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, 2020,
which were included in our annual report on Form 10-K, filed with the SEC on
February 23, 2021.
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 by MGM in January 2016, that became a subsidiary of
MGP in April 2016. We elected to be taxed as a real estate investment trust
("REIT") for U.S. federal income tax purposes commencing with our taxable year
ended December 31, 2016.
As of March 31, 2021, we generate all of our revenues by leasing our real estate
properties through a wholly owned subsidiary of the Operating Partnership to a
subsidiary of MGM 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 that began on April 25, 2016
with the potential to extend the term for four additional five-year terms
thereafter at the option of the tenant (other than with respect to MGM National
Harbor, whose initial lease term ends on August 31, 2024; refer to Note 5 for
further detail of the lease term). 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.
Following the formation transaction in February 2020 of the MGP BREIT Venture,
owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of BREIT, MGP
BREIT Venture owns the real estate assets of MGM Grand Las Vegas and Mandalay
Bay and leases such real estate properties back to a wholly owned subsidiary of
MGM under the MGP BREIT Venture lease. The lease provides for a term of thirty
years with two ten-year renewal options.
As of March 31, 2021, our portfolio, including properties owned by the MGP BREIT
Venture, includes seven large-scale entertainment and gaming-related properties
in Las Vegas: Mandalay Bay, MGM Grand Las Vegas, The Mirage, Park MGM, New
York-New York, Luxor and Excalibur, and The Park, a dining and entertainment
district located between New York-New York and Park MGM. Outside of Las Vegas,
we also own five market-leading casino resort properties: MGM Grand Detroit in
Detroit, Michigan, Beau Rivage and Gold Strike Tunica, both of which are located
in Mississippi, Borgata in Atlantic City, New Jersey, and MGM National Harbor in
Prince George's County, Maryland. We also own the casino properties of MGM
Northfield Park in Northfield, Ohio and Empire City in Yonkers, New York.
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.
In March 2021, certain subsidiaries of MGM delivered a notice of redemption to
us covering approximately 37.1 million Operating Partnership units that they
held which was satisfied with aggregate cash proceeds of approximately
$1.2 billion using cash on hand together with the proceeds from the issuance of
Class A shares.
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
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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.

Combined Results of Operations for MGP and the Operating Partnership Overview The following table summarizes our financial results for the three months ended March 31, 2021 and March 31, 2020:


                                                                Three Months Ended March 31,
                                                                 2021                    2020
                                                                       (in thousands)
Total Revenues                                            $       194,342          $     209,570
Total Expenses                                                     68,359                268,527
Net income (loss)                                                 115,409               (125,322)
Net income (loss) attributable to Class A shareholders             59,598                (49,748)

Revenues

Rental revenue. Rental revenues, including ground lease and other, for the three months ended March 31, 2021 and 2020 were $194.3 million and $209.6 million, respectively. The $15.2 million, or 7.3%, 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.

Expenses


Depreciation. Depreciation expense was $57.9 million and $62.0 million for the
three months ended March 31, 2021 and 2020, respectively. The $4.1 million, or
6.6%, decrease for the quarterly period was primarily due to the contribution of
Mandalay Bay to the MGP BREIT Venture in February 2020.
Property transactions, net. Property transactions, net were $0.8 million for the
three month period ended March 31, 2021 compared to $195.1 million for the three
month period ended March 31, 2020. The prior quarterly period included the
difference between the carrying value of the Mandalay Bay real estate assets and
the net consideration received that resulted in a loss on sale of the Mandalay
Bay real estate assets of $193.1 million in February 2020.
Ground lease expense. Ground lease expense was $5.9 million for each of the
three months ended March 31, 2021 and 2020.
Acquisition-related expenses. Acquisition-related expenses were $0.6 million for
the three months ended March 31, 2020, which related to the MGP BREIT Venture
Transaction. There were no acquisition-related expenses for the three months
ended March 31, 2021.
General and administrative expenses. General and administrative expenses were
$3.7 million and $4.9 million for the three months ended March 31, 2021 and
2020, respectively. The $1.2 million, or 25.1%, decrease for the quarter-to-date
period was primarily due to the three months ended March 31, 2020 containing
costs incurred for transactions that did not sign or close.

Other Expenses
Income from unconsolidated affiliate. Income from unconsolidated affiliate was
$25.5 million and $13.4 million for the three months ended March 31, 2021 and
2020, respectively, and is attributable to income from our investment in MGP
BREIT Venture. The $12.1 million, or 90.7%, increase primarily reflects the
timing of the MGP BREIT Venture formation in February 2020 and, accordingly, the
current year quarter having a full quarter of income attributable to the
venture.
Other expenses, excluding income from unconsolidated affiliate, were $33.3
million and $78.6 million for the three months ended March 31, 2021 and 2020,
respectively. The $45.3 million, or 57.7%, decrease for the quarterly period was
primarily related to the $35.1 million gain on unhedged interest rate swaps, net
for the three months ended March 31, 2021 compared to the $12.1 million loss on
unhedged interest rate swaps, net, for the three months ended March 31, 2020, in
addition
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to the three months ended March 31, 2020 containing a $18.1 million loss on retirement of debt relating to our repayment of the term loan A and term loan B facilities. This was partially offset by an increase in interest expense due to an increase in debt period over period relating to the issuance of the $800 million 4.625% senior notes due 2025 in June 2020 and of the issuance of $750 million 3.875% senior notes due 2029 in November 2020.

Provision for Income Taxes

Our effective tax rate was a provision of 2.4% on income before income taxes and a provision of 0.9% on loss before income taxes for the three months ended March 31, 2021 and 2020, respectively. The effective tax rate in the three months ended March 31, 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. Refer to Note 2 of the accompanying financial statements for additional discussion regarding income taxes.

Non-GAAP Measures

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; (gain) loss on unhedged interest rate swaps, net; our share of provision for income taxes of unconsolidated affiliate; and provision for income taxes.

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 rental revenue; 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; (gain) loss on unhedged interest rate swaps, net; our share of provision for income taxes of unconsolidated affiliate; 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.




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

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