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 September 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 September 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 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
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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. In connection with 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 (which was received on October 29,
2021).
Subsequent to quarter end, in October 2021, we acquired the real estate assets
of MGM Springfield from MGM for $400 million of cash consideration. MGM
Springfield was added to the MGM-MGP Master Lease between us and MGM and, the
annual rent payment under the MGM-MGP Master Lease increased by $30 million,
$27.0 million of which is fixed and contractually grows at 2% per year with
escalators subject to the tenant meeting an adjusted net revenue to rent ratio.
Final regulatory approvals, which were not necessary for the transaction to
close, are expected to be received within nine to twelve months following the
close of the transaction. 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.
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 or become subject to
significant operating restrictions 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 nine months ended September 30, 2021 and September 30, 2020:


                                         Three Months Ended September 30,        Nine Months Ended September 30,
                                             2021                2020               2021                2020
                                                                      (in thousands)
Total Revenues                           $  194,342          $ 194,342          $  583,026          $  598,254
Total Expenses                               74,042             67,636             210,715             404,511
Net income                                   83,098             97,408             272,204              69,111
Net income attributable to Class A
shareholders                                 49,968             43,378             153,455              34,646


Revenues

Rental revenue. Rental revenues, including ground lease and other, for both the
three months ended September 30, 2021 and 2020 were $194.3 million. Rental
revenues, including ground lease and other, for the nine months ended September
30, 2021 and 2020 were $583.0 million and $598.3 million, respectively. The
$15.2 million, or 2.5%, 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 $57.6 million and $58.2 million for the
three months ended September 30, 2021 and 2020, respectively. Depreciation
expense was $173.3 million and $178.7 million for the nine months ended
September 30, 2021 and 2020, respectively. The $5.4 million, or 3.0%, 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 September 30, 2021 were less than $0.1 million. There were no property
transactions, net for the three months ended September 30, 2020. Property
transactions, net for the nine months ended September 30, 2021 and 2020 were
$1.2 million and $195.0 million, respectively. The prior year-to-date
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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 September 30, 2021 and 2020. Ground lease expense was $17.8
million for each of the nine months ended September 30, 2021 and 2020.
Acquisition-related expenses. Acquisition-related expenses were $6.3 million and
$6.6 million for the three and nine months ended September 30, 2021, which
related to our agreement to acquire the real estate assets of MGM Springfield
from MGM and the VICI Transaction. Acquisition expenses were $1.0 million for
the nine months ended September 30, 2020, which related to the MGP BREIT Venture
Transaction. There were no acquisition-related expenses for the three months
ended September 30, 2020.
General and administrative expenses. General and administrative expenses were
$3.9 million and $3.5 million for the three months ended September 30, 2021 and
2020, respectively. General and administrative expenses were $11.9 million and
$12.1 million for the nine months ended September 30, 2021 and 2020,
respectively.

Other Expenses
Income from unconsolidated affiliate. Income from unconsolidated affiliate was
$25.1 million and $25.2 million for the three months ended September 30, 2021
and 2020, respectively, and $75.8 million and $64.0 million for the nine months
ended September 30, 2021 and 2020, respectively. Our income from unconsolidated
affiliate is entirely attributable to income from our investment in MGP BREIT
Venture. The $11.8 million, or 18.4%, 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 nine months
of income attributable to the venture.
Other expenses, excluding income from unconsolidated affiliate, were $59.9
million and $51.8 million for the three months ended September 30, 2021 and
2020, respectively. The $8.1 million, or 15.6%, increase for the quarterly
period was primarily related to an increase in interest expense due to an
increase in outstanding debt due to the issuance of $750 million 3.875% senior
notes due 2029 in November 2020, as well as the $4.4 million net gain on
unhedged interest rate swaps, net for the three months ended September 30, 2021
compared to the $7.7 million net gain on unhedged interest rate swaps for the
three months ended September 30, 2020. Other expenses, excluding income from
unconsolidated affiliate, were $169.0 million and $182.3 million for the nine
months ended September 30, 2021 and 2020, respectively. The $13.3 million, or
7.3%, decrease for the year-to-date period was primarily related to the $33.0
million gain on unhedged interest rate swaps, net for the nine months ended
September 30, 2021 compared to the $2.8 million loss on unhedged interest rate
swaps, net, for the nine months ended September 30, 2020, in addition to the
nine months ended September 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 of 2.8% and 2.7% for the three months
ended September 30, 2021 and 2020, respectively, and 2.5% and 8.4% for the nine
months ended September 30, 2021 and 2020, 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. 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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