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 endedDecember 31, 2020 , which were included in our annual report on Form 10-K, filed with theSEC onFebruary 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 inDelaware inOctober 2015 . MGP conducts its operations through theOperating Partnership , aDelaware limited partnership formed byMGM inJanuary 2016 , that became a subsidiary of MGP inApril 2016 . We elected to be taxed as a real estate investment trust ("REIT") forU.S. federal income tax purposes commencing with our taxable year endedDecember 31, 2016 . As ofMarch 31, 2021 , we generate all of our revenues by leasing our real estate properties through a wholly owned subsidiary of theOperating Partnership to a subsidiary ofMGM 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 onApril 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 toMGM National Harbor , whose initial lease term ends onAugust 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 toMGM Springfield and with respect to any future gaming development byMGM on the undeveloped land adjacent to Empire City, which MGP may exercise shouldMGM elect to sell either property in the future. Following the formation transaction inFebruary 2020 of the MGP BREIT Venture, owned 50.1% by theOperating Partnership and 49.9% by a subsidiary of BREIT, MGP BREIT Venture owns the real estate assets ofMGM Grand Las Vegas andMandalay Bay and leases such real estate properties back to a wholly owned subsidiary ofMGM under the MGP BREIT Venture lease. The lease provides for a term of thirty years with two ten-year renewal options. As ofMarch 31, 2021 , our portfolio, including properties owned by the MGP BREIT Venture, includes seven large-scale entertainment and gaming-related properties inLas 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 betweenNew York-New York and Park MGM. Outside ofLas Vegas , we also own five market-leading casino resort properties:MGM Grand Detroit inDetroit, Michigan , Beau Rivage and Gold Strike Tunica, both of which are located inMississippi , Borgata inAtlantic City, New Jersey , andMGM National Harbor inPrince George's County, Maryland . We also own the casino properties ofMGM Northfield Park inNorthfield, Ohio and Empire City inYonkers, New York . Additionally, we expect to grow our portfolio through acquisitions with third parties and withMGM . 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. InMarch 2021 , certain subsidiaries ofMGM delivered a notice of redemption to us covering approximately 37.1 millionOperating Partnership units that they held which was satisfied with aggregate cash proceeds of approximately$1.2 billion using cash on hand together with the proceeds from the issuance of Class A shares. COVID-19 Update The COVID-19 pandemic has not had a material impact on our operations; however, we cannot estimate the duration of the pandemic and potential impact on our business if our properties will be required to close again, or if the tenant (or the 22
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guarantor) is otherwise unable or unwilling to make rental payments. For further information regarding the potential impact of COVID-19 on our operations, refer to "Liquidity and Capital Resources" below.
Combined Results of Operations for MGP and the Operating Partnership
Overview
The following table summarizes our financial results for the three months ended
Three Months Ended March 31, 2021 2020 (in thousands) Total Revenues$ 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
Expenses
Depreciation. Depreciation expense was$57.9 million and$62.0 million for the three months endedMarch 31, 2021 and 2020, respectively. The$4.1 million , or 6.6%, decrease for the quarterly period was primarily due to the contribution ofMandalay Bay to the MGP BREIT Venture inFebruary 2020 . Property transactions, net. Property transactions, net were$0.8 million for the three month period endedMarch 31, 2021 compared to$195.1 million for the three month period endedMarch 31, 2020 . The prior quarterly period included the difference between the carrying value of theMandalay Bay real estate assets and the net consideration received that resulted in a loss on sale of theMandalay Bay real estate assets of$193.1 million inFebruary 2020 . Ground lease expense. Ground lease expense was$5.9 million for each of the three months endedMarch 31, 2021 and 2020. Acquisition-related expenses. Acquisition-related expenses were$0.6 million for the three months endedMarch 31, 2020 , which related to the MGP BREIT Venture Transaction. There were no acquisition-related expenses for the three months endedMarch 31, 2021 . General and administrative expenses. General and administrative expenses were$3.7 million and$4.9 million for the three months endedMarch 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 endedMarch 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 endedMarch 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 inFebruary 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 endedMarch 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 endedMarch 31, 2021 compared to the$12.1 million loss on unhedged interest rate swaps, net, for the three months endedMarch 31, 2020 , in addition 23
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to the three months ended
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
Non-GAAP Measures
Funds From Operations ("FFO") is net income (computed in accordance with
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
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
FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA do not represent cash
flow from operations as defined by
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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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