taxes.

FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA are supplemental performance measures that have not been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) that management believes are useful to investors in comparing operating and financial results between periods. Management believes that this is especially true since these measures exclude depreciation expense and management believes that real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. The Company believes such a presentation also provides investors with a meaningful measure of the Company’s operating results in comparison to the operating results of other REITs. Adjusted EBITDA is useful to investors to further supplement AFFO and FFO and to provide investors a performance metric which excludes interest expense. In addition to non-cash items, the Company adjusts AFFO and Adjusted EBITDA for acquisition-related expenses. While we do not label these expenses as non-recurring, infrequent or unusual, management believes that it is helpful to adjust for these expenses when they do occur to allow for comparability of results between periods because each acquisition is (and will be) of varying size and complexity and may involve different types of expenses depending on the type of property being acquired and from whom.

FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA do not represent cash flow from operations as defined by U.S. GAAP, should not be considered as an alternative to net income as defined by U.S. GAAP and are not indicative of cash available to fund all cash flow needs. Investors are also cautioned that FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA as presented, may not be comparable to similarly titled measures reported by other REITs due to the fact that not all real estate companies use the same definitions.

The following table provides a reconciliation of the Company’s consolidated net income to FFO, AFFO and Adjusted EBITDA:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net income (1)	$	97,408	$	68,553	$	69,111	$	202,686
Depreciation (2)	58,240		71,957		178,692		223,062
Share of depreciation of unconsolidated affiliate	10,464		—		26,361		—
Property transactions, net	—		9,921		194,990		11,344
Funds From Operations	166,112		150,431		469,154		437,092
Amortization of financing costs and cash flow hedges	6,003		3,369		13,096		10,016
Share of amortization of financing costs of unconsolidated affiliate	65		—		162		—
Non-cash compensation expense	639		519		1,996		1,608
Straight-line rental revenues, excluding lease incentive asset	13,632		11,664		38,046		29,783
Share of straight-line rental revenues of unconsolidated affiliate	(12,866)		—		(32,084)		—
Amortization of lease incentive asset and deferred revenue on non-normal tenant improvements	4,627		4,501		13,881		9,719
Acquisition-related expenses	—		92		980		8,891
Non-cash ground lease rent, net	260		259		778		778
Other expenses	36		306		18,817		806
(Gain) loss on unhedged interest rate swaps, net	(7,701)		—		2,831		—
Provision for income taxes - REIT	2,732		1,979		6,364		5,771
Other, net - discontinued operations	—		—		—		3,707
Adjusted Funds From Operations	173,539		173,120		534,021		508,171
Interest income (1)	(533)		(241)		(3,903)		(2,189)
Interest expense (1)	59,974		63,048		164,549		190,973
Share of interest expense of unconsolidated affiliate	13,731		—		33,672		—
Amortization of financing costs and cash flow hedges	(6,003)		(3,369)		(13,096)		(10,016)
Share of amortization of financing costs of unconsolidated affiliate	(65)		—		(162)		—
Provision for income taxes - discontinued operations	—		—		—		2,890
Adjusted EBITDA	$	240,643	$	232,558	$	715,081	$	689,829

(1) Net income, interest income and interest expense are net of intercompany interest eliminations of $5.6 million for the nine months ended September 30, 2019.

(2) Includes depreciation on Mandalay Bay real estate assets for the three and nine month periods ending September 30, 2019 and for the nine month period ending September 30, 2020.

Guarantor Financial Information

As of September 30, 2020, all of our indebtedness is held by the Operating Partnership and MGP does not guarantee any of the Operating Partnership’s indebtedness. The Operating Partnership’s principal debt arrangements are guaranteed by each of its wholly owned subsidiaries except for MGP JV INVESTCO 1 LLC, the entity holding the 50.1% interest in the MGP BREIT Venture, and, with respect to the Operating Partnership’s senior notes, MGP Finance Co-Issuer, Inc., the co-issuer of the senior notes, and certain other subsidiaries whose guarantees are subject to gaming approval, unless and until such approval is obtained. The guarantees provided by the subsidiary guarantors rank senior in right of payment to any future subordinated debt of ours or such subsidiary guarantors, junior to any secured indebtedness to the extent of the value of the assets securing such debt and effectively subordinated to any indebtedness and other obligations of our subsidiaries that do not guaranty the principal indebtedness. In addition, the obligations of each subsidiary guarantor under its guarantee is limited so as not to constitute a fraudulent conveyance under applicable law, which may eliminate the subsidiary guarantor’s obligations or reduce such obligations to an amount that effectively makes the subsidiary guarantee lack value.

The summarized financial information of the Operating Partnership and its guarantor subsidiaries, on a combined basis, is presented below:


	September 30, 2020		December 31, 2019
Balance Sheet	(in thousands)
Real estate investments, net	$	8,369,090	$	10,827,972
Other assets	1,514,562		1,082,300
Debt, net	3,516,477		4,307,354
Other liabilities	852,095		704,906
Redeemable capital	700,000		—


	Nine Months Ended
	September 30, 2020
Income Statement	(in thousands)
Total revenues	$	598,254
Income from continuing operations, net of tax	5,084
Net income	5,084

Liquidity and Capital Resources

Rental revenues received under the MGM-MGP Master Lease and distributions from the MGP BREIT Venture are our primary sources of cash from operations and are dependent on the tenant’s ability to pay rent and the MGP BREIT Venture’s ability to pay distributions. As of the date of this filing, all of the properties in our portfolio, including those held by the MGP BREIT Venture, that had closed to the public pursuant to state and local government requirements as a result of the unprecedented public health crisis resulting from the COVID-19 pandemic, are now re-opened without certain amenities and subject to certain occupancy limitations. Accordingly, although our properties have re-opened, they are generating revenues for the tenant that are significantly lower than historical results. In addition, our properties may be subject to temporary, complete, or partial shutdowns in the future due to COVID-19 related concerns. Despite the aforementioned uncertainties and as it relates to the impact of the COVID-19 pandemic, our and MGP BREIT Venture’s tenants continue to make rental payments in full and on time and we believe the tenants’ (and the guarantor’s) liquidity positions are sufficient to cover their expected rental obligations for the foreseeable future. Accordingly, while we do not anticipate an impact on our operations, we cannot estimate the duration of the pandemic and potential impact on our business if our re-opened properties will be required to close again, or if the tenants (or guarantor) are otherwise unable or unwilling to make rental payments. All of our indebtedness is held by the Operating Partnership and MGP does not guarantee any of the Operating Partnership's indebtedness. MGP's principal funding requirement is the payment of dividends and distributions on its Class A shares, and its principal source of funding for these dividends and distributions is the distributions it receives from the Operating Partnership. MGP's liquidity is therefore dependent upon the Operating Partnership's ability to make sufficient distributions to it, which distributions are primarily funded by rental payments received from the tenant and distributions from the MGP BREIT Venture. The Operating Partnership's primary uses of cash include payment of operating expenses, debt service, and distributions to MGP and MGM. Additionally, in connection with the waiver agreement, MGM may redeem for cash up to an additional $700 million of the Operating Partnership units that it holds. We believe that the Operating Partnership currently has sufficient liquidity to satisfy all of its commitments, including its distributions to MGP, and in turn, that we currently have sufficient liquidity to satisfy all our commitments in the form of $655.2 million in cash and cash equivalents held by the Operating Partnership as of September 30, 2020, expected cash flows from operations, expected cash distributions from the MGP BREIT Venture, and $1.3 billion of borrowing capacity under the Operating Partnership’s revolving credit facility as of September 30, 2020. See Note 6 to the accompanying financial statements for a description of our principal debt arrangements.

Summary of Cash Flows

Net cash provided by operating activities for the nine months ended September 30, 2020 was $535.2 million compared to net cash used in operating activities of $84.5 million for the nine months ended September 30, 2019. The change was primarily due to the cash lease incentive of $605.6 million paid to a subsidiary of MGM in connection with the Park MGM transaction in March 2019 as well as the 2% fixed annual rent escalator at the beginning of the fifth lease year on April 1, 2020 which

increased the annual cash rental payments by $14.7 million, the Empire City transaction in January 2019 which increased the annual cash rental payments by $50.0 million, the Park MGM transaction in May 2019 which increased annual cash rental payments by $50.0 million, and the Northfield real estate assets being added to the MGM-MGP Master Lease in April 2019 which increased annual cash rental payments by $60.0 million. This was partially offset by the decrease in annual cash rental payments of $133 million as a result of the removal of Mandalay Bay from the MGM-MGP Master Lease in February 2020.

Net cash provided by investing activities for the nine months ended September 30, 2020 of $58.6 million related to the net cash proceeds from the MGP BREIT Venture Transaction. There was $3.8 million of net cash provided by investing activities for the nine months ended September 30, 2019 which related to proceeds from the Northfield OpCo transaction.

Net cash used in financing activities for the nine months ended September 30, 2020 was $140.7 million, which reflects our issuance of Class A shares to BREIT for $150.0 million and issuance of $800 million in aggregate principal amount of 4.625% senior notes due 2025, the proceeds of which were used to repay draws on our revolving credit facility with which we had funded the redemption of $700 million of Operating Partnership units held by MGM. This was offset by payments of $453.8 million of distributions and dividends and our $1.6 billion of net repayments under the bank credit facility, consisting of: the repayment of the Operating Partnership’s $1.3 billion outstanding term loan B facility with the proceeds from the bridge loan facility, which was then assumed by the MGP BREIT Venture and the repayment of the Operating Partnership’s $399 million outstanding term loan A facility with the $374.6 million of net proceeds from the settlement of forward equity agreements; offset by a net draw of $100.0 million on the revolving credit facility.

Net cash provided by financing activities for the nine months ended September 30, 2019 was $230.3 million which reflects our issuance of $750 million in aggregate principal amount of 5.75% senior notes due 2027, our offering of 19.6 million Class A shares in a registered public offering for which we received net proceeds of $548.4 million, and our offering of 4.9 million Class A shares under our “at-the-market” (“ATM”) equity distribution program for which we received net proceeds of $151.0 million, partially offset by our net repayments on our bank credit facility of $566.8 million, net, our repayment of approximately $246.0 million of assumed indebtedness from the Empire City transaction, and our payment of $395.0 million of distributions and dividends.

Net cash used in operating, financing and investing activities for our discontinued operations for the nine months ended September 30, 2019 was $22.3 million and was entirely due to the operations of MGM Northfield Park, which was transferred to a subsidiary of MGM in April 2019. There were no cash flows from discontinued operations for the nine months ended September 30, 2020.

Dividends and Distributions

The following table presents the distributions declared and paid by the Operating Partnership and the dividends declared by MGP within the nine months ended September 30, 2020 and September 30, 2019. MGP pays its dividends with the receipt of its share of the Operating Partnership’s distributions.

Declaration Date

Record Date

Distribution/ Dividend Per Unit/ Share

Payment Date

2020

March 13, 2020

March 31, 2020

0.4750

April 15, 2020

June 15, 2020

June 30, 2020

0.4875

July 15, 2020

September 15, 2020

September 30, 2020

0.4875

October 15, 2020

2019

March 15, 2019

March 29, 2019

0.4650

April 15, 2019

June 14, 2019

June 28, 2019

0.4675

July 15, 2019

September 13, 2019

September 30, 2019

0.4700

October 15, 2019

In order to maintain REIT status, U.S. federal income tax laws generally require 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 pay taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income.

Our annual distribution will not be less than 90% of our REIT taxable income on an annual basis, determined without regard to the dividends paid deduction and excluding any net capital gains.

Inflation

The MGM-MGP Master Lease provides for certain increases in rent as a result of the fixed annual rent escalator or changes in the variable percentage rent. We expect that inflation will cause the variable percentage rent provisions to result in rent increases over time. However, we could be negatively affected if increases in rent are not sufficient to cover increases in our operating expenses due to inflation. In addition, inflation and increased costs may have an adverse impact on our tenant if increases in its operating expenses exceed increases in revenue due to inflation thereby impacting its ability to pay rent. This may also impact the MGP BREIT Venture’s ability to pay distributions to us if its tenant’s ability to pay rent is similarly impacted by inflation.

At-the-Market Program

Our ATM program allows us to offer and sell up to an aggregate sales price of $300 million of our Class A shares through our sales agents at prevailing market prices of agreed-upon prices. During the nine months ended September 30, 2020, we issued 0.6 million Class A shares pursuant to our ATM program upon settlements of forward confirmations initially entered into in October 2019, for which we received net proceeds of approximately $18.7 million.

Application of Critical Accounting Policies and Estimates

A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the fiscal year ended December 31, 2019. There have been no significant changes in our critical accounting policies and estimates since year end.

Market Risk

Our primary market risk exposure is interest rate risk with respect to our existing variable-rate long-term indebtedness. An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.

To manage our exposure to changes in LIBOR rates, as of September 30, 2020, we have effective interest rate swap agreements where the Company pays a weighted average fixed rate of 1.821% on a total notional amount of $1.9 billion. Additionally, we have $900 million of notional amount of forward starting swaps that are not currently effective.

We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. As of September 30, 2020, variable rate borrowings excluding impact from our swap agreements, represented approximately 2.8% of our total borrowings. Assuming a 100 basis-point increase in LIBOR, our annual interest cost would increase by approximately $1.0 million based on gross amounts outstanding at September 30, 2020 and not taking into account the interest rate swap agreements. The following table provides information about the maturities of our debt subject to changes in interest rates excluding the effect of the interest rate swaps discussed above:


	Debt maturing in																		Fair Value September 30,
	2020		2021		2022		2023			2024			Thereafter			Total			2020
	(in millions)
Fixed rate	$	—	$	—	$	—	$	—		$	1,050.0		$	2,400.0		$	3,450.0		$	3,581.0
Average interest rate	N/A		N/A		N/A		N/A			5.625		%	4.932		%	5.143		%
Variable rate	$	—	$	—	$	—	$	100.0		$	—		$	—		$	100.0		$	100.0
Average interest rate	N/A		N/A		N/A		1.852		%	N/A			N/A			1.852		%

Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources and the amount and frequency of future distributions contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “could,” “may,” “will,” “should,” “seeks,” “likely,” “intends,” “plans,” “pro forma,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the anticipated degree to which the COVID-19 pandemic will impact our results of operations, our expectations regarding our future liquidity position and the liquidity position of our tenant, the timing and amount of any future dividends and our ability to further grow our portfolio.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

•The fact that as a result of the COVID-19 pandemic, our properties are operating without certain amenities and subject to certain occupancy limitations, and we are unable to predict the length of time it will take for the properties to return to normal operations for the tenant or if such properties will be required to close again due to the COVID-19 pandemic.

•We are dependent on MGM (including its subsidiaries) unless and until we substantially diversify our portfolio, and an event that has a significant adverse effect on MGM’s business, financial position or results of operations (including the continuing effects of the COVID-19 pandemic) could have a material adverse effect on our business, financial position, results of operations, or cash flows.

•We depend on our properties leased to MGM for substantially all of our anticipated cash flows (including the properties held by the MGP BREIT Venture).

•We, or the MGP BREIT Venture, as applicable, may not be able to re-lease the properties following the expiration or termination of the lease.

•MGP’s sole material assets are Operating Partnership units representing 43.3% of the ownership interests in the Operating Partnership, as of September 30, 2020, over which we have operating control through our ownership of its general partner, and our ownership interest in the general partner of the Operating Partnership.

•Our ability to sell our properties is restricted by the terms of the leases or may otherwise be limited.

•We will have future capital needs and may not be able to obtain additional financing on acceptable terms.

•Covenants in our debt agreements may limit our operational flexibility, and a covenant breach or default could materially adversely affect our business, financial position, results of operations, or cash flows.

•Covenants in the debt agreements at the MGP BREIT Venture may limit its ability to pay distributions to us, which could materially affect our business, financial position, results of operations, or cash flows.

•Rising expenses could reduce cash flow and funds available for future acquisitions and distributions.

•We are dependent on the gaming industry and may be susceptible to the risks associated with it, which could materially adversely affect our business, financial position, results of operations, or cash flows.

•Because a significant number of our major gaming resorts are concentrated on the Las Vegas Strip, we are subject to greater risks than a company that is more geographically diversified.

•Our pursuit of investments in, and acquisitions or development of, additional properties (including our rights of first offer with respect to MGM Springfield and with respect to any future gaming developments by MGM on the undeveloped land adjacent to Empire City) may be unsuccessful or fail to meet our expectations.

•We may face extensive regulation from gaming and other regulatory authorities, and our operating agreement provides that any of our shares held by investors who are found to be unsuitable by state gaming regulatory authorities are subject to redemption.

•Required regulatory approvals can delay or prohibit future leases or transfers of our gaming properties, which could result in periods in which we are unable to receive rent for such properties.

•Net leases may not result in fair market lease rates over time, which could negatively impact our income and reduce the amount of funds available to make distributions to shareholders.

•Our dividend yield could be reduced if we were to sell any of our properties in the future.

•There can be no assurance that we will be able to make distributions to our Operating Partnership unitholders and Class A shareholders or maintain our anticipated level of distributions over time.

•An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect the price of our Class A shares.

•We are controlled by MGM, whose interests in our business may conflict with ours or yours.

•We are dependent on MGM for the provision of administration services to our operations and assets.

•MGM’s historical results may not be a reliable indicator of its future results.

•Our operating agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of our directors, officers and others.

•If MGM engages in the same type of business we conduct, our ability to successfully operate and expand our business may be hampered.

•The MGM-MGP Master Lease and other agreements governing our relationship with MGM were not negotiated on an arm’s-length basis and the terms of those agreements may be less favorable to us than they might otherwise have been in an arm’s-length transaction.

•In the event of a bankruptcy of the MGM-MGP Master Lease’s tenant, a bankruptcy court may determine that the MGM-MGP Master Lease is not a single lease but rather multiple severable leases, each of which can be assumed or rejected independently, in which case underperforming leases related to properties we own that are subject to the MGM-MGP Master Lease could be rejected by the tenant while tenant-favorable leases are allowed to remain in place.

•MGM may undergo a change of control without the consent of us or of our shareholders.

•If MGP fails to remain qualified to be taxed as a REIT, it will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would have an adverse effect on our business, financial position, results of operations, or cash flows.

•Legislative or other actions affecting REITs could have a negative effect on us.

•The anticipated benefits of our prior, anticipated and future investments and acquisitions, including our investment in MGP BREIT Venture, may not be realized fully and may take longer to realize than expected.

While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We incorporate by reference the information appearing under “Market Risk” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

Controls and Procedures with respect to MGP

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, 2020 to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and regulations and to provide that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures. This conclusion is based on an evaluation as required by Rule 13a-15(b) under the Exchange Act conducted under the supervision and participation of the principal executive officer and principal financial officer along with company management.

Controls and Procedures with respect to the Operating Partnership

In this “Controls and Procedures with respect to the Operating Partnership” section, the terms “we,” “our” and “us” refer to the Operating Partnership together with its consolidated subsidiaries, and “management,” “principal executive officer” and “principal financial officer” refers to the management, principal executive officer and principal financial officer of the Operating Partnership and of the Operating Partnership’s general partner.

Changes in Internal Control over Financial Reporting

We substantially completed the implementation of our new Enterprise Resource Planning system during the three months ended September 30, 2020. In connection with this implementation, we have updated certain control processes that were impacted. As additional transformation activities occur, we will continue to monitor and evaluate our internal control over financial reporting. There have not been any other changes in our internal control over financial reporting during the three months ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of September 30, 2020, we do not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations, or cash flows.

Item 1A. Risk Factors

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2019. Except as discussed below, there have been no material changes from the risk factors previously disclosed in our 2019 Annual Report on Form 10-K.

Although all of our properties have re-opened to the public, they are operating without certain amenities and subject to certain occupancy limitations and we are unable to predict the length of time it will take for the properties to return to normal operations or if such properties will be required to close again due to the COVID-19 pandemic. As of the date of this filing, all of the properties in our portfolio, including those held by the MGP BREIT Venture, have re-opened to the public, but are operating without certain amenities and subject to certain occupancy limitations. Accordingly, although our properties are re-opened, they are generating revenues for the tenant that are significantly lower than historical results. In addition, our properties may be subject to temporary, complete or partial shutdowns in the future due to COVID-19 related concerns. In addition, our and MGP BREIT Venture’s tenants have implemented certain measures to mitigate the spread of COVID-19, including limits on the number of gaming tables allowed to operate and on the number of seats at each table game, as well as slot machine spacing, temperature checks, mask protection, limitations on restaurant capacity, entertainment events and conventions, and other measures to enforce social distancing. We expect that our and MGP BREIT Venture’s tenants have seen, and will continue to see, weakened demand in light of continued domestic and international travel restrictions or warnings, consumer fears, reduced consumer discretionary spending and general economic uncertainty.

If our or MGP BREIT Venture’s tenants (or subtenants) were to experience a material adverse effect on their business, financial position, liquidity or results of operations, our business, financial position, results of operations, or cash flows could also be materially adversely affected. Under the terms of our and MGP BREIT Venture’s leases, tenants are still required to pay rent even though operations at the properties have ceased or are at significantly reduced levels. Should the tenants be unable or unwilling to continue to satisfy their respective rental obligations under the leases, and if MGM is unable or unwilling to make payments under certain guarantees of rental income it has provided us and the MGP BREIT Venture, although our tenants would be in default under the leases, we may be limited in our ability to enforce our rights under such leases. The inability or unwillingness of the tenants to meet their rental obligations (or MGM to meet its guarantee obligations) or other obligations

under the leases, including capital expenditure requirements, could have a significant adverse effect on our business, financial position, results of operations, or cash flows, including our ability to pay distributions to our shareholders as required to maintain our status as a REIT or to satisfy our obligations under the terms of the agreements governing our long-term indebtedness. In addition, should there be a default under the leases, there can be no assurance that we or MGP BREIT Venture would be able to contract with other lessees on similar terms as the leases or at all.

Furthermore, the COVID-19 pandemic may also limit MGM’s ability to access debt and equity capital markets on attractive terms or at all, which could affect our and MGP BREIT Venture’s tenants’ ability to fund business operations and make payments under any of their financial commitments (including with respect to the leases) on a timely basis or at all, and such inability to fund business operations or make payments under such financial commitments could have a material adverse effect on our business, financial position, results of operations, or cash flows.

The rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact the pandemic will have on our and our tenant’s business. However, the continued adverse impact of the pandemic on financial, economic and capital markets, and the potential for further material deterioration of such markets as the COVID-19 pandemic continues, present material uncertainty and risk with respect to our performance, financial condition, liquidity, results of operations and cash flows. To the extent the COVID-19 pandemic adversely affects our business, financial position, results of operations, or cash flows, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section (including those described in the most recent combined Annual Report on Form 10-K (including any amendments thereto)), such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits


10.1		Second Amendment to Loan Agreement, dated as of May 1, 2020, among Mandalay PropCo, LLC and MGM Grand PropCo, LLC, collectively as Borrower, and Citi Real Estate Funding Inc., Barclays Capital Real Estate Inc., Deutsche Bank AG, New York Branch, Société Générale Financial Corporation and Citi Real Estate Funding Inc., collectively, as Lender

10.2		Third Amendment to Loan Agreement, dated as of July 15 , 2020, among Mandalay PropCo, LLC and MGM Grand PropCo, LLC, collectively as Borrower, and Wilmington Trust, National As sociation, solely in its capa city as trustee for the benefit of the holders of B X Commercial Mortga ge Trust 2020-VIV A, C ommercial Mortgage Pass-Through Certificates, Series 2020-VIVA , as Lender

22.1		Subsidiary Guarantors

31.1		Certification of Chief Executive Officer of MGM Growth Properties LLC pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Executive Officer of MGM Growth Properties Operating Partnership LP pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3		Certification of Chief Financial Officer of MGM Growth Properties LLC pursuant to Rule 13a-14(a) and15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4		Certification of Chief Financial Officer of MGM Growth Properties Operating Partnership LP pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer of MGM Growth Properties LLC pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Chief Executive Officer of MGM Growth Properties Operating Partnership LP pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.3		Certification of Chief Financial Officer of MGM Growth Properties LLC pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.4		Certification of Chief Financial Officer of MGM Growth Properties Operating Partnership LP pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page from the Registrants’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 has been formatted in Inline XBRL.

*	Exhibits 32.1, 32.2, 32.3 and 32.4 shall not be deemed filed with the SEC, nor shall they be deemed incorporated by reference in any filing with the SEC under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MGM Growth Properties LLC

Date: November 2, 2020	By:	/s/ JAMES C. STEWART
		James C. Stewart
		Chief Executive Officer (Principal Executive Officer)

Date: November 2, 2020		/s/ ANDY H. CHIEN
		Andy H. Chien
		Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MGM Growth Properties Operating Partnership LP
	By: MGM Growth Properties OP GP LLC, its general partner

Date: November 2, 2020	By:	/s/ JAMES C. STEWART
		James C. Stewart
		Chief Executive Officer (Principal Executive Officer)

Date: November 2, 2020		/s/ ANDY H. CHIEN
		Andy H. Chien
		Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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MGM Growth Properties 10-Q2020 Q3 Quarterly report

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