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 June 30, 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 any future gaming development by MGM on the
undeveloped land adjacent to Empire City, which MGP may exercise should MGM
elect to sell such 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 June 30, 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.
In May 2021, we entered into an agreement to acquire the real estate assets of
MGM Springfield from MGM for $400 million of cash consideration. MGM Springfield
will be added to the MGM-MGP Master Lease between us and MGM. Following the
closing of the transaction, the annual rent payment under the MGM-MGP Master
Lease will increase by $30 million, $27.0 million of which will be fixed and
contractually grow at 2% per year with escalators subject to the tenant
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meeting an adjusted net revenue to rent ratio. The transaction is expected to
close in the fourth quarter of 2021, upon receipt of interim regulatory
approvals from the Massachusetts Gaming Commission and the satisfaction of other
customary closing conditions. Final regulatory approvals, which are not
necessary for the transaction to close, are expected to be received within nine
to twelve months following the interim regulatory approval. Until final
regulatory approvals are obtained, the parties will be subject to a trust
agreement, which will provide for the property to be placed into a trust (or, at
MGM's option, be returned to MGM) during the interim period in the event that
the regulator finds reasonable cause to believe that the Company may not be
found suitable. The property will then remain in trust until a final
determination regarding our suitability is made.
In August 2021, we entered into an agreement with VICI Properties, Inc. ("VICI")
and MGM whereby VICI will acquire us in a stock-for-stock transaction (such
transaction, the "VICI Transaction"). Pursuant to the agreement, MGP Class A
shareholders will have the right to receive 1.366 shares of newly issued VICI
stock in exchange for each MGP Class A share outstanding and MGM will have the
right to receive 1.366 units of the new VICI operating partnership ("VICI OP")
in exchange for each Operating Partnership unit held by MGM. The fixed exchange
ratio represents an agreed upon price of $43 per share of MGP Class A share to
the five-day volume weighted average price of VICI stock as of the close of
business on July 30, 2021. Subsequent to the exchange, VICI OP will redeem the
majority of MGM's VICI OP units for cash consideration of $4.4 billion, with MGM
retaining approximately 12.2 million VICI OP units. MGP's Class B share that is
held by MGM will be cancelled. The transaction is expected to close in the first
half of 2022, subject to customary closing conditions, regulatory approvals, and
approval by VICI stockholders.
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.

Combined Results of Operations for MGP and the Operating Partnership Overview The following table summarizes our financial results for the three and six months ended June 30, 2021 and June 30, 2020:


                                             Three Months Ended June 30,                  Six Months Ended June 30,
                                               2021                  2020                 2021                  2020
                                                                          (in thousands)
Total Revenues                           $      194,342          $ 194,342          $      388,684          $  403,912
Total Expenses                                   68,314             68,348                 136,673             336,875
Net income (loss)                                73,697             97,025                 189,106             (28,297)
Net income (loss) attributable to Class
A shareholders                                   43,889             41,016                 103,487              (8,732)


Revenues

Rental revenue. Rental revenues, including ground lease and other, for both the
three months ended June 30, 2021 and 2020 were $194.3 million. Rental revenues,
including ground lease and other, for the six months ended June 30, 2021 and
2020 were $388.7 million and $403.9 million, respectively. The $15.2 million, or
3.8%, decrease for the year-to-date 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 $57.8 million and $58.4 million for the
three months ended June 30, 2021 and 2020, respectively. Depreciation expense
was $115.7 million and $120.5 million for the six months ended June 30, 2021 and
2020, respectively. The $4.7 million, or 3.9%, decrease for the year-to-date
period was 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 June 30, 2021 and 2020 were less than $0.1 million and $(0.1) million,
respectively. Property transactions, net for the six months ended June 30, 2021
and 2020 were $0.9 million and $195.0 million, respectively. The prior
year-to-date period included the difference between the carrying value
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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 June 30, 2021 and 2020. Ground lease expense was $11.8
million for each of the six months ended June 30, 2021 and 2020
Acquisition-related expenses. Acquisition-related expenses were $0.3 million for
both the three and six months ended June 30, 2021, which related to our
agreement to acquire the real estate assets of MGM Springfield from MGM. See
Note 1 in the accompanying financial statements for a description of the
transaction. Acquisition expenses were $0.4 million and $1.0 million for the
three and six months ended June 30, 2020, which related to the MGP BREIT Venture
Transaction.
General and administrative expenses. General and administrative expenses were
$4.3 million and $3.7 million for the three months ended June 30, 2021 and 2020,
respectively. General and administrative expenses were $8.0 million and $8.6
million for the six months ended June 30, 2021 and 2020, respectively.

Other Expenses
Income from unconsolidated affiliate. Income from unconsolidated affiliate was
$25.3 million and $25.5 million for the three months ended June 30, 2021 and
2020, respectively, and $50.8 million and $38.8 million for the six months ended
June 30, 2021 and 2020, respectively. Our Income from unconsolidated affiliate
is entirely attributable to income from our investment in MGP BREIT Venture. The
$11.9 million, or 30.8%, increase in the year-to-date period primarily reflects
the timing of the MGP BREIT Venture formation in February 2020 and, accordingly,
the current year-to-date period having a full six months of income attributable
to the venture.
Other expenses, excluding income from unconsolidated affiliate, were $75.8
million and $51.9 million for the three months ended June 30, 2021 and 2020,
respectively. The $23.9 million, or 46.1%, increase for the quarterly period was
primarily related to the $6.5 million loss on unhedged interest rate swaps, net
for the three months ended June 30, 2021 compared to the $1.6 million gain on
unhedged interest rate swaps, net for the three months ended June 30, 2020, as
well as an increase in interest expense due to an increase in outstanding debt
due to the June 2020 issuance of the $800 million 4.625% senior notes due 2025
and the issuance of $750 million 3.875% senior notes due 2029 in November 2020.
Other expenses, excluding income from unconsolidated affiliate, were $109.1
million and $130.5 million for the six months ended June 30, 2021 and 2020,
respectively. The $21.4 million, or 16.4%, decrease for the year-to-date period
was primarily related to the $28.6 million gain on unhedged interest rate swaps,
net for the six months ended June 30, 2021 compared to the $10.5 million loss on
unhedged interest rate swaps, net, for the six months ended June 30, 2020, in
addition to the six months ended June 30, 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 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 on income before income taxes of 2.3% and
2.5% for the three months ended June 30, 2021 and 2020, respectively. Our
effective tax rate was a provision of 2.4% on income before taxes and a
provision of 14.7% on loss before income taxes for the six months ended June 30,
2021 and 2020, respectively. The effective tax rate in the six months ended June
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. 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;
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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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