UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): September 8, 2021

 

 

VICI Properties Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland		001-38372		81-4177147
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

535 Madison Avenue, 20th Floor

New York, New York 10022

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (646) 949-4631

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☒

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class		Trading Symbol		Name of each exchange on which registered
Common stock, $0.01 par value		VICI		New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

☐	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. ☐

 

 

 

Item 8.01

Other Events.

Financial Information of MGP And MGP OP

As previously disclosed, on August 4, 2021, VICI Properties Inc., a Maryland corporation (the “Company”), MGM Growth Properties LLC, a Delaware limited liability company (“MGP”), MGM Growth Properties Operating Partnership LP, a Delaware limited partnership (“MGP OP”), VICI Properties LP, a Delaware limited partnership (“Existing VICI OP”), Venus Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of Existing VICI OP (“REIT Merger Sub”), VICI Properties OP LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of the Company (“New VICI Operating Company”), and MGM Resorts International, a Delaware corporation (“MGM”), entered into a definitive Master Transaction Agreement (the “Master Transaction Agreement”). Upon the terms and subject to the conditions set forth in the Master Transaction Agreement, prior to or on the closing date under the Master Transaction Agreement, the Company will contribute its interest in Existing VICI OP to New VICI Operating Company, which will serve as a new operating company for the Company. Following the contribution transaction, MGP will merge with and into REIT Merger Sub, with REIT Merger Sub surviving the merger (the “REIT Merger”). Immediately following consummation of the REIT Merger, REIT Merger Sub will distribute the interests of the general partner of MGP OP to Existing VICI OP and, immediately following such distribution, REIT Merger Sub will merge with and into MGP OP, with MGP OP surviving the merger (the “Partnership Merger” and, together with the REIT Merger, the “Mergers”).

The Company is filing this Current Report on Form 8-K to provide certain financial information with respect to the proposed Mergers. Specifically, this Current Report on Form 8-K provides: (1) the audited consolidated financial statements of MGP and MGP OP as of December 31, 2020 and 2019, and for each of the years in the three year period ended December 31, 2020, attached hereto as Exhibit 99.1 and incorporated herein by reference, (2) the unaudited consolidated financial statements of MGP and MGP OP as of June 30, 2021 and for the six month periods ended June 30, 2021 and 2020, attached hereto as Exhibit 99.2 and incorporated herein by reference, and (3) the Company’s unaudited pro forma condensed combined financial statements as of and for the six month period ended June 30, 2021 and for the year ended December 31, 2020, relating to the proposed Mergers, the other transactions contemplated by the Master Transaction Agreement and certain other pending or recently closed transactions, attached hereto as Exhibit 99.3 and incorporated herein by reference. Such unaudited pro forma condensed combined financial statements have been prepared on the basis of certain assumptions and estimates and are subject to other uncertainties and do not purport to reflect what the actual results of operations or financial condition of the combined company would have been had the Mergers been consummated on the dates assumed for purposes of such pro forma financial statements or to be indicative of the financial condition or results of operations of the combined company as of or for any future date or period. For further information, see Exhibit 99.3. The information in Exhibits 99.1 and 99.2 was provided by MGP and MGP OP.

Supplemental Risk Factors, VICI Board of Directors’ Reasons for the Transactions and Property Statistics of MGP

The Company is also filing this Current Report on Form 8-K to provide certain supplemental risk factors (the “Supplemental Risk Factors”) and the recommendations of the VICI Board of Directors and its reasons for the Transactions (the “VICI Reasons for the Transactions”) that were originally reflected in the Registration Statement on Form S-4 filed with the SEC by the Company on September 8, 2021 (which Registration Statement is not incorporated by reference in or a part of this Current Report on Form 8-K). The Supplemental Risk Factors and VICI Reasons for the Transactions are attached hereto as Exhibit 99.4 and 99.5, respectively, and incorporated herein by reference.

The Company is also filing this Current Report on Form 8-K to provide certain property statistics of MGP (the “MGP Property Statistics”). The MGP Property Statistics are attached hereto as Exhibit 99.6 and incorporated herein by reference.

Forward Looking Statements

This Current Report on Form 8-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the proposed transaction described herein, including statements regarding the anticipated benefits of the transaction, the anticipated timing of the transaction and the markets of each company. These forward-looking statements generally are identified by the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would” and similar expressions. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the impact of the COVID-19 pandemic on the Company’s, MGP’s and each company’s respective tenants’ financial condition, results of operations, cash flows and performance. The extent to which the COVID-19 pandemic continues to adversely affect each company’s tenants, and ultimately impacts each company’s business, financial condition, results of operations, cash flows and performance depends on future developments which cannot be predicted with confidence. Many additional factors could cause actual future events and results to differ materially from the forward-looking statements, including but not limited to: (i) the possibility that the Company stockholders do not approve the proposed transaction or that other conditions to the closing of the proposed transaction are not satisfied or waived at all or on the anticipated timeline, (ii) failure to realize the anticipated benefits of the proposed transaction, including as a result of delay in completing the proposed transaction, (iii) the risk that MGP’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected, (iv) unexpected costs or liabilities relating to the proposed transaction, (v) potential litigation relating to the proposed transaction that could be instituted against the Company or MGP or their respective directors or officers and the resulting expense or delay, (vi) the risk that disruptions caused by or relating to the proposed transaction will harm the Company’s or MGP’s business, including current plans and operations, (vii) the ability of the Company or MGP to retain and hire key personnel, (viii) potential adverse reactions by tenants or other business partners or changes to business relationships, including joint ventures, resulting from the announcement or completion of the proposed transaction, (ix) risks relating to the market value of the Company’s common stock to be issued in the proposed transaction, (x) risks associated with third-party contracts containing consent and/or other provisions that may be triggered by the proposed transaction, (xi) the impact of public health crises, such as pandemics (including the COVID-19 pandemic) and epidemics and any related company or government policies and actions intended to protect the health and safety of individuals or government policies or actions intended to maintain the functioning of national or global economies and markets, (xii) general economic and market developments and conditions, (xiii) restrictions during the pendency of the proposed transaction or thereafter that may impact the Company’s or MGP’s ability to pursue certain business opportunities or strategic transactions, (xiv) either company’s ability to maintain its status as a real estate investment trust for U.S. federal income tax purposes, and (xv) the occurrence of any event, change or other circumstances that could give rise to the termination of the Master Transaction Agreement relating to the proposed transaction. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the businesses of the Company described in the “Risk Factors” section of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents filed from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Investors are cautioned to interpret many of the risks identified in the “Risk Factors” section of these filings as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and the Company assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise. The Company gives no assurance that it will achieve its expectations.

Additional Information about the Proposed Transaction and Where to Find It

This Current Report on Form 8-K relates to a proposed transaction between the Company and MGP. In connection with the Mergers, the Company filed with the SEC a registration statement on Form S-4 that includes a proxy statement of the Company and that also constitutes a prospectus of the Company and information statement of MGP. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

Investors and security holders may obtain free copies of these documents and other documents filed with the SEC at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by the Company by contacting VICI Properties Investor Relations at Investors@viciproperties.com or (646) 949-4631. Investors and security holders may obtain free copies of the documents filed with the SEC by MGP by contacting MGP Investor Relations at IR@mgmgrowthproperties.com or (702) 669-1470.

Participants in the Solicitation

The Company and its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about the directors and executive officers of the Company is available in the Company’s proxy statement for its 2021 Annual Meeting of Stockholders, which was filed with the SEC on March 15, 2021. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the definitive proxy statement/information statement/prospectus and other relevant materials filed with the SEC regarding the Mergers. Investors should read the definitive proxy statement/information statement/prospectus carefully before making any voting or investment decisions. You may obtain free copies of these documents from the Company using the sources indicated above.

No Offer or Solicitation

This Current Report on Form 8-K and the information contained herein shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act.

Item 9.01.

Financial Statements and Exhibits.

(a)    Financial Statements of Businesses to be Acquired

The audited consolidated financial statements of MGP and MGP OP as of December 31, 2020 and 2019 and for each of the years in the three year period ended December 31, 2020 are filed herewith as Exhibit 99.1 and incorporated in this Item 9.01(a) by reference.

The unaudited consolidated financial statements of MGP and MGP OP as of June 30, 2021 and for the six month periods ended June 30, 2021 and 2020 are filed herewith as Exhibit 99.2 and incorporated in this Item 9.01(a) by reference.

(b)    Pro Forma Financial Information

The unaudited pro forma condensed combined financial statements of the Company as and for the six month period ended June 30, 2021 and for the year ended December 31, 2020, giving effect to the Mergers, the other transactions contemplated by the Master Transaction Agreement and certain other pending or recently closed transactions, are filed herewith as Exhibit 99.3 and incorporated in this Item 9.01(b) by reference.

(d)    Exhibits

 

Exhibit No.		Description
23.1		Consent of Deloitte & Touche LLP for MGM Growth Properties LLC
23.2		Consent of Deloitte & Touche LLP for MGM Growth Properties Operating Partnership LP
99.1		Audited consolidated financial statements of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP as of December 31, 2020 and 2019, and for each of the years in the three year period ended December 31, 2020
99.2		Unaudited consolidated financial statements of MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP as of June 30, 2021 and for the six month periods ended June 30, 2021 and 2020
99.3		Unaudited pro forma condensed combined financial statements of the Company as of and for the six month period ended June 30, 2021 and for the year ended December 31, 2020
99.4		Supplemental Risk Factors
99.5		Recommendations of the VICI Board of Directors and Its Reasons for the Transactions
99.6		Property Statistics of MGM Growth Properties LLC
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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 hereunto duly authorized.

 

				VICI PROPERTIES INC.
Date: September 8, 2021				By:		/s/ Samantha S. Gallagher
						Samantha S. Gallagher
						Executive Vice President, General Counsel and Secretary

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-256524 on Form S-3 and Registration Statement No. 333-220949 on Form S-8 of VICI Properties Inc. of our reports dated February 23, 2021, relating to the financial statements of MGM Growth Properties LLC and the effectiveness of MGM Growth Properties LLC’s internal control over financial reporting appearing in this Current Report on Form 8-K dated September 8, 2021.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada

September 8, 2021

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-256524 on Form S-3 and Registration Statement No. 333-220949 on Form S-8 of VICI Properties Inc. of our report dated February 23, 2021, relating to the financial statements of MGM Growth Properties Operating Partnership LP appearing in this Current Report on Form 8-K dated September 8, 2021.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada

September 8, 2021

Exhibit 99.1

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Financial Statements.
Report of Independent Registered Public Accounting Firm on MGM Growth Properties LLC Internal Control Over Financial Reporting			2
Report of Independent Registered Public Accounting Firm on MGM Growth Properties LLC Consolidated Financial Statements			3
Report of Independent Registered Public Accounting Firm on MGM Growth Properties Operating Partnership Consolidated Financial Statements			6
MGM Growth Properties LLC:
Consolidated Balance Sheets — December 31, 2020 and 2019			9
Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Operations			10
Consolidated Statements of Comprehensive Income (Loss)			11
Consolidated Statements of Cash Flows			12
Consolidated Statements of Shareholders’ Equity			13
MGM Growth Properties Operating Partnership LP:
Consolidated Balance Sheets — December 31, 2020 and 2019			14
Years Ended December 31, 2020, 2019, and 2018
Consolidated Statements of Operations			15
Consolidated Statements of Comprehensive Income (Loss)			16
Consolidated Statements of Cash Flows			17
Consolidated Statements of Partners’ Capital			18
Notes to Consolidated Financial Statements			19
Financial Statement Schedule.
MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP:
Schedule III — Real Estate and Accumulated Depreciation — December 31, 2020			38

The financial information in the financial statement schedule should be read in conjunction with the consolidated financial statements. We have omitted schedules other than the one listed above because they are not required or are not applicable, or the required information is shown in the financial statements or notes to the financial statements.

 

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of MGM Growth Properties LLC

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of MGM Growth Properties LLC and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2020, of the Company and our report dated February 23, 2021 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting for the Company. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

February 23, 2021

 

2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of MGM Growth Properties LLC

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MGM Growth Properties LLC and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, cash flows, and shareholders’ equity for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2021 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

The Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach, effective January 1, 2019.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

“MGP BREIT Venture Transaction - Lease Classification” - Refer to Notes 1 and 6 to the financial statements

Critical Audit Matter Description

During the year ended December 31, 2020, the Company completed the MGP BREIT Venture Transaction and in connection with the transaction, amended the existing MGM-MGP Master Lease to remove the Mandalay Bay property and reduce the annual cash rent paid by $133 million. As a result of this amendment, the Company was required to reassess the lease classification of the MGM-MGP Master Lease under ASC 842 as a lessor. The Company reassessed the lease classification of the lease, which included estimating the fair value of the leased assets 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.

We identified the reassessment of the lease classification of the MGM-MGP Master Lease under ASC 842 as a critical audit matter because the reassessment required management to make significant accounting estimates and assumptions related to the fair value of

 

3

the leased assets at the transaction date and the residual value of the assets at the end of the lease term. Specifically, determination of the fair value of the leased assets and the residual value of the leased assets used in the determination of the implicit rate requires significant estimates as to the discount rate used to discount forecasted cashflows under an income approach and judgments as to whether the tenant will exercise renewal options. Given these significant estimates and judgments, performing audit procedures to evaluate the reasonableness of management’s determination of the implicit rate and management’s assumption that the tenant will exercise all the renewal options in the MGM-MGP Master Lease, required a high degree of auditor judgment including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of the implicit rate and the assumption that the tenant will exercise all the renewal options included the following, among others:

 

•

We tested the effectiveness of the control over management’s assessment of the proper lease classification in connection with the MGP BREIT Venture Transaction, including controls related to management’s determination of the implicit rate and management’s assumption that tenant will exercise all the renewal options.

•

We evaluated the classification of the MGM-MGP Master Lease under ASC 842, including recalculating the implicit rate of the lease.

•

With the assistance of our fair value specialists, we evaluated the reasonableness of the implicit rate, including the determination of the residual value, applied to the cashflows in the estimate of the fair value by developing a range of independent estimates and comparing those to the discount rates selected by management.

•

We evaluated the significant judgments made by management in concluding that it is reasonable that the tenant will exercise all of the lease renewal options.

“MGP BREIT Venture Transaction - Investment in MGP BREIT Venture 1 LLC (“MGP BREIT Venture”)” - Refer to Notes 1, 2, and 5 to the financial statements

Critical Audit Matter Description

During the year ended December 31, 2020, the Company completed the MGP BREIT Venture Transaction and in connection with the transaction, formed MGP BREIT Venture, which, following the transaction, is owned 50.1% by the MGM Growth Properties Operating Partnership LP and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. The 50.1% equity interest in MGP BREIT Venture was obtained as partial consideration for the contribution of the real estate assets. The assessment of whether an investment is a variable interest entity (“VIE”) and whether the Company has a controlling financial interest in the investment involves management’s judgment and analysis. The Company concluded that the investment in MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model since MGP BREIT Venture is structured with substantive participating rights whereby both owners of MGP BREIT Venture participate in the decision making process, thereby preventing the Company from exerting a controlling financial interest, as defined in ASC 810. The Company concluded that the MGP BREIT Venture is therefore accounted for under the equity method.

We identified the assessment of whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation under the voting interest entity model as a critical audit matter because the VIE and consolidation accounting guidance under ASC 810 is complex and requires management to make significant judgments and assumptions to determine if the Company has a controlling financial interest, as defined in ASC 810, in MGP BREIT Venture based upon the terms of the ownership agreements.

Specifically, the significant judgments made by management include evaluating and concluding MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model and included the application of consolidation accounting guidance. Given these significant judgments, performing audit procedures to evaluate the reasonableness of management’s evaluation of whether the MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model required a high degree of auditor judgment, including the need to involve technical accounting specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s evaluation of whether an investment is a VIE and whether an investment qualifies for consolidation under the voting interest entity model in connection with the MGP BREIT Venture Transaction under ASC 810 included the following, among others:

 

•

We tested the effectiveness of the control over management’s assessment of the investment in MGP BREIT Venture for consolidation, including the judgments and factors used in determining that the MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model.

 

4

•

We inspected the underlying agreements and evaluated the reasonableness of the application of consolidation accounting guidance. With the assistance of technical accounting specialists, we evaluated the assumptions and judgments used by management to determine whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

February 23, 2021

We have served as the Company’s auditor since 2014.

 

5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of MGM Growth Properties Operating Partnership LP

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MGM Growth Properties Operating Partnership LP and subsidiaries (the “Operating Partnership”) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income, cash flows, and partners’ capital, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

The Operating Partnership adopted FASB ASC Topic 842, Leases, using the modified retrospective approach, effective January 1, 2019.

Basis for Opinion

These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

“MGP BREIT Venture Transaction – Lease Classification” — Refer to Notes 1 and 6 to the financial statements

Critical Audit Matter Description

During the year ended December 31, 2020, the Operating Partnership completed the MGP BREIT Venture Transaction and in connection with the transaction, amended the existing MGM-MGP Master Lease to remove the Mandalay Bay property and reduce the annual cash rent paid by $133 million. As a result of this amendment, the Operating Partnership was required to reassess the lease classification of the MGM-MGP Master Lease under ASC 842 as a lessor. The Operating Partnership reassessed the lease classification of the lease, which included estimating the fair value of the leased assets 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.

 

6

We identified the reassessment of the lease classification of the MGM-MGP Master Lease under ASC 842 as a critical audit matter because the reassessment required management to make significant accounting estimates and assumptions related to the fair value of the leased assets at the transaction date and the residual value of the assets at the end of the lease term.

Specifically, determination of the fair value of the leased assets and the residual value of the leased assets used in the determination of the implicit rate requires significant estimates as to the discount rate used to discount forecasted cashflows under an income approach and judgments as to whether the tenant will exercise renewal options. Given these significant estimates and judgments, performing audit procedures to evaluate the reasonableness of management’s determination of the implicit rate and management’s assumption that the tenant will exercise all the renewal options in the MGM-MGP Master Lease, required a high degree of auditor judgment including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of the implicit rate and the assumption that the tenant will exercise all the renewal options included the following, among others:

 

•

We tested the effectiveness of the control over management’s assessment of the proper lease classification in connection with the MGP BREIT Venture Transaction, including controls related to management’s determination of the implicit rate and management’s assumption that tenant will exercise all the renewal options.

•

We evaluated the classification of the MGM-MGP Master Lease under ASC 842, including recalculating the implicit rate of the lease.

•

With the assistance of our fair value specialists, we evaluated the reasonableness of the implicit rate, including the determination of the residual value, applied to the cashflows in the estimate of the fair value by developing a range of independent estimates and comparing those to the discount rates selected by management.

•

We evaluated the significant judgments made by management in concluding that it is reasonable that the tenant will exercise all of the lease renewal options.

“MGP BREIT Venture Transaction- Investment in MGP BREIT Venture 1 LLC (“MGP BREIT Venture”)”- Refer to Notes 1, 2, and 5 to the financial statements

Critical Audit Matter Description

During the year ended December 31, 2020, the Operating Partnership completed the MGP BREIT Venture Transaction and in connection with the transaction, formed MGP BREIT Venture, which, following the transaction, is owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. The 50.1% equity interest in MGP BREIT Venture was obtained as partial consideration for the contribution of the real estate assets. The assessment of whether an investment is a variable interest entity (“VIE”) and whether the Operating Partnership has a controlling financial interest in the investment involves management’s judgment and analysis. The Operating Partnership concluded that the investment in MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model since MGP BREIT Venture is structured with substantive participating rights whereby both owners of MGP BREIT Venture participate in the decision-making process, thereby preventing the Operating Partnership from exerting a controlling financial interest, as defined in ASC 810. The Operating Partnership concluded that the MGP BREIT venture is therefore accounted for under the equity method.

We identified the assessment of whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation under the voting interest entity model as a critical audit matter because the VIE and consolidation accounting guidance under ASC 810 is complex and requires management to make significant judgments and assumptions to determine if the Operating Partnership has a controlling financial interest, as defined in ASC 810, in MGP BREIT Venture based upon the terms of the ownership agreements.

Specifically, the significant judgments made by management include evaluating and concluding MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model and included the application of consolidation accounting guidance. Given these significant judgments, performing audit procedures to evaluate the reasonableness of management’s evaluation of whether the MGP BREIT Venture does not meet the definition of a VIE or qualify for consolidation under the voting interest entity model required a high degree of auditor judgment, including the need to involve technical accounting specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Operating Partnership’s evaluation of whether an investment is a VIE and whether an investment qualifies for consolidation under the voting interest entity model in connection with the MGP BREIT Venture Transaction under ASC 810 included the following, among others:

 

7

•

We tested the effectiveness of the control over management’s assessment of the investment in MGP BREIT Venture for consolidation, including the judgments and factors used in determining that the MGP BREIT Venture did not meet the definition of a VIE and did not qualify for consolidation under the voting interest entity model.

•

We inspected the underlying agreements and evaluated the reasonableness of the application of consolidation accounting guidance. With the assistance of technical accounting specialists, we evaluated the assumptions and judgments used by management to determine whether the investment in MGP BREIT Venture is a VIE and whether it qualifies for consolidation.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

February 23, 2021

We have served as the Operating Partnership’s auditor since 2015.

 

8

MGM GROWTH PROPERTIES LLC

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

		December 31,
		2020				2019
ASSETS
Real estate investments, net		$	8,310,737			$	10,827,972
Lease incentive asset			507,161				527,181
Investment in unconsolidated affiliate			810,066				—
Cash and cash equivalents			626,385				202,101
Prepaid expenses and other assets			25,525				31,485
Above market lease, asset			39,867				41,440
Operating lease right-of-use assets			280,565				280,093
Total assets		$	10,600,306			$	11,910,272
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Debt, net		$	4,168,959			$	4,307,354
Due to MGM Resorts International and affiliates			316				774
Accounts payable, accrued expenses and other liabilities			124,109				37,421
Accrued interest			48,505				42,904
Dividend and distribution payable			136,484				147,349
Deferred revenue			156,760				108,593
Deferred income taxes, net			33,298				29,909
Operating lease liabilities			341,133				337,956
Total liabilities			5,009,564				5,012,260
Commitments and contingencies (Note 13)
Shareholders’ equity
Class A shares: no par value, 1,000,000,000 shares authorized, 131,459,651 and 113,806,820 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively			—				—
Additional paid-in capital			3,114,331				2,766,325
Accumulated deficit			(422,897	)			(244,381	)
Accumulated other comprehensive loss			(51,197	)			(7,045	)
Total Class A shareholders’ equity			2,640,237				2,514,899
Noncontrolling interest			2,950,505				4,383,113
Total shareholders’ equity			5,590,742				6,898,012
Total liabilities and shareholders’ equity		$	10,600,306			$	11,910,272

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

 

9

MGM GROWTH PROPERTIES LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

		Year Ended December 31,
		2020				2019				2018
Revenues
Rental revenue		$	768,442			$	856,421			$	746,253
Ground lease and other			24,155				24,657				123,242
Total Revenues			792,597				881,078				869,495
Expenses
Depreciation			236,853				294,705				266,622
Property transactions, net			195,182				10,844				20,319
Ground lease expense and other			23,681				23,681				119,531
Amortization of above market lease, net			—				—				686
Acquisition-related expenses			980				10,165				6,149
General and administrative			16,076				16,516				16,048
Total Expenses			472,772				355,911				429,355
Other income (expense)
Income from unconsolidated affiliate			89,056				—				—
Interest income			4,345				3,219				2,501
Interest expense			(228,786	)			(249,944	)			(215,532	)
Gain (loss) on unhedged interest rate swaps, net			4,664				(3,880	)			—
Other			(18,999	)			(7,615	)			(7,191	)
			(149,720	)			(258,220	)			(220,222	)
Income from continuing operations before income taxes			170,105				266,947				219,918
Provision for income taxes			(9,734	)			(7,598	)			(5,779	)
Income from continuing operations, net of tax			160,371				259,349				214,139
Income from discontinued operations, net of tax			—				16,216				30,563
Net income			160,371				275,565				244,702
Less: Net income attributable to noncontrolling interest			(84,242	)			(185,305	)			(177,637	)
Net income attributable to Class A shareholders		$	76,129			$	90,260			$	67,065
Weighted average Class A shares outstanding:
Basic			129,491				93,047				70,998
Diluted			129,653				93,299				71,186
Per Class A share data
Income from continuing operations per Class A share (basic)		$	0.59			$	0.92			$	0.83
Income from discontinued operations per Class A share (basic)			—				0.05				0.11
Earnings per Class A share (basic)		$	0.59			$	0.97			$	0.94
Income from continuing operations per Class A share (diluted)		$	0.59			$	0.92			$	0.83
Income from discontinued operations per Class A share (diluted)			—				0.05				0.11
Earnings per Class A share (diluted)		$	0.59			$	0.97			$	0.94

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

 

10

MGM GROWTH PROPERTIES LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

		Year Ended December 31,
		2020				2019				2018
Net income		$	160,371			$	275,565			$	244,702
Other comprehensive income (loss)			(89,624	)			(35,198	)			4,128
Comprehensive income			70,747				240,367				248,830
Less: Comprehensive income attributable to noncontrolling interests			(29,455	)			(159,639	)			(180,665	)
Comprehensive income attributable to Class A shareholders		$	41,292			$	80,728			$	68,165

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

 

11

MGM GROWTH PROPERTIES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended December 31,
		2020				2019				2018
Cash flows from operating activities
Net income		$	160,371			$	275,565			$	244,702
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net			—				(16,216	)			(30,563	)
Depreciation			236,853				294,705				266,622
Property transactions, net			195,182				10,844				20,319
Amortization of financing costs			10,024				12,733				12,031
Loss on retirement of debt			18,129				6,161				2,736
Non-cash ground lease, net			1,036				1,038				686
Deemed contributions - tax sharing agreement			6,172				7,008				5,745
Straight-line rental revenues, excluding amortization of lease incentive asset			51,679				41,447				20,680
Amortization of lease incentive asset			20,020				16,360				—
Amortization of deferred revenue on non-normal tenant improvements			(1,511	)			(2,013	)			(3,711	)
Amortization of cash flow hedges			9,993				—				—
(Gain) loss on unhedged interest rate swaps, net			(4,664	)			3,880				—
Share-based compensation			2,854				2,277				2,093
Deferred income taxes			3,389				(3,725	)			5,090
Income from unconsolidated affiliate			(89,056	)			—				—
Distributions from unconsolidated affiliate			80,990				—				—
Park MGM Transaction			—				(605,625	)			—
Distributions received from discontinued operations and other			—				40,165				2,801
Change in operating assets and liabilities:
Prepaid expenses and other assets			352				363				(629	)
Due to MGM Resorts International and affiliates			(458	)			547				(735	)
Accounts payable, accrued expenses and other liabilities			(3,255	)			(1,616	)			5,403
Accrued interest			5,601				16,808				3,531
Net cash provided by operating activities - continuing operations			703,701				100,706				556,801
Cash flows from investing activities
Proceeds from sale of Mandalay Bay real estate assets, net			58,615				—				—
Proceeds from Northfield OpCo Transaction			—				3,779				—
Capital expenditures for property and equipment			—				—				(192	)
Acquisition of Northfield			—				—				(1,068,336)
Net cash provided by (used in) investing activities - continuing operations			58,615				3,779				(1,068,528	)
Cash flows from financing activities
Net borrowings (repayments) under bank credit facility			(1,693,750)				(1,115,375)				727,750
Proceeds from issuance of bridge loan facility			1,304,625				—				—
Proceeds from issuance of debt			1,550,000				750,000				—
Deferred financing costs			(20,653	)			(9,983	)			(17,490	)
Repayment of assumed debt and bridge facilities			—				(245,950	)			—
Proceeds from issuance of Class A shares, net			524,616				1,250,006				—
Redemption of Operating Partnership units			(1,400,000	)			—				—
Dividends and distributions paid			(601,719	)			(533,735	)			(454,260	)
Other			(1,151	)			(1,342	)			—
Net cash provided by (used in) financing activities - continuing operations			(338,032	)			93,621				256,000
Cash flows from discontinued operations, net
Cash flows provided by operating activities, net			—				15,591				23,406
Cash flows provided by (used in) investing activities, net			—				(12	)			32,416
Cash flows used in financing activities, net			—				(37,900	)			—
Net cash provided by (used in) discontinued operations			—				(22,321	)			55,822
Change in cash and cash equivalents classified as assets held for sale			—				(22,321	)			55,822
Cash and cash equivalents
Net increase (decrease) for the period			424,284				198,106				(255,727	)
Balance, beginning of period			202,101				3,995				259,722
Balance, end of period		$	626,385			$	202,101			$	3,995
Supplemental cash flow disclosures
Interest paid		$	203,168			$	220,616			$	199,429
Non-cash investing and financing activities
Accrual of dividend and distribution payable to Class A shareholders and Operating Partnership unit holders		$	136,484			$	147,349			$	119,055
Non-Normal Tenant Improvements by tenant		$	—			$	—			$	19,316
Empire City Transaction assets acquired		$	—			$	625,000			$	—
Redemption of Operating Partnership units relating to Northfield OpCo Transaction		$	—			$	301,373			$	—
Investment in MGP BREIT Venture		$	802,000			$	—			$	—
MGP BREIT Venture assumption of bridge loan facility		$	1,304,625			$	—			$	—

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

 

12

MGM GROWTH PROPERTIES LLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except per share amounts)

 

		Class A Shares
		Shares				Par Value				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income (Loss)				Total Class A Shareholders’ Equity				Noncontrolling Interest				Total Shareholders’ Equity
Balance at January 1, 2018			70,897			$	—			$	1,716,490			$	(94,948	)		$	3,108			$	1,624,650			$	4,443,089			$	6,067,739
Net income			—				—				—				67,065				—				67,065				177,637				244,702
Cash flow hedges			—				—				—				—				1,100				1,100				3,028				4,128
Share-based compensation			—				—				558				—				—				558				1,535				2,093
Deemed contribution - tax sharing agreement			—				—				—				—				—				—				5,745				5,745
Dividends and distributions declared ($1.7350 per share)			—				—				—				(123,025	)			—				(123,025	)			(338,557	)			(461,582	)
Other			14				—				(4,377	)			—				—				(4,377	)			(12,942	)			(17,319	)
Balance at December 31, 2018			70,911				—				1,712,671				(150,908	)			4,208				1,565,971				4,279,535				5,845,506
Net income			—				—				—				90,260				—				90,260				185,305				275,565
Issuance of Class A shares			42,819				—				1,051,094				—				(1,512	)			1,049,582				200,424				1,250,006
Empire City Transaction			—				—				23,940				—				(195	)			23,745				355,305				379,050
Park MGM Transaction			—				—				2,512				—				(16	)			2,496				29,379				31,875
Northfield OpCo Transaction			—				—				(27,441	)			—				2				(27,439	)			(271,518	)			(298,957	)
Cash flow hedges			—				—				—				—				(9,532	)			(9,532	)			(25,666	)			(35,198	)
Share-based compensation			—				—				728				—				—				728				1,549				2,277
Deemed contribution - tax sharing agreement			—				—				—				—				—				—				7,008				7,008
Dividends and distributions declared ($1.8725 per share)			—				—				—				(183,733	)			—				(183,733	)			(378,296	)			(562,029	)
Other			77				—				2,821				—				—				2,821				88				2,909
Balance at December 31, 2019			113,807				—				2,766,325				(244,381	)			(7,045	)			2,514,899				4,383,113				6,898,012
Net income*			—				—				—				76,129				—				76,129				72,163				148,292
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
Redemption of temporary equity*			—				—				(106,151	)			—				(8,773	)			(114,924	)			107,392				(7,532	)
Reclassification and remeasurements of temporary equity*			—				—				—				—				—				—				(1,405,058	)			(1,405,058	)
Cash flow hedges*			—				—				—				—				(34,837	)			(34,837	)			(41,792	)			(76,629	)
Share-based compensation*			—				—				1,200				—				—				1,200				1,362				2,562
Deemed contribution - tax sharing agreement*			—				—				—				—				—				—				5,125				5,125
Dividends and distributions declared ($1.9375 per share)*			—				—				—				(254,645	)			—				(254,645	)			(289,321	)			(543,966	)
Other*			129				—				1,366				—				45				1,411				(1,577	)			(166	)
Balance at December 31, 2020			131,460			$	—			$	3,114,331			$	(422,897	)		$	(51,197	)		$	2,640,237			$	2,950,505			$	5,590,742

 

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

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

 

13

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)

 

		December 31,
		2020				2019
ASSETS
Real estate investments, net		$	8,310,737			$	10,827,972
Lease incentive asset			507,161				527,181
Investment in unconsolidated affiliate			810,066				—
Cash and cash equivalents			626,385				202,101
Prepaid expenses and other assets			25,525				31,485
Above market lease, asset			39,867				41,440
Operating lease right-of-use assets			280,565				280,093
Total assets		$	10,600,306			$	11,910,272
LIABILITIES AND PARTNERS’ CAPITAL
Liabilities
Debt, net		$	4,168,959			$	4,307,354
Due to MGM Resorts International and affiliates			316				774
Accounts payable, accrued expenses and other liabilities			124,109				37,421
Accrued interest			48,505				42,904
Distribution payable			136,484				147,349
Deferred revenue			156,760				108,593
Deferred income taxes, net			33,298				29,909
Operating lease liabilities			341,133				337,956
Total liabilities			5,009,564				5,012,260
Commitments and contingencies (Note 13)
Partners’ capital
General partner			—				—
Limited partners: 279,966,531 and 313,509,363 Operating Partnership units issued and outstanding as of December 31, 2020 and December 31, 2019, respectively.			5,590,742				6,898,012
Total partners’ capital			5,590,742				6,898,012
Total liabilities and partners’ capital		$	10,600,306			$	11,910,272

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

 

14

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

 

		Year Ended December 31,
		2020				2019				2018
Revenues
Rental revenue		$	768,442			$	856,421			$	746,253
Ground lease and other			24,155				24,657				123,242
Total Revenues			792,597				881,078				869,495
Expenses
Depreciation			236,853				294,705				266,622
Property transactions, net			195,182				10,844				20,319
Ground lease expense and other			23,681				23,681				119,531
Amortization of above market lease, net			—				—				686
Acquisition-related expenses			980				10,165				6,149
General and administrative			16,076				16,516				16,048
Total Expenses			472,772				355,911				429,355
Other income (expense)
Income from unconsolidated affiliate			89,056				—				—
Interest income			4,345				3,219				2,501
Interest expense			(228,786	)			(249,944	)			(215,532	)
Gain (loss) on unhedged interest rate swaps, net			4,664				(3,880	)			—
Other			(18,999	)			(7,615	)			(7,191	)
			(149,720	)			(258,220	)			(220,222	)
Income from continuing operations before income taxes			170,105				266,947				219,918
Provision for income taxes			(9,734	)			(7,598	)			(5,779	)
Income from continuing operations, net of tax			160,371				259,349				214,139
Income from discontinued operations, net of tax			—				16,216				30,563
Net income		$	160,371			$	275,565			$	244,702
Weighted average Operating Partnership units outstanding:
Basic			310,688				293,885				266,132
Diluted			310,850				294,137				266,320
Per Operating Partnership unit data
Income from continuing operations per Operating Partnership unit (basic)		$	0.52			$	0.88			$	0.80
Income from discontinued operations per Operating Partnership unit (basic)			—				0.06				0.12
Earnings per Operating Partnership unit (basic)		$	0.52			$	0.94			$	0.92
Income from continuing operations per Operating Partnership unit (diluted)		$	0.52			$	0.88			$	0.80
Income from discontinued operations per Operating Partnership unit (diluted)			—				0.06				0.12
Earnings per Operating Partnership unit (diluted)		$	0.52			$	0.94			$	0.92

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

 

15

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

		Year Ended December 31,
		2020				2019				2018
Net income		$	160,371			$	275,565			$	244,702
Other comprehensive income (loss)			(89,624	)			(35,198	)			4,128
Comprehensive income		$	70,747			$	240,367			$	248,830

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

 

16

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended December 31,
		2020				2019				2018
Cash flows from operating activities
Net income		$	160,371			$	275,565			$	244,702
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net			—				(16,216	)			(30,563	)
Depreciation			236,853				294,705				266,622
Property transactions, net			195,182				10,844				20,319
Amortization of financing costs			10,024				12,733				12,031
Loss on retirement of debt			18,129				6,161				2,736
Non-cash ground lease, net			1,036				1,038				686
Deemed contributions - tax sharing agreement			6,172				7,008				5,745
Straight-line rental revenues, excluding amortization of lease incentive asset			51,679				41,447				20,680
Amortization of lease incentive asset			20,020				16,360				—
Amortization of deferred revenue on non-normal tenant improvements			(1,511	)			(2,013	)			(3,711	)
Amortization of cash flow hedges			9,993				—				—
(Gain) loss on unhedged interest rate swaps, net			(4,664	)			3,880				—
Share-based compensation			2,854				2,277				2,093
Deferred income taxes			3,389				(3,725	)			5,090
Income from unconsolidated affiliate			(89,056	)			—				—
Distributions from unconsolidated affiliate			80,990				—				—
Park MGM Transaction			—				(605,625	)			—
Distributions received from discontinued operations and other			—				40,165				2,801
Change in operating assets and liabilities:
Prepaid expenses and other assets			352				363				(629	)
Due to MGM Resorts International and affiliates			(458	)			547				(735	)
Accounts payable, accrued expenses and other liabilities			(3,255	)			(1,616	)			5,403
Accrued interest			5,601				16,808				3,531
Net cash provided by operating activities - continuing operations			703,701				100,706				556,801
Cash flows from investing activities
Proceeds from sale of Mandalay Bay real estate assets, net			58,615				—				—
Proceeds from Northfield OpCo Transaction			—				3,779				—
Capital expenditures for property and equipment			—				—				(192	)
Acquisition of Northfield			—				—				(1,068,336	)
Net cash provided by (used in) investing activities - continuing operations			58,615				3,779				(1,068,528	)
Cash flows from financing activities
Net borrowings (repayments) under bank credit facility			(1,693,750)				(1,115,375)				727,750
Proceeds from issuance of bridge loan facility			1,304,625				—				—
Proceeds from issuance of debt			1,550,000				750,000				—
Deferred financing costs			(20,653	)			(9,983	)			(17,490	)
Repayment of assumed debt and bridge facilities			—				(245,950	)			—
Proceeds from issuance of OP units by MGP			524,616				1,250,006				—
Redemption of OP units			(1,400,000	)			—				—
Distributions paid			(601,719	)			(533,735	)			(454,260	)
Other			(1,151	)			(1,342	)			—
Net cash provided by (used in) financing activities - continuing operations			(338,032	)			93,621				256,000
Cash flows from discontinued operations, net
Cash flows provided by operating activities, net			—				15,591				23,406
Cash flows provided by (used in) investing activities, net			—				(12	)			32,416
Cash flows used in financing activities, net			—				(37,900	)			—
Net cash provided by (used in) discontinued operations			—				(22,321	)			55,822
Change in cash and cash equivalents classified as assets held for sale			—				(22,321	)			55,822
Cash and cash equivalents
Net increase (decrease) for the period			424,284				198,106				(255,727	)
Balance, beginning of period			202,101				3,995				259,722
Balance, end of period		$	626,385			$	202,101			$	3,995
Supplemental cash flow disclosures
Interest paid		$	203,168			$	220,616			$	199,429
Non-cash investing and financing activities
Accrual of dividend and distribution payable to Class A shareholders and Operating Partnership unit holders		$	136,484			$	147,349			$	119,055
Non-Normal Tenant Improvements by tenant		$	—			$	—			$	19,316
Empire City Transaction assets acquired		$	—			$	625,000			$	—
Redemption of Operating Partnership units relating to Northfield OpCo Transaction		$	—			$	301,373			$	—
Investment in MGP BREIT Venture		$	802,000			$	—			$	—
MGP BREIT Venture assumption of bridge loan facility		$	1,304,625			$	—			$	—

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

 

17