MGM Growth Properties LLC - FORM 10-Q

Attached files

file	filename
EX-32.4 - EXHIBIT 32.4 - MGM Growth Properties LLC	mgp6302017ex-324.htm
EX-32.3 - EXHIBIT 32.3 - MGM Growth Properties LLC	mgp6302017ex-323.htm
EX-32.2 - EXHIBIT 32.2 - MGM Growth Properties LLC	mgp6302017ex-322.htm
EX-32.1 - EXHIBIT 32.1 - MGM Growth Properties LLC	mgp6302017ex-321.htm
EX-31.4 - EXHIBIT 31.4 - MGM Growth Properties LLC	mgp6302017ex-314.htm
EX-31.3 - EXHIBIT 31.3 - MGM Growth Properties LLC	mgp6302017ex-313.htm
EX-31.2 - EXHIBIT 31.2 - MGM Growth Properties LLC	mgp6302017ex-312.htm
EX-31.1 - EXHIBIT 31.1 - MGM Growth Properties LLC	mgp6302017ex-311.htm

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-37733 (MGM Growth Properties LLC)

Commission File No. 333-215571 (MGM Growth Properties Operating Properties LP)

MGM Growth Properties LLC

MGM Growth Properties Operating Partnership LP

(Exact name of registrant as specified in its charter)



DELAWARE (MGM Growth Properties LLC) DELAWARE (MGM Growth Properties Operating Partnership LP)	47-5513237 81-1162318
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6385 S. Rainbow Blvd., Suite 500, Las Vegas, Nevada

(Address of principal executive offices)

(702) 669-1480

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

MGM Growth Properties LLC Yes X No

MGM Growth Properties Operating Partnership LP Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):

MGM Growth Properties LLC Yes X No

MGM Growth Properties Operating Partnership LP Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

MGM Growth Properties LLC



Large accelerated filer	Accelerated filer	Non-accelerated filer X	Small reporting company	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. ___

MGM Growth Properties Operating Partnership LP



Large accelerated filer	Accelerated filer	Non-accelerated filer X	Small reporting company	Emerging growth company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act):

MGM Growth Properties LLC Yes No X

MGM Growth Properties Operating Partnership LP Yes No X

As of August 3, 2017, 57,671,795 shares of MGM Growth Properties LLC Class A shares, no par value, and 1 share of MGM Growth Properties LLC Class B share, no par value were outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2017, of MGM Growth Properties LLC, a Delaware limited liability corporation, and MGM Growth Properties Operating Partnership LP, a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “MGP” or “the Company” refer to MGM Growth Properties LLC together with its consolidated subsidiaries, including MGM Growth Properties Operating Partnership LP. Unless otherwise indicated or unless the context requires otherwise, all references to the “Operating Partnership” refer to MGM Growth Properties Operating Partnership LP together with its consolidated subsidiaries.

MGP is a real estate investment trust, or REIT, and the owner of the sole general partner of the Operating Partnership. As of June 30, 2017, MGP owned approximately 23.7% of the Operating Partnership units in the Operating Partnership. The remaining approximately 76.3% of the Operating Partnership units in the Operating Partnership are owned by subsidiaries of our parent, MGM Resorts International (“MGM”). As the owner of the sole general partner of the Operating Partnership, MGP has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control.

We believe combining the quarterly reports on Form 10-Q of MGP and the Operating Partnership into this single report results in the following benefits:


•	enhances investors’ understanding of MGP and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both MGP and the Operating Partnership, which we believe will assist investors in getting all relevant information on their investment in one place rather than having to access and review largely duplicative reports; and


•	creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are a few differences between MGP and the Operating Partnership, which are reflected in the disclosures in this report. We believe it is important to understand the differences between MGP and the Operating Partnership in the context of how we operate as an interrelated consolidated company. MGP is a REIT, whose only material assets consist of Operating Partnership units representing limited partner interests in the Operating Partnership and our ownership interest in the general partner of the Operating Partnership. As a result, MGP does not conduct business itself, other than acting as the owner of the sole general partner of the Operating Partnership, but it may from time to time issue additional public equity. The Operating Partnership holds all the assets of the Company. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from the initial public offering of Class A shares by MGP, which were contributed to the Operating Partnership in exchange for Operating Partnership units, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations and by the Operating Partnership’s issuance of indebtedness or through the issuance of Operating Partnership units.

The presentation of noncontrolling interest, shareholders’ equity and partners’ capital are the main areas of difference between the combined and consolidated financial statements of MGP and those of the Operating Partnership. The Operating Partnership units held by subsidiaries of MGM are accounted for as partners’ capital in the Operating Partnership’s combined and consolidated financial statements and as noncontrolling interest within equity in MGP’s combined and consolidated financial statements. The Operating Partnership units held by MGP in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s combined and consolidated financial statements and within Class A shareholders’ equity in MGP’s combined and consolidated financial statements. The differences in the presentations between shareholders’ equity and partners’ capital result from the differences in the equity issued at the MGP and Operating Partnership levels.

To help investors understand the significant differences between MGP and the Operating Partnership, this report presents the combined and consolidated financial statements separately for MGP and the Operating Partnership.

As the sole beneficial owner of MGM Growth Properties OP GP LLC, which is the sole general partner with control of the Operating Partnership, MGP consolidates the Operating Partnership for financial reporting purposes, and it does not have any assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of MGP and the Operating Partnership are the same on their respective combined and consolidated financial statements. The separate discussions of MGP and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a combined and consolidated basis and how management operates the Company.

In order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and 18 U.S.C. §1350, this report also includes separate “Item 4. Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership.

All other sections of this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, are presented together for MGP and the Operating Partnership.

MGM GROWTH PROPERTIES LLC

FORM 10-Q

I N D E X



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	MGM Growth Properties LLC:
	Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016	1
	Condensed Combined and Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and June 30, 2016	2
	Condensed Combined and Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and June 30, 2016	3
	Condensed Combined and Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2017 and June 30, 2016	4
	MGM Growth Properties Operating Partnership LP:
	Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016	5
	Condensed Combined and Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and June 30, 2016	6
	Condensed Combined and Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and June 30, 2016	7
	Condensed Combined and Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2017 and June 30, 2016	8
	Condensed Notes to Condensed Combined and Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
SIGNATURES		41

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MGM GROWTH PROPERTIES LLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)



	June 30, 2017			December 31, 2016
ASSETS
Real estate investments, net	$	8,957,622		$	9,079,678
Cash and cash equivalents	376,842			360,492
Tenant and other receivables, net	4,166			9,503
Prepaid expenses and other assets	8,819			10,906
Above market lease, asset	45,374			46,161
Total assets	$	9,392,823		$	9,506,740

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Debt, net	$	3,601,214		$	3,621,942
Due to MGM Resorts International and affiliates	233			166
Accounts payable, accrued expenses and other liabilities	8,829			10,478
Above market lease, liability	47,513			47,957
Accrued interest	17,580			26,137
Dividend payable	95,995			94,109
Deferred revenue	88,747			72,322
Deferred income taxes, net	25,368			25,368
Total liabilities	3,885,479			3,898,479
Commitments and contingencies (Note 12)
Shareholders’ equity
Class A shares: no par value, authorized 1,000,000,000 shares, issued and outstanding 57,664,149 and 57,500,000 shares	—			—
Additional paid-in capital	1,370,370			1,363,130
Accumulated deficit	(56,914		)	(29,758		)
Accumulated other comprehensive income (loss)	(680		)	445
Total Class A shareholders’ equity	1,312,776			1,333,817
Noncontrolling interest	4,194,568			4,274,444
Total shareholders’ equity	5,507,344			5,608,261
Total liabilities and shareholders’ equity	$	9,392,823		$	9,506,740

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

MGM GROWTH PROPERTIES LLC

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues
Rental revenue	$	163,177		$	101,253		$	326,354		$	101,253
Tenant reimbursements and other	21,279			9,650			42,001			9,650
	184,456			110,903			368,355			110,903
Expenses
Depreciation	60,227			53,123			121,911			104,600
Property transactions, net	10,587			335			17,442			1,209
Property taxes	20,642			13,305			41,129			26,541
Property insurance	—			559			—			2,943
Amortization of above market lease, net	172			—			343			—
Acquisition-related expenses	—			599			—			599
General and administrative	2,661			3,789			5,341			3,789
	94,289			71,710			186,166			139,681
Operating income (loss)	90,167			39,193			182,189			(28,778		)
Non-operating income (expense)
Interest income	881			—			1,559			—
Interest expense	(44,818		)	(29,475		)	(89,454		)	(29,475		)
Other non-operating	(1,178		)	(72		)	(1,312		)	(72		)
	(45,115		)	(29,547		)	(89,207		)	(29,547		)
Income (loss) before income taxes	45,052			9,646			92,982			(58,325		)
Provision for income taxes	(1,177		)	—			(2,415		)	—
Net income (loss)	43,875			9,646			90,567			(58,325		)
Less: Net (income) loss attributable to noncontrolling interest	(33,195		)	(2,693		)	(68,539		)	65,278
Net income attributable to Class A shareholders	$	10,680		$	6,953		$	22,028		$	6,953

Weighted average Class A shares outstanding:
Basic	57,687,558			57,500,000			57,596,223			57,500,000
Diluted	57,854,088			57,739,166			57,818,511			57,739,166

Net income per Class A share (basic)	$	0.19		$	0.12		$	0.38		$	0.12
Net income per Class A share (diluted)	$	0.18		$	0.12		$	0.38		$	0.12

Dividends declared per Class A share	$	0.3950		$	0.2632		$	0.7825		$	0.2632

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

MGM GROWTH PROPERTIES LLC

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income (loss)	$	43,875		$	9,646		$	90,567		$	(58,325	)
Other comprehensive loss
Unrealized loss on cash flow hedges, net	(4,112		)	—			(4,746		)	—
Other comprehensive loss	(4,112		)	—			(4,746		)	—
Comprehensive income (loss)	39,763			9,646			85,821			(58,325		)
Less: Comprehensive income attributable to noncontrolling interests	(30,058		)	(2,693		)	(64,918		)	65,278
Comprehensive income (loss) attributable to Class A shareholders	$	9,705		$	6,953		$	20,903		$	6,953

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

MGM GROWTH PROPERTIES LLC

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities
Net income (loss)	$	90,567		$	(58,325	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	121,911			104,600
Property transactions, net	17,442			1,209
Amortization and write-off of deferred financing costs and debt discount	6,421			1,714
Amortization related to above market lease, net	343			—
Provision for income taxes	2,415			—
Amortization of deferred revenue	(872		)	—
Straight-line rental revenues	1,571			(420		)
Share-based compensation	550			142
Changes in operating assets and liabilities:
Tenant and other receivables, net	5,337			(4,273		)
Prepaid expenses and other assets	(5,229		)	4,464
Due to MGM Resorts International and affiliates	67			465
Accounts payable, accrued expenses and other liabilities	(1,248		)	849
Accrued interest	(8,557		)	11,888
Net cash provided by (used in) operating activities	230,718			62,313
Cash flows from investing activities
Capital expenditures for property and equipment funded by Parent	—			(138,987		)
Net cash used in investing activities	—			(138,987		)
Cash flows from financing activities
Proceeds from issuance of debt	—			3,200,000
Deferred financing costs	(1,024		)	(68,207		)
Repayment of bridge facilities	—			(4,000,000		)
Repayment of debt principal	(25,125		)	(8,375		)
Issuance of Class A shares	—			1,207,500
Class A share issuance costs	—			(75,032		)
Dividends and distributions paid	(188,219		)	—
Net cash transfers from Parent	—			158,822
Net cash (used in) provided by financing activities	(214,368		)	414,708
Cash and cash equivalents
Net increase for the period	16,350			338,034
Balance, beginning of period	360,492			—
Balance, end of period	$	376,842		$	338,034
Supplemental cash flow disclosures
Interest paid	$	92,301		$	15,873
Non-cash investing and financing activities
Non-Normal Tenant Improvements by Tenant	$	17,297		$	20,889
Accrual of dividends and distributions payable to Class A shareholders and Operating Partnership unit holders	$	95,995		$	56,720

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

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)

(unaudited)



	June 30, 2017		December 31, 2016
ASSETS
Real estate investments, net	$	8,957,622	$	9,079,678
Cash and cash equivalents	376,842		360,492
Tenant and other receivables, net	4,166		9,503
Prepaid expenses and other assets	8,819		10,906
Above market lease, asset	45,374		46,161
Total assets	$	9,392,823	$	9,506,740

LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Debt, net	$	3,601,214	$	3,621,942
Due to MGM Resorts International and affiliates	233		166
Accounts payable, accrued expenses and other liabilities	8,829		10,478
Above market lease, liability	47,513		47,957
Accrued interest	17,580		26,137
Dividend payable	95,995		94,109
Deferred revenue	88,747		72,322
Deferred income taxes, net	25,368		25,368
Total liabilities	3,885,479		3,898,479
Commitments and contingencies (Note 12)
Partners' capital
General partner	—		—
Limited partners: issued and outstanding 243,026,285 and 242,862,136 Operating Partnership units	5,507,344		5,608,261
Total partners' capital	5,507,344		5,608,261
Total liabilities and partners’ capital	$	9,392,823	$	9,506,740

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

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except unit and per unit amounts)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues
Rental revenue	$	163,177		$	101,253		$	326,354		$	101,253
Tenant reimbursements and other	21,279			9,650			42,001			9,650
	184,456			110,903			368,355			110,903
Expenses
Depreciation	60,227			53,123			121,911			104,600
Property transactions, net	10,587			335			17,442			1,209
Property taxes	20,642			13,305			41,129			26,541
Property insurance	—			559			—			2,943
Amortization of above market lease, net	172			—			343			—
Acquisition-related expenses	—			599			—			599
General and administrative	2,661			3,789			5,341			3,789
	94,289			71,710			186,166			139,681
Operating income (loss)	90,167			39,193			182,189			(28,778		)
Non-operating income (expense)
Interest income	881			—			1,559			—
Interest expense	(44,818		)	(29,475		)	(89,454		)	(29,475		)
Other non-operating	(1,178		)	(72		)	(1,312		)	(72		)
	(45,115		)	(29,547		)	(89,207		)	(29,547		)
Income (loss) before income taxes	45,052			9,646			92,982			(58,325		)
Provision for income taxes	(1,177		)	—			(2,415		)	—
Net income (loss)	43,875			9,646			90,567			(58,325		)

Weighted average Operating Partnership units outstanding:
Basic	243,049,694			215,500,000			242,958,359			215,500,000
Diluted	243,216,224			215,739,166			243,180,647			215,739,166

Net income per Operating Partnership unit (basic)	$	0.18		$	0.12		$	0.37		$	0.12
Net income per Operating Partnership unit (diluted)	$	0.18		$	0.12		$	0.37		$	0.12

Distributions declared per Operating Partnership unit	$	0.3950		$	0.2632		$	0.7825		$	0.2632

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

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Net income (loss)	$	43,875		$	9,646	$	90,567		$	(58,325	)
Unrealized loss on cash flow hedges, net	(4,112		)	—		(4,746		)	—
Comprehensive income (loss)	$	39,763		$	9,646	$	85,821		$	(58,325	)

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

MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP

CONDENSED COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six Months Ended June 30,
	2017			2016
Cash flows from operating activities
Net income (loss)	$	90,567		$	(58,325	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	121,911			104,600
Property transactions, net	17,442			1,209
Amortization and write-off of deferred financing costs and debt discount	6,421			1,714
Amortization related to above market lease, net	343			—
Provision for income taxes	2,415			—
Amortization of deferred revenue	(872		)	—
Straight-line rental revenues	1,571			(420		)
Share-based compensation	550			142
Changes in operating assets and liabilities:
Tenant and other receivables, net	5,337			(4,273		)
Prepaid expenses and other assets	(5,229		)	4,464
Due to MGM Resorts International and affiliates	67			465
Accounts payable, accrued expenses and other liabilities	(1,248		)	849
Accrued interest	(8,557		)	11,888
Net cash provided by (used in) operating activities	230,718			62,313
Cash flows from investing activities
Capital expenditures for property and equipment funded by Parent	—			(138,987		)
Net cash used in investing activities	—			(138,987		)
Cash flows from financing activities
Proceeds from issuance of debt	—			3,200,000
Deferred financing costs	(1,024		)	(68,207		)
Repayment of bridge facilities	—			(4,000,000		)
Repayment of debt principal	(25,125		)	(8,375		)
Proceeds from purchase of operating partnership units by MGP	—			1,132,468
Distributions paid	(188,219		)	—
Net cash transfers from Parent	—			158,822
Net cash (used in) provided by financing activities	(214,368		)	414,708
Cash and cash equivalents
Net increase for the period	16,350			338,034
Balance, beginning of period	360,492			—
Balance, end of period	$	376,842		$	338,034
Supplemental cash flow disclosures
Interest paid	$	92,301		$	15,873
Non-cash investing and financing activities
Non-Normal Tenant Improvements by Tenant	$	17,297		$	20,889
Accrual of distributions payable to Operating Partnership unit holders	$	95,995		$	56,720

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

MGM GROWTH PROPERTIES LLC AND MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP CONDENSED NOTES TO CONDENSED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — BUSINESS

Organization. MGM Growth Properties LLC (“MGP” or the “Company”) is a limited liability company that was organized in Delaware on October 23, 2015. MGP conducts its operations through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”), a Delaware limited partnership that was formed on January 6, 2016 and acquired by MGP on April 25, 2016 (the “IPO Date”) in connection with MGP's Formation Transactions (defined below), including its initial public offering of Class A shares as discussed further below. When the Company files its initial federal income tax return for its taxable year ended December 31, 2016 in 2017, it intends to make an election to be treated as a real estate investment trust ("REIT").

MGM Resorts International (“MGM” or the “Parent”) is a Delaware corporation that acts largely as a holding company and, through its subsidiaries, owns and operates large-scale destination entertainment and leisure resorts. Prior to the IPO Date, the real estate assets of The Mirage, Mandalay Bay, Luxor, New York-New York, Monte Carlo, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit and Beau Rivage (collectively, the “IPO Properties”), which comprised the Company’s real estate investments prior to the acquisition of Borgata (as defined below), were owned and operated by MGM. On the IPO Date, MGM engaged in a series of transactions (the “Formation Transactions”) in which subsidiaries of MGM transferred the IPO Properties to newly formed subsidiaries and subsequently transferred 100% ownership interest in such subsidiaries to the Operating Partnership pursuant to a Master Contribution Agreement (the “MCA”) in exchange for Operating Partnership units representing limited partner interests in the Operating Partnership and the assumption by the Operating Partnership of $4 billion of indebtedness from the contributing MGM subsidiaries.

On the IPO Date, MGP completed the initial public offering of 57,500,000 of its Class A shares representing limited liability company interests at an initial offering price of $21.00 per share, inclusive of the full exercise by the underwriters of their option to purchase 7,500,000 Class A shares. MGP contributed the proceeds from its initial public offering to the Operating Partnership in exchange for 26.7% of the Operating Partnership units and the general partner interest in the Operating Partnership. Certain subsidiaries of MGM acquired the remaining 73.3% of the outstanding Operating Partnership units on such date. MGM retained ownership of MGP’s outstanding Class B share. The Class B share is a non-economic interest in MGP which does not provide its holder any rights to profits or losses or any rights to receive distributions from the operations of MGP or upon liquidation or winding up of MGP but which represents a majority of the voting power of MGP’s shares. As a result, MGP continues to be controlled by MGM through its majority voting rights, and is consolidated by MGM.

As of June 30, 2017, MGM owned 76.3% of the Operating Partnership units in the Operating Partnership. MGP owned the remaining 23.7% of the Operating Partnership units in the Operating Partnership. MGM’s Operating Partnership units are exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the fair value of a Class A share. The determination of settlement method is at the option of MGP’s independent conflicts committee. MGM’s indirect ownership of these Operating Partnership units is recognized as a noncontrolling interest in MGP’s financial statements. A wholly owned subsidiary of MGP is the general partner of the Operating Partnership and operates and controls all of its business affairs. As a result, MGP consolidates the Operating Partnership and its subsidiaries.

The Company is a publicly traded REIT primarily engaged through its investment in the Operating Partnership in the real property business, which consists of owning, acquiring and leasing large-scale destination entertainment and leisure resorts, whose tenants generally offer casino gaming, hotel, convention, dining, entertainment and retail. A wholly owned subsidiary of the Operating Partnership (the “Landlord”) leases all of its real estate properties back to a wholly owned subsidiary of MGM (the “Tenant”) under a master lease agreement (the “Master Lease”).

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The accompanying condensed combined and consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included.

For periods prior to the IPO Date, the accompanying condensed combined and consolidated financial statements of MGP represent the IPO Properties, which were controlled by MGM, and have been determined to be MGP’s Predecessor for accounting purposes (the “Predecessor”). The accompanying condensed combined and consolidated financial statements include Predecessor financial statements that have been “carved out” of MGM’s consolidated financial statements and reflect significant assumptions and allocations. The financial statements do not fully reflect what the Predecessor’s results of operations, financial position and cash flows would have been if the Predecessor had been a stand-alone company during the periods presented. As a result, historical financial information is not necessarily indicative of MGP’s future results of operations, financial position and cash flows.

For periods subsequent to the IPO Date, the accompanying combined and consolidated financial statements of MGP represent the results of operations, financial positions and cash flows of MGP and the Operating Partnership, including their respective subsidiaries. The accompanying combined and consolidated financial statements of the Operating Partnership represent the results of operation, financial positions, and cash flows of the Operating Partnership including its subsidiaries.

The accompanying condensed combined and consolidated financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K.

Principles of consolidation. The Company identifies entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. The condensed combined and consolidated financial statements include the accounts of the Operating Partnership, a VIE of which the Company is the primary beneficiary, as well as its wholly owned and majority-owned subsidiaries. The Company’s maximum exposure to loss is the carrying value of the assets and liabilities of the Operating Partnership, which represents all of the Company’s assets and liabilities. As the Company holds what is deemed a majority voting interest in the Operating Partnership through its ownership of the Operating Partnership’s sole general partner, it qualifies for the exemption from providing certain of the required disclosures associated with investments in VIEs.

For entities not determined to be VIEs, the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Company records a noncontrolling interest on the condensed consolidated balance sheets. All intercompany balances and transactions are eliminated in consolidation.

Noncontrolling interest. The Company presents noncontrolling interest and classifies such interest as a component of consolidated shareholders’ equity, separate from the Company’s Class A shareholders’ equity. Noncontrolling interest in the Company represents Operating Partnership units currently held by subsidiaries of MGM. Net income or loss of the Operating Partnership is allocated to its noncontrolling interest based on the noncontrolling interest’s ownership percentage in the Operating Partnership except for income tax expenses. Ownership percentage is calculated by dividing the number of Operating Partnership units held by the noncontrolling interest by the total Operating Partnership units held by the noncontrolling interest and the Company. Issuance of additional Class A shares and Operating Partnership units changes the ownership interests of both the noncontrolling interest and the Company. Such transactions and the related proceeds are treated as capital transactions.

MGM may tender its Operating Partnership units for redemption by the Operating Partnership in exchange for cash equal to the market price of MGP’s Class A shares at the time of redemption or for unregistered Class A shares on a one-for-one basis. Such selection to pay cash or issue Class A shares to satisfy an Operating Partnership unitholder’s redemption request is solely within the control of MGP’s independent conflicts committee.

Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s most significant assumptions and estimates relate to the useful lives of real estate assets,

real estate impairment assessments. These estimates are based on historical experience and other assumptions which management believes are reasonable under the circumstances. Management evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from these estimates.

Real estate investments. Real estate investments nconsist of land, buildings, improvements and integral equipment. Because the Formation Transactions and the Borgata Transaction (as defined below) represent transactions between entities under common control, such real estate was initially recorded by the Company at MGM’s historical cost basis, less accumulated depreciation (i.e., there was no change in the basis of the contributed assets), as of the IPO Date and the date of the consummation of the Borgata Transaction, respectively. Costs of maintenance and repairs to real estate investments are the responsibility of the Tenant under the Master Lease.

Although the Tenant is responsible for all capital expenditures during the term of the Master Lease, if, in the future, a deconsolidation event occurs, the Company will be required to pay the Tenant, should the Tenant so elect, for certain capital improvements that would not constitute “normal tenant improvements” in accordance with U.S. GAAP (“Non-Normal Tenant Improvements”), subject to an initial cap of $100 million in the first year of the Master Lease increasing annually by $75 million each year thereafter. The Company will be entitled to receive additional rent based on the 10-year Treasury yield plus 600 basis points multiplied by the value of the new capital improvements the Company is required to pay for in connection with a deconsolidation event and such capital improvements will be subject to the terms of the Master Lease. Examples of Non-Normal Tenant Improvements include the costs of structural elements at the properties, including capital improvements that expand the footprint or square footage of any of the properties or extend the useful life of the properties, as well as equipment that would be a necessary improvement at any of the properties, including initial installation of elevators, air conditioning systems or electrical wiring. Such Non-Normal Tenant Improvements are capitalized and depreciated over the asset’s remaining life. Non-Normal Tenant Improvements were $89.7 million as of June 30, 2017.

In accordance with accounting standards governing the impairment or disposal of long-lived assets, the carrying value of long-lived assets, including land, buildings and improvements, land improvements and integral equipment is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets. Factors that could result in an impairment review include, but are not limited to, a current period cash flow loss combined with a history of cash flow losses, current cash flows that may be insufficient to recover the investment in the property over the remaining useful life, a projection that demonstrates continuing losses associated with the use of a long-lived asset, significant changes in the manner of use of the assets or significant changes in business strategies. If such circumstances arise, the Company uses an estimate of the undiscounted value of expected future operating cash flows to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows plus net proceeds expected from disposition of the asset (if any) are less than the carrying amount of the assets, the resulting impairment charge to be recorded is calculated based on the excess of the carrying value of the assets over the fair value of such assets, with the fair value determined based on an estimate of discounted future cash flows, appraisals or other valuation techniques. There were no impairment charges related to long-lived assets recognized during the three and six months ended June 30, 2017 or 2016.

Cash and cash equivalents. Cash and cash equivalents include investments and interest bearing instruments with maturities of 90 days or less at the date of acquisition. Such investments are carried at cost, which approximates market value.

Deferred revenue. The Company receives nonmonetary consideration related to Non-Normal Tenant Improvements as they automatically become MGP’s property, and recognizes the cost basis of Non-Normal Tenant Improvements as real estate investments and deferred revenue. The Company depreciates the real estate investments over their estimated useful lives and amortizes the deferred revenue as additional rental revenue over the remaining term of the Master Lease once the related real estate assets are placed in service.

Revenue recognition. Rental revenue under the Master Lease is recognized on a straight-line basis over the non-cancelable term and reasonably assured renewal periods, which includes the initial lease term of 10 years and all four additional five-year terms under the Master Lease, for all contractual revenues that are determined to be fixed and measurable. The difference between such rental revenue earned and the cash rent due under the provisions of the Master Lease is recorded as deferred rent receivable and included as a component of prepaid expenses and other assets, or as deferred revenue if cash rent due exceeds rental revenue earned.

Property tax reimbursements from Tenant arise from the triple-net structure of the Master Lease which provides for the recovery of property taxes, which are paid by the Company on behalf of the Tenant. This revenue is recognized in the same periods as the expense is incurred.

Depreciation and property transactions. Depreciation expense is recognized over the useful lives of real estate applying the straight-line method. Useful lives are periodically reviewed. Leased real estate and leasehold improvements are depreciated on a straight-line basis over the following estimated useful lives:



Buildings and building improvements	20 to 40 years
Land improvements	10 to 20 years
Fixtures and integral equipment	3 to 20 years

Property transactions, net are comprised of transactions related to long-lived assets, such as normal losses on the disposition of assets.

General and administrative. General and administrative expenses include the salaries and benefits of employees and external consulting costs. In addition, pursuant to a corporate services agreement entered into on the IPO Date between the Operating Partnership and MGM (the “Corporate Services Agreement”), MGM provides the Operating Partnership and its subsidiaries with financial, administrative and operational support services, including accounting and finance support, human resources support, legal and regulatory compliance support, insurance advisory services, internal audit services, governmental affairs monitoring and reporting services, information technology support, construction services and various other support services. MGM is reimbursed for all costs it incurs directly related to providing the services thereunder. The Operating Partnership incurred expenses pursuant to the Corporate Services Agreement for the three and six month period ending June 30, 2017 of $0.4 million and $0.8 million, respectively. The Operating Partnership incurred expenses pursuant to the Corporate Services Agreement from the IPO Date through June 30, 2016 of $0.3 million.

Share-based compensation. The Company recognizes share-based compensation awards as compensation expense and includes such expense within general and administrative expense in the condensed combined and consolidated statement of operations. Compensation expense, net of estimated forfeitures, for restricted share unit awards is based on the fair value of MGP’s Class A shares at the date of grant and is generally recognized ratably over the vesting period. For ratable awards, the Company recognized compensation costs for all grants on a straight-line basis over the requisite service period of the entire award. Compensation expense for performance share unit awards, which have market conditions, is based on a Monte Carlo simulation at the date of grant and is generally recognized ratably over the vesting period.

Income tax provision. For interim income tax reporting the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company’s effective income tax rate was 2.6% and 2.6% for the three and six months ended June 30, 2017, respectively.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company will elect to be treated as a REIT as defined under Section 856(a) of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2016. To qualify as a REIT, the Company must meet certain organizational, income, asset and distribution tests. Accordingly, except as described below, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions of all of its taxable income to its shareholders and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements, including certain asset, income, distribution and share ownership tests. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. The Company distributed 100% of its taxable income in the taxable year ended December 31, 2016 and anticipates that it will do so again in the taxable year ending December 31, 2017. Accordingly, for periods subsequent to the IPO Date, the accompanying condensed combined and consolidated financial statements do not reflect a provision for federal income taxes. However, the Company may still be subject to federal excise tax, as well as certain state and local income and franchise taxes.

The Landlord is required to join in the filing of a New Jersey consolidated corporation business tax return under the New Jersey Casino Control Act and include in such return its income and expenses associated with its New Jersey assets and is thus subject to an entity level tax in New Jersey. Although the consolidated New Jersey return also includes MGM and certain of its

subsidiaries, the Company is required to record New Jersey state income taxes in the accompanying financial statements as if the Landlord was taxed for state purposes on a stand-alone basis. The Company and MGM have entered into a tax sharing agreement providing for an allocation of taxes due in the consolidated New Jersey return. Pursuant to this agreement, the Landlord will only be responsible for New Jersey taxes on any gain that may be realized upon a future sale of the New Jersey assets resulting solely from an appreciation in value of such assets over their value on the date they were contributed to the Landlord by a subsidiary of MGM. MGM is responsible for all other taxes reported in the New Jersey consolidated return. No amounts are due to MGM under the tax sharing agreement as of June 30, 2017. Accordingly, the provision for current taxes and the deferred tax liability in the accompanying financial statements are attributable to noncontrolling interest since the payment of such taxes are the responsibility of MGM.

The Company was included in the consolidated or unitary income tax returns of MGM for all Predecessor periods. In the accompanying financial statements, the Predecessor periods reflect an allocation of income taxes from MGM as if the Predecessor had filed a separate tax return in those periods.

Net income per share. Basic net income per share includes only the weighted average number of Class A shares outstanding during the period. Dilutive net income per share includes the weighted average number of Class A shares and the dilutive effect of share-based compensation awards outstanding during the period, when such awards are dilutive.

Net income per unit. Basic net income per unit includes only the weighted average number of Operating Partnership units outstanding during the period. Dilutive net income per unit includes the weighted average number of Operating Partnership units and the dilutive effect of share-based compensation awards outstanding during the period, when such awards are dilutive.

Deferred financing costs. Deferred financing costs were incurred in connection with the issuance of the term loan facilities, revolving credit facility and senior notes. Costs incurred in connection with term loan facilities and senior notes are capitalized and offset against the carrying amount of the related indebtedness. These costs are amortized over the term of the related indebtedness, and are included in interest expense in the combined and consolidated statement of operations. Costs incurred in connection with the Operating Partnership’s entrance into the revolving credit facility are capitalized as a component of prepaid expenses and other assets. These costs are amortized over the term of the revolving credit facility, and are included in interest expense in the combined and consolidated statement of operations. The Company recognized non-cash interest expense related to the amortization of deferred financing costs of $2.8 million and $5.6 million during the three and six months ended June 30, 2017, respectively.

Derivative financial instruments. The Company accounts for its derivatives in accordance with FASB ASC Topic 815, Derivatives and Hedging, in which all derivative instruments are reflected at fair value as either assets or liabilities. For derivative instruments that are designated and qualify as hedging instruments, the Company records the effective portion of the gain or loss on the hedge instruments as a component of accumulated other comprehensive income. Any ineffective portion of a derivative’s change in fair value is immediately recognized within net income.

Fair value measurements. Fair value measurements are utilized in accounting for testing of long-lived assets for impairment. Fair value of financial and nonfinancial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:

Level 1—Observable inputs for identical instruments such as quoted market prices;

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and

Level 3—Unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including management’s own data.

The fair value of the Company’s cash and cash equivalents, accounts payable and accrued expenses approximate their carrying value because of the short-term nature of these instruments. The principal amount and fair value of other financial instruments are as follows:



	June 30, 2017
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Derivative asset - interest rate swaps	$	442	$	—	$	442	$	—

Liabilities:
Senior secured credit facility:
Senior secured term loan A facility	281,250				281,250
Senior secured term loan B facility	1,826,875				1,826,875
Senior secured revolving credit facility	—				—
$1,050 million 5.625% senior notes, due 2024	1,144,500				1,144,500
$500 million 4.50% senior notes, due 2026	501,875				501,875
Derivative liability - interest rate swaps	3,396				3,396
	$	3,757,896	$	—	$	3,757,896	$	—

The total principal balance of our debt was $3.7 billion at June 30, 2017, with a fair value of $3.8 billion. The estimated fair value was estimated using quoted prices for identical or similar liabilities in markets that are not active for each of the Company’s term loan A facility, term loan B facility, revolving credit facility and senior notes. These fair value measurements are considered Level 2 of the fair value hierarchy. Derivative assets and liabilities are carried at fair value. The fair value of interest rate swaps is determined based on the present value of expected future cash flows using observable, quoted LIBOR swap rates for the full term of the swap. The Company has determined that the majority of the inputs used to value its derivative assets fall within Level 2 of the fair value hierarchy.

Reportable segment. The Company’s real estate properties are similar in that they consist of large-scale destination entertainment and leisure resorts and related offerings, whose tenants generally offer casino gaming, hotel, convention, dining, entertainment and retail, are held by a subsidiary of the Operating Partnership, have similar economic characteristics and are governed under a single Master Lease. As such, the properties are reported as one reportable segment.

Concentrations of credit risk. All of the Company’s real estate properties have been leased to a wholly owned subsidiary of MGM, and all of MGP’s revenues are derived from the Master Lease. MGM is a publicly traded company and is subject to the filing requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and is required to file periodic reports on Form 10-K and Form 10-Q with the SEC. Refer to www.edgar.gov for MGM’s publicly available financial information (which financial information is not incorporated by reference herein). Management does not believe there are any other significant concentrations of credit risk.

Geographical risk. The majority of the Company’s real estate properties are located in Las Vegas, Nevada. Accordingly, future negative trends in local economic activity or natural disasters in this area might have a more significant effect on the Company than a more geographically diversified entity and could have an adverse impact on its financial condition and operating results.

Recently issued accounting standards. In January 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of ASU 2016-09 did not have a material effect on the Company’s financial statements and footnote disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which replaces the existing guidance in FASB ASC Topic 840, Leases. ASU 2016-02 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (“ROU”) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line

total lease expense. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of determining the method of adoption and assessing the impact that adoption of this guidance will have on its financial statements and footnote disclosures.

In August 2015, the FASB issued Accounting Standards Update No. 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”) to the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. Additionally, the new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The adoption of ASU 2015-14 will not have a material impact on the Company's financial statements and footnote disclosures.

NOTE 3 — BORGATA TRANSACTION

On August 1, 2016, MGM completed the acquisition of Boyd Gaming’s ownership interest in Borgata. Concurrently, MGM, MGP, the Operating Partnership, the Landlord and the Tenant completed the transfer of the real estate assets related to Borgata, located at Renaissance Pointe in Atlantic City, New Jersey, from a subsidiary of MGM to the Landlord (the “Borgata Transaction”). A subsidiary of MGM operates Borgata. The real estate assets related to Borgata were leased by the Landlord to the Tenant via an amendment to the Master Lease. As a result, the initial rent under the Master Lease increased by $100 million, $90 million of which relates to the base rent for the initial term and the remaining $10 million of which relates to the percentage rent. Following the closing of the Borgata Transaction, the base rent under the Master Lease increased to $585 million for the initial term and the percentage rent was $65 million, prorated for the remainder of the first lease year after the Borgata Transaction. The consideration that was paid by MGP to a subsidiary of MGM consisted of 27.4 million newly issued Operating Partnership units and the assumption by the Landlord of $545 million of indebtedness from such subsidiary of MGM.

The Borgata Transaction was accounted for as a transaction under common control, and therefore the Company recorded the Borgata real estate assets at their carryover value of $1.3 billion determined by MGM in its purchase price allocation, along with a related deferred tax liability of $25.3 million. In addition, the Company recognized an above market lease liability and an above market lease asset related to ground leases assigned to the Landlord as part of the Borgata Transaction covering approximately 11 acres partially underlying and adjacent to the Borgata. Under the terms of the Master Lease, the Tenant is responsible for the rent payments related to these ground leases during the term of the Master Lease. The Company amortizes the above market lease liability on a straight-line basis over the terms of the underlying ground leases, which extend through 2070. The Company amortizes the above market lease asset on a straight-line basis over the term of the Master Lease, which extends through 2046 (including reasonably assured renewal periods pursuant to the terms of the Master Lease).

NOTE 4 — REAL ESTATE INVESTMENTS

The carrying value of real estate investments is as follows:



	June 30, 2017			December 31, 2016
	(in thousands)
Land	$	4,143,513		$	4,143,513
Buildings, building improvements, land improvements and integral equipment	7,295,748			7,324,657
	11,439,261			11,468,170
Less: Accumulated depreciation	(2,481,639		)	(2,388,492		)
	$	8,957,622		$	9,079,678

NOTE 5 — LEASES

Master Lease. Pursuant to the Master Lease, the Tenant has leased the Company’s real estate properties from the Landlord. The Master Lease is accounted for as an operating lease and has an initial lease term of ten years with the potential to extend the term for four additional five-year terms thereafter at the option of the Tenant. The Master Lease provides that any extension of its term must apply to all of the real estate under the Master Lease at the time of the extension. The Master Lease has a triple-net structure, which requires the Tenant to pay substantially all costs associated with the lease, including real estate taxes, insurance, utilities and routine maintenance, in addition to the base rent. Additionally, the Master Lease provides MGP with a right of first offer with respect to MGM National Harbor and MGM’s development property in Springfield, Massachusetts (the “ROFO Properties”), which MGP may exercise should MGM elect to sell these properties in the future.

Rent under the Master Lease consists of a “base rent” component and a “percentage rent” component. For the first year, the base rent represented 90% of the initial total rent payments due under the Master Lease, or $585 million, and the percentage rent represented 10% of the initial total rent payments due under the Master Lease, or $65 million. The base rent includes a fixed annual rent escalator of 2.0% for the second through the sixth lease years (as defined in the Master Lease). After the sixth lease year, the annual escalator of 2.0% will be subject to the Tenant and, without duplication, the operating subsidiary sublessees of the Tenant (the “Operating Subtenants”), collectively meeting an adjusted net revenue to rent ratio of 6.25:1.00 based on their net revenue from the leased properties subject to the Master Lease (as determined in accordance with U.S. GAAP, adjusted to exclude net revenue attributable to certain scheduled subleases and, at the Tenant’s option, reimbursed cost revenue). The first 2.0% fixed annual rent escalator went into effect on April 1, 2017, resulting in annual rent payments of $661.7 million for the second lease year. The percentage rent will initially be a fixed amount for approximately the first six years and will then be adjusted every five years based on the average actual annual net revenues of the Tenant and, without duplication, the Operating Subtenants, from the leased properties subject to the Master Lease at such time for the trailing five calendar-year period (calculated by multiplying the average annual net revenues, excluding net revenue attributable to certain scheduled subleases and, at the Tenant’s option, reimbursed cost revenue, for the trailing five calendar-year period by 1.4%).

Rental revenues from the Master Lease for the three and six months ended June 30, 2017 were $163.2 million and $326.4 million, respectively. The Company also recognized revenue related to the reimbursement of property taxes paid by the Tenant of $20.6 million and $41.1 million for the three and six months ended June 30, 2017, respectively.

Under the Master Lease, remaining noncancelable minimum rental payments as of June 30, 2017 are as follows:



Year ending December 31,	(in thousands)
2017	$	330,850
2018	670,651
2019	682,764
2020	695,119
2021	707,721
2022	662,137
Thereafter	2,099,134

NOTE 6 — DEBT

Debt consists of the following:



	June 30,			December 31,
	2017			2016
	(in thousands)
Senior secured credit facility:
Senior secured term loan A facility	$	281,250		$	292,500
Senior secured term loan B facility	1,826,875			1,840,750
Senior secured revolving credit facility	—			—
$1,050 million 5.625% senior notes, due 2024	1,050,000			1,050,000
$500 million 4.50% senior notes, due 2026	500,000			500,000
	3,658,125			3,683,250
Less: Unamortized discount and debt issuance costs	(56,911		)	(61,308		)
	$	3,601,214		$	3,621,942

Operating Partnership credit agreement. On the IPO Date, the Operating Partnership entered into a credit agreement, comprised of a $300 million senior secured term loan A facility, a $1.85 billion senior secured term loan B facility and a $600 million senior secured revolving credit facility. The term loan B facility was issued at 99.75% to initial lenders. The term loan facilities are subject to amortization of principal in equal quarterly installments, with 5.0% of the initial aggregate principal amount of the term loan A facility and 1.0% of the initial aggregate principal amount of the term loan B facility to be payable each year. The term loan facilities were recorded at cost net of the original issue discount and related borrowing costs. The related original issue discount and the borrowing costs are amortized over the term of the borrowing. The revolving credit facility is recorded at cost. The borrowing costs were capitalized as a component of prepaid expenses and other assets and are amortized over the term of the credit facility. The revolving credit facility and term loan A facility bear interest at LIBOR plus 2.75% for the first six months, and thereafter the interest rate will be determined by reference to a total net leverage ratio pricing grid which would result in an interest rate of LIBOR plus 2.25% to 2.75%. The term loan B facility initially bore interest at LIBOR plus 3.25% with a LIBOR floor of 0.75%. On October 26, 2016, the Operating Partnership completed a re-pricing at par of its $1.84 billion term loan B facility. As a result of the re-pricing, the term loan B facility bore interest at LIBOR plus 2.75%, with a LIBOR floor of 0.75%. In February 2017, MGP's corporate family rating was upgraded which resulted in the Operating Partnership receiving a further reduction in pricing to LIBOR plus 2.50%, with a LIBOR floor of 0.75%. On May 1, 2017, the Company completed another re-pricing of the Operating Partnership’s term loan B facility. As a result of this re-pricing, the term loan B facility bears interest at LIBOR plus 2.25%, with a LIBOR floor of 0%. The revolving credit facility and the term loan A facility will mature in 2021 and the term loan B facility will mature in 2023. As of June 30, 2017, no amounts were drawn on the revolving credit facility. At June 30, 2017, the interest rate on the term loan A facility was 3.98% and the interest rate on the term loan B facility was 3.48%. See Note 7 for further discussion of the Company's interest rate swap agreements related to the term loan B facility.

The credit agreement contains customary representations and warranties, events of default and positive and negative covenants. These covenants are subject to a number of important exceptions and qualifications, including, with respect to the restricted payments covenant, the ability to make unlimited restricted payments to maintain the REIT status of MGP. The revolving credit facility and term loan A facility also require the Operating Partnership to maintain compliance with a maximum secured net debt to adjusted total asset ratio, a maximum total net debt to adjusted asset ratio and a minimum interest coverage ratio, all of which may restrict the Operating Partnership’s ability to incur additional debt to fund its obligations in the near term. As of June 30, 2017, the Operating Partnership was required to have a senior secured net debt to adjusted total assets ratio of not more than 0.40 to1.00, a total net debt to adjusted total assets ratio of not more than 0.65 to 1.00, and an interest coverage ratio of not less than 2.00 to 1.00. The Operating Partnership was in compliance with its financial covenants at June 30, 2017.

The revolving credit facility and the term loan facilities are both guaranteed by each of the Operating Partnership’s existing and subsequently acquired direct and indirect wholly owned material domestic restricted subsidiaries, and secured by a first priority lien security interest on substantially all of the Operating Partnership’s and such restricted subsidiaries’ material assets, including mortgages on its real estate, subject to customary exclusions.

Operating Partnership senior notes. On April 20, 2016, a wholly owned subsidiary of the Operating Partnership issued $1.05 billion in aggregate principal amount of 5.625% senior notes due 2024 and on the IPO Date, the Operating Partnership entered into a supplemental indenture through which it assumed the obligations under the senior notes from such subsidiary (which

merged into the Operating Partnership on such date). The senior notes will mature on May 1, 2024. Interest on the senior notes is payable on May 1 and November 1 of each year, commencing on November 1, 2016. The senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by all of the Operating Partnership’s subsidiaries that guarantee the Operating Partnership’s credit facilities, other than MGP Finance Co-Issuer, Inc., which is a co-issuer of the senior notes. The Operating Partnership may redeem all or part of the senior notes at a redemption price equal to 100% of the principal amount of the senior notes plus, to the extent the Operating Partnership is redeeming senior notes prior to the date that is three months prior to their maturity date, an applicable make whole premium, plus, in each case, accrued and unpaid interest.

On August 12, 2016, the Operating Partnership issued $500 million in aggregate principal amount of 4.500% senior notes due 2026. The senior notes will mature on September 1, 2026. Interest on the senior notes is payable on March 1 and September 1 of each year, commencing on March 1, 2017. The senior notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by all of the Operating Partnership’s subsidiaries that guarantee the Operating Partnership’s credit facilities, other than MGP Finance Co-Issuer, Inc., which is a co-issuer of the senior notes. The Operating Partnership may redeem all or part of the senior notes at a redemption price equal to 100% of the principal amount of the senior notes plus, to the extent the Operating Partnership is redeeming senior notes prior to the date that is three months prior to their maturity date, an applicable make whole premium, plus, in each case, accrued and unpaid interest.

The indentures governing the senior notes contain customary covenants and events of default. These covenants are subject to a number of important exceptions and qualifications set forth in the applicable indentures governing the senior notes, including, with respect to the restricted payments covenants, the ability to make unlimited restricted payments to maintain the REIT status of MGP.

Maturities of debt. Maturities of the principal amount of the Company’s debt as of June 30, 2017 are as follows:



Year ending December 31,	(in thousands)
2017	$	16,750
2018	33,500
2019	33,500
2020	33,500
2021	247,250
Thereafter	3,293,625
	$	3,658,125

NOTE 7 — DERIVATIVES AND HEDGING ACTIVITIES

The Company uses derivative instruments to mitigate the effects of interest rate volatility inherent in its variable rate debt, which could unfavorably impact our future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes.

The Operating Partnership is party to interest rate swaps to mitigate the interest rate risk inherent in its senior secured term loan B facility. In May 2017 in connection with the term loan B re-pricing, the Company amended its outstanding interest rate swap agreements. Under the amended agreements the Company now pays a weighted average fixed rate of 1.844% on total notional amount of $1.2 billion and the variable rate received will reset monthly to the one-month LIBOR, with no minimum floor.

The principal terms of these interest rate swaps at June 30, 2017 are as follows:



Effective Date	Maturity Date	Notional Amount		Weighted Average Fixed Rate		Fair Value Asset (Liability)
(in thousands, except percentages)
May 3, 2017	November 30, 2021	$	500,000	1.764	%	$	442
May 3, 2017	November 30, 2021	700,000		1.901	%	(3,396		)
		$	1,200,000			$	(2,954	)

As of December 31, 2016, the Company had interest rate swaps with a notional amount of $500 million outstanding with a weighted average fixed rate of 1.825% and a net unrealized gain of $1.9 million.

Interest rate swaps valued in net unrealized gain positions are recognized as asset balances within the prepaid expenses and other assets balance. Interest rate swaps valued in net unrealized loss positions are recognized as liability balances within accounts payable, accrued expenses and other liabilities balance. For the three and six months ended June 30, 2017, the amount recorded in other comprehensive income related to the derivative instruments was a net loss of $4.1 million and $4.7 million, respectively. There was no material ineffective portion of the change in fair value derivatives. During the three and six months ended June 30, 2017, the Company recorded interest expense of $2.6 million and $5.3 million, respectively, related to the swap agreements.

NOTE 8 — SHAREHOLDERS’ EQUITY AND PARTNERS' CAPITAL

MGP shareholders' equity. On the IPO Date, MGP completed the initial public offering of 57,500,000 of its Class A shares representing limited liability company interests. MGM retained ownership of MGP’s single Class B share. The Class B share is a non-economic interest in MGP which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP. MGP’s Class B shareholder is entitled to an amount of votes representing a majority of the total voting power of MGP’s shares. If the holder of the Class B share and its controlled affiliates’ (excluding MGP and its subsidiaries) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership falls below 30%, the Class B share is no longer entitled to any voting rights. To the extent that the Class B share is entitled to majority voting power pursuant to MGP’s operating agreement, MGM may only transfer the Class B share (other than transfers to us and MGM’s controlled affiliates) if and to the extent that such transfer is approved by special approval by an independent conflicts committee, not to be unreasonably withheld. When determining whether to grant such approval, the conflicts committee must take into account the interests of MGP’s Class A shareholders and MGP ahead of the interests of the holder of the Class B share. No par value is attributed to the MGP’s Class A and Class B shares.

Operating Partnership capital. On the IPO Date, MGP contributed the proceeds from its initial public offering to the Operating Partnership in exchange for 26.7% of the outstanding Operating Partnership units in the Company. Certain subsidiaries of MGM also acquired 73.3% of the outstanding Operating Partnership units on the IPO Date. As of August 1, 2016, the date of the Borgata Transaction, MGP’s ownership percentage in the Operating Partnership units was reduced to 23.7% and MGM's indirect ownership percentage increased to 76.3%.

MGP dividends and Operating Partnership distributions. On June 15, 2017, the Operating Partnership announced a cash distribution to holders of Operating Partnership units of $96.0 million or $0.3950 per Operating Partnership unit. MGP concurrently declared a cash dividend for the quarter ended June 30, 2017 of $22.8 million or $0.3950 per Class A share payable to shareholders of record as of June 30, 2017. The distribution and dividend were paid on July 14, 2017.

On March 15, 2017, the Operating Partnership announced a cash distribution to holders of Operating Partnership units of $0.3875 per Operating Partnership unit. The Company’s Board of Directors concurrently declared a cash dividend for the quarter ended March 31, 2017 of $0.3875 per Class A share payable to shareholders of record as of March 31, 2017. The distribution and dividend were paid on April 13, 2017.

Dividends with respect to MGP’s Class A shares are characterized for federal income tax purposes as taxable ordinary dividends, capital gains dividends, non-dividend distributions or a combination thereof.

The following table presents MGP's changes in shareholders' equity for the six months ended June 30, 2017:



	Total Class A Shareholders' Equity			Non-controlling Interest			Total Shareholders’ Equity
	(in thousands)
Balance at January 1, 2017	$	1,333,817		$	4,274,444		$	5,608,261
Net income - January 1, 2017 to June 30, 2017	22,028			68,539			90,567
Other comprehensive loss - cash flow hedges	(1,125		)	(3,621		)	(4,746		)
Share-based compensation	130			420			550
Deemed contribution - tax sharing agreement	—			2,415			2,415
Dividends and distributions declared	(45,059		)	(145,045		)	(190,104		)
Issuance of Class A shares	2,889			(2,889		)	—
Other	96			305			401
Balance at June 30, 2017	$	1,312,776		$	4,194,568		$	5,507,344

The following table presents the Operating Partnership's changes in partners' capital for the six months ended June 30, 2017:



	General Partner		Limited Partner			Total Partners' Capital
	(in thousands)
Balance at January 1, 2017	$	—	$	5,608,261		$	5,608,261
Net income - January 1, 2017 to June 30, 2017	—		90,567			90,567
Share-based compensation	—		550			550
Deemed contribution - tax sharing agreement	—		2,415			2,415
Distributions declared	—		(190,104		)	(190,104		)
Other comprehensive loss - cash flow hedges	—		(4,746		)	(4,746		)
Other	—		401			401
Balance at June 30, 2017	$	—	$	5,507,344		$	5,507,344

NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income includes net income and all other non-shareholder changes in equity, or other comprehensive income. The following table summarizes the changes in accumulated other comprehensive income by component for the six months ended June 30, 2017 (there was no other comprehensive income for the six months ended June 30, 2016):



	Changes in Fair Value of Effective Cash Flow Hedge			Total
	(in thousands)
Balance at December 31, 2016	$	1,879		$	1,879
Other comprehensive income before reclassifications	527			527
Amounts reclassified from accumulated other comprehensive income	(5,273		)	(5,273		)
Net current period other comprehensive loss	(4,746		)	(4,746		)
Balance at June 30, 2017	(2,867		)	(2,867		)
Accumulated other comprehensive (income) loss attributable to noncontrolling interest	2,187			2,187
Accumulated other comprehensive income (loss) attributable to Class A shareholders	$	(680	)	$	(680	)

NOTE 10 — NET INCOME PER CLASS A SHARE

The table below provides net income and the number of Class A shares used in the computations of “basic” net income per share, which utilizes the weighted-average number of Class A shares outstanding without regard to dilutive potential Class A shares, and “diluted” net income per share, which includes all such shares. Net income attributable to Class A shares, weighted average Class A shares outstanding and the effect of dilutive securities outstanding are presented for the three and six months ended June 30, 2017. Net income per share has not been presented for the Class B shareholder as the Class B share is not entitled to any economic rights. The three and six months ended June 30, 2016 reflect the results of operations from MGP from the IPO Date through June 30, 2016.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands, except share and per share amounts)
Basic net income per share
Numerator:
Net income attributable to Class A shares	$	10,680	$	6,953	$	22,028	$	6,953
Denominator:
Basic weighted average Class A shares outstanding	57,687,558		57,500,000		57,596,223		57,500,000
Basic net income per Class A share	$	0.19	$	0.12	$	0.38	$	0.12

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands, except share and per share amounts)
Diluted net income per share
Numerator:
Net income attributable to Class A shares	$	10,680	$	6,953	$	22,028	$	6,953
Denominator:
Basic weighted average Class A shares outstanding	57,687,558		57,500,000		57,596,223		57,500,000
Effect of dilutive shares for diluted net income per Class A share	166,530		239,166		222,288		239,166
Weighted average shares for diluted net income per Class A share	57,854,088		57,739,166		57,818,511		57,739,166
Diluted net income per Class A share	$	0.18	$	0.12	$	0.38	$	0.12

NOTE 11 — NET INCOME PER OPERATING PARTNERSHIP UNIT

The table below provides net income and the number of Operating Partnership units used in the computations of “basic” net income per Operating Partnership unit, which utilizes the weighted-average number of Operating Partnership units outstanding without regard to dilutive potential Operating Partnership units, and “diluted” net income per Operating Partnership units, which includes all such Operating Partnership units. Net income attributable to Operating Partnership units, weighted average Operating Partnership units outstanding and the effect of dilutive securities outstanding are presented for the three and six months ended June 30, 2017 and June 30, 2016. The three and six months ended June 30, 2016 reflects the results of operations from MGP from the IPO Date through June 30, 2016.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands, except share and per share amounts)
Basic net income per Operating Partnership unit
Numerator:
Net income	$	43,875	$	26,058	$	90,567	$	26,058
Denominator:
Basic weighted average Operating Partnership units outstanding	243,049,694		215,500,000		242,958,359		215,500,000
Basic net income per Operating Partnership unit	$	0.18	0.12		$	0.37	$	0.12

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands, except share and per share amounts)
Diluted net income per Operating Partnership unit
Numerator:
Net income	$	43,875	$	26,058	$	90,567	$	26,058
Denominator:
Basic weighted average Operating Partnership units outstanding	243,049,694		215,500,000		242,958,359		215,500,000
Effect of dilutive shares for diluted net income per Operating Partnership unit	166,530		239,166		222,288		239,166
Weighted average shares for diluted net income per Operating Partnership unit	243,216,224		215,739,166		243,180,647		215,739,166
Diluted net income per Operating Partnership unit	$	0.18	$	0.12	$	0.37	$	0.12

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Ground leases. The Company was assigned ground leases in the Borgata Transaction as discussed in Note 3. Such amounts will be paid by the Tenant pursuant to the Master Lease through 2046 (including renewal periods). Estimated minimum lease payments pursuant to the ground leases through 2070 are as follows:



	(in thousands)
Year ending December 31,
2017	$	3,211
2018	6,688
2019	6,688
2020	7,014
2021	7,027
Thereafter	703,516
Total minimum lease payments	$	734,144

Litigation. In the ordinary course of business, from time to time, the Company expects to be subject to legal claims and administrative proceedings, none of which are currently outstanding, which the Company believes could have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations, liquidity or cash flows.

NOTE 13 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Operating Partnership’s senior notes were co-issued by MGP Finance Co-Issuer, Inc., a 100% owned finance subsidiary of the Operating Partnership. Obligations to pay principal and interest on the senior notes are currently guaranteed by all of the Operating Partnership’s subsidiaries, other than MGP Finance Co-Issuer, Inc., each of which is directly or indirectly 100% owned

by the Operating Partnership. Such guarantees are full and unconditional, and joint and several and are subject to release in accordance with the events described below. Separate condensed financial information for the subsidiary guarantors as of June 30, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and June 30, 2016 are presented below.

The guarantee of a subsidiary guarantor will be automatically released upon (i) a sale or other disposition (including by way of consolidation or merger) of the subsidiary guarantor, or the capital stock of the subsidiary guarantor; (ii) the sale or disposition of all or substantially all of the assets of the subsidiary guarantor; (iii) the designation in accordance with the indenture of a subsidiary guarantor as an unrestricted subsidiary; (iv) at such time as such subsidiary guarantor is no longer a subsidiary guarantor or other obligor with respect to any credit facilities or capital markets indebtedness of the Operating Partnership; or (v) defeasance or discharge of the notes.



CONSOLIDATING BALANCE SHEET INFORMATION

	June 30, 2017
	Operating				Guarantor
	Partnership		Co-Issuer		Subsidiaries		Eliminations			Consolidated
	(in thousands)
Real estate investments, net	$	—	$	—	$	8,957,622	$	—		$	8,957,622
Cash and cash equivalents	376,842		—		—		—			376,842
Tenant and other receivables, net	245		—		3,921		—			4,166
Intercompany	552,831		—		—		(552,831		)	—
Prepaid expenses and other assets	8,819		—		—		—			8,819
Investments in subsidiaries	8,288,473		—		—		(8,288,473		)	—
Above market lease, asset	—		—		45,374		—			45,374
	$	9,227,210	$	—	$	9,006,917	$	(8,841,304	)	$	9,392,823
Debt, net	3,601,214		—		—		—			3,601,214
Due to MGM Resorts International and affiliates	—		—		233		—			233
Intercompany	—		—		552,831		(552,831		)	—
Accounts payable, accrued expenses, and other liabilities	5,077		—		3,752		—			8,829
Above market lease, liability	—		—		47,513		—			47,513
Accrued interest	17,580		—		—		—			17,580
Distribution payable	95,995		—		—		—			95,995
Deferred revenue	—		—		88,747		—			88,747
Deferred income taxes, net	—		—		25,368		—			25,368
Total liabilities	3,719,866		—		718,444		(552,831		)	3,885,479
General partner	—		—		—		—			—
Limited partners	5,507,344		—		8,288,473		(8,288,473		)	5,507,344
Total partners' capital	5,507,344		—		8,288,473		(8,288,473		)	5,507,344
Total liabilities and partners' capital	$	9,227,210	$	—	$	9,006,917	$	(8,841,304	)	$	9,392,823



CONSOLIDATING BALANCE SHEET INFORMATION

	December 31, 2016
	Operating				Guarantor
	Partnership		Co-Issuer		Subsidiaries		Eliminations			Consolidated
	(in thousands)
Real estate investments, net	$	—	$	—	$	9,079,678	$	—		$	9,079,678
Cash and cash equivalents	360,492		—		—		—			360,492
Tenant and other receivables, net	2,059		—		7,444		—			9,503
Intercompany	880,823		—		—		(880,823		)	—
Prepaid expenses and other assets	9,167		—		1,739		—			10,906
Investments in subsidiaries	8,100,942		—		—		(8,100,942		)	—
Above market lease, asset	—		—		46,161		—			46,161
	$	9,353,483	$	—	$	9,135,022	$	(8,981,765	)	$	9,506,740
Debt, net	3,621,942		—		—		—			3,621,942
Due to MGM Resorts International and affiliates	—		—		166		—			166
Intercompany	—		—		880,823		(880,823		)	—
Accounts payable, accrued expenses, and other liabilities	3,034		—		7,444		—			10,478
Above market lease, liability	—		—		47,957		—			47,957
Accrued interest	26,137		—		—		—			26,137
Distribution payable	94,109		—		—		—			94,109
Deferred revenue	—		—		72,322		—			72,322
Deferred income taxes, net	—		—		25,368		—			25,368
Total liabilities	3,745,222		—		1,034,080		(880,823		)	3,898,479
General partner	—		—		—		—			—
Limited partners	5,608,261		—		8,100,942		(8,100,942		)	5,608,261
Total partners' capital	5,608,261		—		8,100,942		(8,100,942		)	5,608,261
Total liabilities and partners' capital	$	9,353,483	$	—	$	9,135,022	$	(8,981,765	)	$	9,506,740



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

	Three Months Ended June 30, 2017
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries			Eliminations			Consolidated
	(in thousands)
Revenues
Rental revenue	$	—		$	—	$	163,177		$	—		$	163,177
Tenants reimbursements and other	—			—		21,279			—			21,279
	—			—		184,456			—			184,456
Expenses
Depreciation	—			—		60,227			—			60,227
Property transactions, net	—			—		10,587			—			10,587
Property taxes	—			—		20,642			—			20,642
Amortization of above market lease, net	—			—		172			—			172
General and administrative	2,661			—		—			—			2,661
	2,661			—		91,628			—			94,289
Operating income (loss)	(2,661		)	—		92,828			—			90,167
Equity in earnings of subsidiaries	91,651			—		—			(91,651		)	—
Non-operating expense
Interest income	881			—		—			—			881
Interest expense	(44,818		)	—		—			—			(44,818		)
Other non-operating	(1,178		)	—		—			—			(1,178		)
	(45,115		)	—		—			—			(45,115		)
Income (loss) before income taxes	43,875			—		92,828			(91,651		)	45,052
Provision for income taxes	—			—		(1,177		)	—			(1,177		)
Net income (loss)	$	43,875		$	—	$	91,651		$	(91,651	)	$	43,875

Other comprehensive income (loss)
Net income (loss)	43,875			—		91,651			(91,651		)	43,875
Unrealized loss on cash flow hedges	(4,112		)	—		—			—			(4,112		)
Comprehensive income (loss)	$	39,763		$	—	$	91,651		$	(91,651	)	$	39,763



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

	Six Months Ended June 30, 2017
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries			Eliminations			Consolidated
	(in thousands)
Revenues
Rental revenue	$	—		$	—	$	326,354		$	—		$	326,354
Tenants reimbursements and other	—			—		42,001			—			42,001
	—			—		368,355			—			368,355
Expenses
Depreciation	—			—		121,911			—			121,911
Property transactions, net	—			—		17,442			—			17,442
Property taxes	—			—		41,129			—			41,129
Amortization of above market lease, net	—			—		343			—			343
General and administrative	5,341			—		—			—			5,341
	5,341			—		180,825			—			186,166
Operating income (loss)	(5,341		)	—		187,530			—			182,189
Equity in earnings of subsidiaries	185,115			—		—			(185,115		)	—
Non-operating expense
Interest income	1,559			—		—			—			1,559
Interest expense	(89,454		)	—		—			—			(89,454		)
Other non-operating	(1,312		)	—		—			—			(1,312		)
	(89,207		)	—		—			—			(89,207		)
Income (loss) before income taxes	90,567			—		187,530			(185,115		)	92,982
Provision for income taxes	—			—		(2,415		)	—			(2,415		)
Net income (loss)	$	90,567		$	—	$	185,115		$	(185,115	)	$	90,567

Other comprehensive income (loss)
Net income (loss)	90,567			—		185,115			(185,115		)	90,567
Unrealized loss on cash flow hedges	(4,746		)	—		—			—			(4,746		)
Comprehensive income (loss)	$	85,821		$	—	$	185,115		$	(185,115	)	$	85,821



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

	Three Months Ended June 30, 2016
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries		Eliminations			Consolidated
	(in thousands)
Revenues
Rental revenue	$	—		$	—	$	101,253	$	—		$	101,253
Tenants reimbursements and other	—			—		9,650		—			9,650
	—			—		110,903		—			110,903
Expenses
Depreciation	—			—		53,123		—			53,123
Property transactions, net	—			—		335		—			335
Property taxes	—			—		13,305		—			13,305
Property insurance	—			—		559		—			559
Amortization of above market lease, net	—			—		—		—			—
Acquisition-related expenses	599			—		—		—			599
General and administrative	3,789			—		—		—			3,789
	4,388			—		67,322		—			71,710
Operating income (loss)	(4,388		)	—		43,581		—			39,193
Equity in earnings of subsidiaries	43,581			—		—		(43,581		)	—
Non-operating expense
Interest expense	(29,475		)	—		—		—			(29,475		)
Other non-operating	(72		)	—		—		—			(72		)
	(29,547		)	—		—		—			(29,547		)
Income (loss) before income taxes	9,646			—		43,581		(43,581		)	9,646
Provision for income taxes	—			—		—		—			—
Net income (loss)	$	9,646		$	—	$	43,581	$	(43,581	)	$	9,646



CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME INFORMATION

	Six Months Ended June 30, 2016
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries			Eliminations		Consolidated
	(in thousands)
Revenues
Rental revenue	$	—		$	—	$	101,253		$	—	$	101,253
Tenants reimbursements and other	—			—		9,650			—		9,650
	—			—		110,903			—		110,903
Expenses
Depreciation	—			—		104,600			—		104,600
Property transactions, net	—			—		1,209			—		1,209
Property taxes	—			—		26,541			—		26,541
Property insurance	—			—		2,943			—		2,943
Amortization of above market lease, net	—			—		—			—		—
Acquisition-related expenses	599			—		—			—		599
General and administrative	3,789			—		—			—		3,789
	4,388			—		135,293			—		139,681
Operating income (loss)	(4,388		)	—		(24,390		)	—		(28,778		)
Equity in earnings of subsidiaries	(24,390		)	—		—			24,390		—
Non-operating expense
Interest expense	(29,475		)	—		—			—		(29,475		)
Other non-operating	(72		)	—		—			—		(72		)
	(29,547		)	—		—			—		(29,547		)
Income (loss) before income taxes	(58,325		)	—		(24,390		)	24,390		(58,325		)
Provision for income taxes	—			—		—			—		—
Net income (loss)	$	(58,325	)	$	—	$	(24,390	)	$	24,390	$	(58,325	)



CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

	Six Months Ended June 30, 2017
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries			Eliminations		Consolidated
	(in thousands)
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	(97,207	)	$	—	$	327,925		$	—	$	230,718
Cash flows from investing activities
Net cash used in investing activities	—			—		—			—		—
Cash flows from financing activities
Deferred financing costs	(1,024		)	—		—			—		(1,024		)
Repayment of debt principal	(25,125		)	—		—			—		(25,125		)
Distributions paid	(188,219		)	—		—			—		(188,219		)
Cash received by Parent on behalf of Guarantor Subsidiaries	327,925			—		(327,925		)	—		—
Net cash provided by (used in) financing activities	113,557			—		(327,925		)	—		(214,368		)
Cash and cash equivalents
Net increase for the period	16,350			—		—			—		16,350
Balance, beginning of period	360,492			—		—			—		360,492
Balance, end of period	$	376,842		$	—	$	—		$	—	$	376,842



CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

	Six Months Ended June 30, 2016
	Operating					Guarantor
	Partnership			Co-Issuer		Subsidiaries			Eliminations		Consolidated
	(in thousands)
Cash flows from operating activities
Net cash provided by (used in) operating activities	$	(38,520	)	$	—	$	100,833		$	—	$	62,313
Cash flows from investing activities
Capital expenditures for property and equipment funded by Parent	(138,987		)	—		—			—		(138,987		)
Net cash used in investing activities	(138,987		)	—		—			—		(138,987		)
Cash flows from financing activities
Proceeds from issuance of debt	3,200,000			—		—			—		3,200,000
Deferred financing costs	(68,207		)	—		—			—		(68,207		)
Repayment of bridge facilities	(4,000,000		)	—		—			—		(4,000,000		)
Repayment of debt principal	(8,375		)	—		—			—		(8,375		)
Proceeds from purchase of operating partnership units by MGP	1,132,468			—		—			—		1,132,468
Cash received by Parent on behalf of Guarantor Subsidiaries	259,655			—		(100,833		)	—		158,822
Net cash provided by (used in) financing activities	515,541			—		(100,833		)	—		414,708
Cash and cash equivalents
Net increase for the period	338,034			—		—			—		338,034
Balance, beginning of period	—			—		—			—		—
Balance, end of period	$	338,034		$	—	$	—		$	—	$	338,034

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2016, which were included in our annual report on Form 10-K, filed with the SEC on March 6, 2017. For periods prior to April 25, 2016, the historical financial statements have been prepared on a “carve-out” basis from MGM’s consolidated financial statements using the historical results of operations, cash flows, assets and liabilities attributable to the Predecessor. These historical financial statements include allocations of income, expenses, assets and liabilities from MGM that reflect significant assumptions, and the combined and consolidated financial statements for periods prior to the IPO Date do not fully reflect what the financial position, results of operations and cash flows would have been had MGP or the Operating Partnership been a stand-alone company during the periods presented. As a result, historical financial information prior to the IPO Date is not necessarily indicative of the future results of operations, financial position and cash flows of MGP or the Operating Partnership.

Executive Overview

MGP is a limited liability company that was formed in Delaware on October 23, 2015. MGP conducts its operations through the Operating Partnership, a Delaware limited partnership formed by MGM on January 6, 2016, which became a subsidiary of MGP on the IPO Date. When MGP files its initial federal income tax return for its taxable year ended December 31, 2016 in 2017, it intends to make an election to be treated as a REIT.

Following the completion of MGP's initial public offering, it became a publicly traded REIT primarily engaged in the real property business which consists of owning, acquiring and leasing large-scale destination entertainment and leisure resort properties, whose tenants generally offer casino gaming, hotel, convention, dining, entertainment and retail. MGM continued to hold a controlling interest in MGP following the completion of its initial public offering through its ownership of MGP's single Class B share. The Class B share is a non-economic interest in MGP which does not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP but which represents a majority of the voting power of MGP’s shares. In addition, MGM continues to hold a majority economic interest in the Operating Partnership through its ownership of Operating Partnership units. One of MGP's subsidiaries is the sole general partner of the Operating Partnership.

We generate all of our revenues by leasing our real estate properties through the Landlord, a wholly owned subsidiary of the Operating Partnership, to the Tenant, a subsidiary of MGM, in a “triple-net” lease arrangement, which requires the Tenant to pay substantially all costs associated with each property, including real estate taxes, insurance, utilities and routine maintenance, in addition to the base rent and the percentage rent, each as described below. The Master Lease has an initial lease term of ten years with the potential to extend the term for four additional five-year terms thereafter at the option of the Tenant. Additionally, the Master Lease provides us with a right of first offer to purchase the real estate assets with respect to the ROFO Properties in the event that MGM elects to sell them. The annual rent payments due under the Master Lease for the first lease year were initially $550 million and increased to $650 million for the remainder of the first lease year following the completion of the Borgata Transaction. The first 2% fixed annual rent escalator went into effect on April 1, 2017, resulting in annual rent payments of $661.7 million for the second lease year. Payments under the Master Lease are guaranteed by MGM.

As of June 30, 2017, our portfolio consisted of ten premier destination resorts operated by MGM, including properties that we believe are among the world’s finest casino resorts, and The Park in Las Vegas.

Borgata Transaction

On August 1, 2016, MGM completed its acquisition of Boyd Gaming’s ownership interest in Borgata. Immediately following such transaction, we acquired Borgata’s real property from MGM for consideration consisting of the assumption of $545 million of indebtedness from a subsidiary of MGM and the issuance of 27.4 million Operating Partnership units to a subsidiary of MGM. The real property related to Borgata was then leased back to a subsidiary of MGM under an amendment to the existing Master Lease.

Pursuant to the amendment, the initial annual rent payment increased by $100 million, prorated for the remainder of the first lease year after the Borgata Transaction. Consistent with the Master Lease terms, 90% of this rent was fixed and subject to the 2% escalator per lease year until 2022.

The Borgata Transaction was accounted for as a transaction between entities under common control, and therefore we recorded the Borgata real estate assets at their carryover value of $1.3 billion as determined by MGM in its purchase price allocation. In addition, we recognized an above market lease liability and an above market lease asset related to ground leases assigned to the Landlord as part of the Borgata Transaction covering approximately 11 acres partially underlying and adjacent to the Borgata. Pursuant to the Master Lease the Tenant is responsible for the rent payments related to these ground leases during the term of the Master Lease. We are amortizing the above market lease liability on a straight-line basis over the terms of the underlying ground leases, which extend through 2070. We are amortizing the above market lease asset on a straight-line basis over the term of the Master Lease, which extends through 2046 (including reasonably assured renewal periods).

Master Lease

Rent under the Master Lease consists of the base rent and the percentage rent. The annual rent payment due under the Master Lease was initially $550 million, which increased to $650 million after the Borgata Transaction for the remainder of the first year. For the first year, the base rent represents 90% of the initial total rent payments due under the Master Lease, or $585 million, and the percentage rent represents 10% of the initial total rent payments due under the Master Lease, or $65 million. The first 2% fixed annual rent escalator went into effect on April 1, 2017, resulting in annual rent payments of $661.7 million for the second lease year.

Base Rent

The base rent is a base annual amount for the duration of the lease and includes a fixed annual rent escalator of 2.0% for the second through the sixth lease years (as defined in the Master Lease). Thereafter, the annual escalator of 2.0% will be subject to the Tenant and, without duplication, the Operating Subtenants of the properties collectively meeting an adjusted net revenue to rent ratio of 6.25:1.00 based on their net revenue from the leased properties subject to the Master Lease as determined in accordance with U.S. GAAP, adjusted to exclude net revenue attributable to certain scheduled subleases and, at the Tenant’s option, reimbursed cost revenue. Base rent and percentage rent that are known at the lease commencement date will be recorded on a straight-line basis over 30 years, which represents the initial ten-year non-cancelable lease term and all four five-year renewal terms under the Master Lease, as we have determined such renewal terms to be reasonably assured.

Percentage Rent

The percentage rent is a variable percentage rent which consists of a fixed annual amount for approximately the first six years of our Master Lease and is then adjusted every five years thereafter based on the average actual annual net revenues of the Tenant, and, without duplication, the Operating Subtenants from the leased properties subject to the Master Lease at such time during the trailing five-calendar-year period (calculated by multiplying the average annual net revenues (excluding net revenue attributable to certain scheduled subleases and, at the Tenant’s option, reimbursed cost revenue) for the trailing five-calendar-year period by 1.4%).

Under the Master Lease, the Tenant is required to maintain the premises in reasonably good order and repair. The Master Lease requires the Tenant to spend an aggregate amount of at least 1% of actual adjusted net revenues from the properties per calendar year on capital expenditures.

General and Administrative and Corporate Services

We incur general and administrative expenses for items such as compensation costs, professional services, legal expenses, certain costs of being a public company, and office costs. In addition, we incur costs for corporate services from MGM for amounts reimbursed to MGM under the Corporate Services Agreement that covers financial, administrative and operational support services, including accounting and finance support, human resources support, legal and regulatory compliance support, insurance advisory services, internal audit services, governmental affairs monitoring and reporting services, information technology support, construction services and various other support services.

General and administrative expenses for the three and six months ended June 30, 2017 were $2.7 million and $5.3 million, respectively. Pursuant to the terms of the partnership agreement of the Operating Partnership, the Operating Partnership is required to pay for or reimburse MGP for these expenses and generally for any expenses MGP incurs relating to the operation of, or for

the benefit of, the Operating Partnership or MGP. Any such reimbursements are taken into account by our wholly owned subsidiary, the general partner, before causing the Operating Partnership to make any distributions to holders of Operating Partnership units and do not affect our pro rata entitlement, as a holder of Operating Partnership units, to distributions from the Operating Partnership.

Expenditures necessary to maintain our properties in reasonably good order and repair are paid or reimbursed by the Tenant pursuant to the Master Lease. Other operating expenses relating to our properties such as property taxes and insurance are also paid or reimbursed by the Tenant pursuant to the Master Lease.

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, 2017. The results of operations for the three and six months ended June 30, 2016 reflect the results of operations of the Predecessor through April 24, 2016 combined with the results of operations of MGP from the IPO Date through June 30, 2016.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in thousands)
Net revenues	$	184,456	$	110,903	$	368,355	$	110,903
Operating income (loss)	90,167		39,193		182,189		(28,778		)
Net income (loss)	43,875		9,646		90,567		(58,325		)
Net income attributable to Class A shareholders	10,680		6,953		22,028		6,953

Revenues

Revenues, including tenant reimbursements and other, for the three and six months ended June 30, 2017 were $184.5 million and $368.4 million, respectively. Revenues, including tenant reimbursements, for the three and six months ended June 30, 2016 of $110.9 million, represents revenues generated by the Company from April 25, 2016 through June 30, 2016. Tenant reimbursement and other revenue arises primarily from the triple-net structure of the Master Lease which provides that the Tenant is responsible for payment of certain expenses as discussed above, including property taxes of the properties. We recognize revenue related to property taxes for which we are the primary obligor in the same periods as the expense is incurred. We recognize the cost basis of Non-Normal Tenant Improvements as real estate investments and deferred revenue. We depreciate the real estate investments over their estimated useful lives applying the straight-line method and deferred revenue is amortized applying the straight-line method as additional rental revenue over the remaining term of the Master Lease once the related real estate assets are placed in service.

Operating Expenses

Depreciation. Depreciation expense for the three and six months ended June 30, 2017 was $60.2 million and $121.9 million, respectively. Depreciation expense for the three and six months ended June 30, 2016 was $53.1 million and $104.6 million, respectively, which includes depreciation expense of the Predecessor through April 24, 2016 of $12.2 million and $63.7 million for the three and six months ended June 30, 2016, respectively. Depreciation expense for the three and six months ended June 30, 2017 increased primarily due to depreciation related to the Borgata assets acquired in August 2016 and accelerated depreciation recognized on assets to be disposed of.

Property transactions, net. Property transactions, net for the three and six months ended June 30, 2017 were $10.6 million and $17.4 million, respectively, and relate to normal losses on the disposition of assets. Property transactions, net for the three and six months ended June 30, 2016 were $0.3 million and $1.2 million, respectively, and relate to normal losses on the disposition of assets recognized during the prior year period.

Property taxes. Property tax expense for the three and six months ended June 30, 2017 was $20.6 million and $41.1 million, respectively, compared to $13.3 million and $26.5 million for the three and six months ended June 30, 2016, respectively. This increase was due to higher property tax assessments and the addition of Borgata during the second half of 2016.

Property insurance. Property insurance expense for the three and six months ended June 30, 2016 was $0.6 million and $2.9 million, respectively. MGP does not recognize property insurance expense following the IPO Date due to such costs being direct costs of the Tenant and not an obligation of MGP.

Acquisition-related expenses. Acquisition-related expenses for the three and six months ended June 30, 2016 were $0.6 million, which related to expenses incurred in connection with the Borgata Transaction. There were no acquisition-related expenses incurred in the three and six months ended June 30, 2017.

General and administrative expenses. General and administrative expenses for the three and six months ended June 30, 2017 were $2.7 million and $5.3 million, respectively, which primarily related to payroll costs, share-based compensation expense, corporate services and professional services fees. General and administrative expenses for the three and six months ended June 30, 2016 were $3.8 million, which included $1.4 million of certain costs relating to setting up operations including payroll and relocation costs, and $0.1 million of share-based compensation expense.

Non-Operating Expenses

Total non-operating expenses for the three and six months ended June 30, 2017 were $45.1 million and $89.2 million, respectively, and primarily related to interest expense on the senior secured credit facility, senior notes and interest rate swaps, which included amortization of debt issuance costs of $2.8 million and $5.6 million for the three and six months ended June 30, 2017. Total non-operating expenses for the three and six months ended June 30, 2016 were $29.5 million, primarily related to interest expense on our senior secured credit facility and senior notes, which included amortization of debt issuance costs of $1.7 million for the three and six months ended June 30, 2016.

Income tax provision. Our effective tax rate for the three months ended June 30, 2017 increased from 0% in the prior year quarter to an expense of 2.6% in the current year quarter resulting in income tax expense of $1.2 million for the three months ended June 30, 2017, compared to no income tax expense for the three months ended June 30, 2016. Our effective tax rate for the six months ended June 30, 2017 increased from 0% in the prior year quarter to an expense of 2.6% in the current year quarter resulting in income tax expense of $2.4 million for the six months ended June 30, 2017, compared to income tax of $0 for the six months ended June 30, 2016. There was no income tax provision in either the three or six months ended June 30, 2016 because prior to the IPO Date the Predecessor did not include an income tax provision or benefit because a valuation allowance was provided on all losses generated by the Predecessor and after the IPO Date we have been treated as a REIT and were not subject to federal or state income tax during the period from the IPO Date to June 30, 2016.

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 real estate depreciation, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”).

Adjusted Funds From Operations (“AFFO”) is FFO as adjusted for amortization and write-off of financing costs and cash flow hedge amortization, the net amortization of the above market lease, non-cash compensation expense, acquisition related expenses, provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue.

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), real estate depreciation, interest income, interest expense (including amortization of financing costs and cash flow hedge amortization), write-off of financing costs, the net amortization of the above market lease, non-cash compensation expense, acquisition related expenses, provision for income taxes and the net effect of straight-line rents and amortization of deferred revenue.

FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA are supplemental performance measures that have not been prepared in conformity with 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 real estate depreciation and amortization 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. This revision to such calculations had no significant impact on our AFFO and Adjusted EBITDA as reported in prior periods.

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.The following table presents a reconciliation of net income (loss) to FFO, AFFO and Adjusted EBITDA:



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(in thousands)
Net income (loss)	$	43,875		$	9,646		$	90,567		$	(58,325	)
Depreciation	60,227			53,123			121,911			104,600
Property transactions, net	10,587			335			17,442			1,209
Funds From Operations	114,689			63,104			229,920			47,484
Amortization and write-off of financing costs and cash flow hedge amortization	3,702			1,714			6,508			1,714
Non-cash compensation expense	362			142			550			142
Net effect of straight-line rent and amortization of deferred revenue	1,611			(420		)	699			(420		)
Acquisition-related expenses	—			599			—			599
Amortization of above market lease, net	172			—			343			—
Provision for income taxes	1,177			—			2,415			—
Adjusted Funds From Operations	121,713			65,139			240,435			49,519
Interest income	(881		)	—			(1,559		)	—
Interest expense	44,818			29,475			89,454			29,475
Amortization of financing costs and cash flow hedge amortization	(2,904		)	(1,714		)	(5,710		)	(1,714		)
Adjusted EBITDA	$	162,746		$	92,900		$	322,620		$	77,280

Liquidity and Capital Resources

Property rental revenue is our primary source of cash from operations and is dependent on the Tenant’s ability to pay rent. All of our indebtedness is held by the Operating Partnership and MGP does not guarantee any of the Operating Partnership's indebtedness. MGP's principal funding requirement is the payment of distributions on its Class A shares, and its principal source of funding for these distributions is the distributions it receives from the Operating Partnership. MGP's liquidity is therefore dependent upon the Operating Partnership's ability to make sufficient distributions to it. The Operating Partnership's primary uses of cash include payment of operating expenses, debt service and distributions to MGP. We believe that the Operating Partnership currently has sufficient liquidity to satisfy all of its commitments, including its distributions to MGP, and in turn, that we currently have sufficient liquidity to satisfy all our commitments in the form of $376.8 million in cash and cash equivalents held by the Operating Partnership as of June 30, 2017, expected cash flows from operations, and $600.0 million of borrowing capacity under the Operating Partnership's revolving credit facility as of June 30, 2017. We have no commitments for capital expenditures except as described in Note 2 to the accompanying financial statements. In addition, maintenance and repairs to our real estate investments are the responsibility of the Tenant under the Master Lease. Also see Note 6 and Note 12 the accompanying financial statements for a description of our principal debt arrangements and commitments and contingencies, respectively.

Summary of Cash Flows

Net cash provided by operating activities for the six months ended June 30, 2017 was $230.7 million, which includes cash inflows from rental revenues and outflows for general and administrative expenses as well as interest payments. Net cash provided by operating activities for the six months ended June 30, 2016 was $62.3 million, which was primarily attributable to rental revenue received under the Master Lease.

There were no cash flows from investing activities for the six months ended June 30, 2017. Net cash used in investing activities was $139.0 million for the six months ended June 30, 2016, which was attributable to capital expenditures that were funded by the Parent and relate to the activity of the Predecessor prior to the IPO Date.

Net cash used by financing activities for the six months ended June 30, 2017 was $214.4 million, which was primarily attributable to distributions and dividends and scheduled amortization payments on our senior credit facility. Net cash provided by financing activities for the six months ended June 30, 2016 was $414.7 million, which was primarily attributable to net proceeds of $3.1 billion from the issuance of debt, $1.1 billion in net proceeds received from the issuance of Class A shares and $158.8 million which represents the net amount transferred from Parent related to the Predecessor, partially offset by $4.0 billion repayment of the bridge facilities that were assumed by the Operating Partnership in connection with the IPO and related transactions.

Dividends and Distributions

On June 15, 2017, the Operating Partnership announced a cash distribution to holders of Operating Partnership units of $96.0 million or $0.3950 per Operating Partnership unit. The Company’s Board of Directors concurrently declared a cash dividend for the quarter ended June 30, 2017 of $22.8 million or $0.3950 per Class A share payable to shareholders of record as of June 30, 2017. The distribution and dividend were paid on July 14, 2017.

In the future, the Company expects to pay quarterly dividends in cash of approximately $23 million equal to $0.3950 per share (or $91 million on an annualized basis equal to $1.58 per share) to its Class A shareholders, which amount may be changed in the future at the discretion of the Board of Directors and management.

When the Company files its initial federal income tax return for its taxable year ended December 31, 2016 in 2017, it intends to make an election to be treated as a REIT. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. Commencing with our taxable year ending on December 31, 2016, our annual distribution will not be less than 90% of our REIT taxable income on an annual basis, determined without regard to the dividends paid deduction and excluding any net capital gains.

Inflation

The Master Lease provides for certain increases in rent as a result of the fixed annual rent escalator or changes in the variable percentage rent as further described above under “—Master Lease.” We expect that inflation will cause the variable percentage rent provisions to result in rent increases over time. However, we could be negatively affected if increases in rent are not sufficient to cover increases in our operating expenses due to inflation. In addition, inflation and increased cost may have an adverse impact on our tenants if increases in their operating expenses exceed increases in revenue due to inflation.

Application of Critical Accounting Policies and Estimates

A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the fiscal year ended December 31, 2016. There have been no significant changes in our critical accounting policies and estimates since year end.

Market Risk

Our primary market risk exposure is interest rate risk with respect to our existing variable-rate long-term indebtedness. As of June 30, 2017, we have incurred indebtedness in principal amount of approximately $3.7 billion. An increase in interest rates could make the financing of any acquisition by us more costly as well as increase the costs of our variable rate debt obligations. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.

At June 30, 2017, the term loan B facility bore interest at LIBOR plus 2.25%, with a LIBOR floor of 0%.

We are party to interest rate swaps to mitigate the interest rate risk inherent in our senior secured term loan B facility. In May 2017, in connection with the re-pricing of our term loan B, we amended our outstanding interest rate swap agreements. Under the amended agreements we now pay a weighted average fixed rate of 1.844% on total notional amount of $1.2 billion and the variable rate received will reset monthly to the one-month LIBOR rate, with no minimum floor.

The principal terms of these interest rate swaps at June 30, 2017 are as follows:



				Weighted Average Fixed Rate		Fair Value Asset (Liability)
Effective Date	Maturity Date	Notional Amount		Weighted Average Fixed Rate		Fair Value Asset (Liability)
(in thousands, except percentages)
May 3, 2017	November 30, 2021	$	500,000	1.764	%	$	442
May 3, 2017	November 30, 2021	700,000		1.901	%	(3,396		)
		$	1,200,000			$	(2,954	)

We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. As of June 30, 2017, long-term variable rate borrowings represented approximately 25% of our total borrowings after giving effect to the hedged portion of our term loan B. Assuming a 100 basis-point increase in LIBOR-as it relates to our variable interest term loan facility, our annual interest cost would increase by approximately $8.9 million based on gross amounts outstanding at June 30, 2017.

The following table provides information about the maturities of our long-term debt subject to changes in interest rates as of June 30, 2017. Average interest rates presented relate to the interest rate of the debt maturity in the period:



	Debt maturing in																					Fair Value June 30,
	2017			2018			2019			2020			2021			Thereafter			Total			2017

Fixed-rate	$	—		$	—		$	—		$	—		$	—		$	1,550.0		$	1,550.0		$	1,646.4
Average interest rate																5.262		%	5.262		%
Variable rate	$	16.8		$	33.5		$	33.5		$	33.5		$	247.3		$	1,743.5		$	2,108.1		$	2,108.1
Average interest rate	3.701		%	3.701		%	3.701		%	3.701		%	3.940		%	3.477		%	3.544		%

Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources and the amount and frequency of future distributions contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “could,” “may,” “will,” “should,” “seeks,” “likely,” “intends,” “plans,” “pro forma,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Examples of forward-looking statements include, but are not limited to, statements we make regarding the timing and amount of any future dividend, our expectations regarding our ability to meet our financial and strategic goals and our ability to further grow our portfolio.

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:


•	We are dependent on MGM (including its subsidiaries) unless and until we substantially diversify our portfolio, and an event that has a material adverse effect on MGM’s business, financial position or results of operations could have a material adverse effect on our business, financial position or results of operations.


•	We depend on our properties for all of our anticipated cash flows.


•	We may not be able to re-lease our properties following the expiration or termination of the Master Lease.

•

Our sole material assets are Operating Partnership units representing 23.7% of the ownership interests in the Operating Partnership, over which we have operating control through our ownership of its general partner, and our ownership interest in the general partner of the Operating Partnership. Because our interest in the Operating Partnership represents our only cash-generating asset, our cash flows and distributions depend entirely on the performance of the Operating Partnership and its ability to distribute cash to us.


•	The Master Lease restricts our ability to sell the properties or our interests in the Operating Partnership and Landlord.


•	We will have future capital needs and may not be able to obtain additional financing on acceptable terms.


•	Covenants in our debt agreements may limit our operational flexibility, and a covenant breach or default could materially adversely affect our business, financial position or results of operations.


•	Rising expenses could reduce cash flow and funds available for future acquisitions and distributions.


•	We have a limited operating history and the Predecessor historical financial information included in this Quarterly Report on Form 10-Q may not be a reliable indicator of future results.


•	We are dependent on the gaming industry and may be susceptible to the risks associated with it, which could materially adversely affect our business, financial position or results of operations.


•	Because a majority of our major gaming resorts are concentrated on the Las Vegas Strip (the “Strip”), we are subject to greater risks than a company that is more geographically diversified.


•	Our pursuit of investments in, and acquisitions or development of, additional properties (including our acquisition of the ROFO Properties) may be unsuccessful or fail to meet our expectations.


•	We may face extensive regulation from gaming and other regulatory authorities, and our operating agreement provides that any of our shares held by investors who are found to be unsuitable by state gaming regulatory authorities are subject to redemption.


•	Required regulatory approvals can delay or prohibit future leases or transfers of our gaming properties, which could result in periods in which we are unable to receive rent for such properties.


•	Net leases may not result in fair market lease rates over time, which could negatively impact our income and reduce the amount of funds available to make distributions to shareholders.


•	Our dividend yield could be reduced if we were to sell any of our properties in the future.


•	There can be no assurance that we will be able to make distributions to our Operating Partnership unitholders and Class A shareholders or maintain our anticipated level of distributions over time.


•	An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect the price of our Class A shares.


•	MGP is controlled by MGM, whose interests in our business may conflict with ours or yours.


•	We are dependent on MGM for the provision of administration services to our operations and assets.


•	MGM’s historical results may not be a reliable indicator of its future results.


•	Our operating agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of our directors, officers and others.


•	If MGM engages in the same type of business we conduct, our ability to successfully operate and expand our business may be hampered.


•	The Master Lease and other agreements governing our relationship with MGM were not negotiated on an arm’s-length basis and the terms of those agreements may be less favorable to us than they might otherwise have been in an arm’s-length transaction.

•

In the event of a bankruptcy of the Tenant, a bankruptcy court may determine that the Master Lease is not a single lease but rather multiple severable leases, each of which can be assumed or rejected independently, in which case underperforming leases related to properties we own that are subject to the Master Lease could be rejected by the Tenant while tenant-favorable leases are allowed to remain in place.


•	MGM may undergo a change of control without the consent of us or of our shareholders.


•	If MGP does not qualify to be taxed as a REIT, or fails to remain qualified to be taxed as a REIT, it will be subject to U.S. federal income tax as a regular corporation and could face a substantial tax liability, which would have an adverse effect on our business, financial condition and results of operations.


•	Legislative or other actions affecting REITs could have a negative effect on us.

While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future

developments or otherwise, except as may be required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We incorporate by reference the information appearing under “Market Risk” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

Controls and Procedures with respect to MGP

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that our disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15d-15(e) under the Exchange Act) were effective as of June 30, 2017 to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations and to provide that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures. This conclusion is based on an evaluation as required by Rule 13a-15(b) under the Exchange Act conducted under the supervision and participation of the principal executive officer and principal financial officer along with company management.

During the quarter ended June 30, 2017, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Controls and Procedures with respect to the Operating Partnership

In this “Controls and Procedures with respect to the Operating Partnership” section, the terms “we,”“our” and “us” refer to the Operating Partnership together with its consolidated subsidiaries, and “management,”“principal executive officer” and “principal financial officer” refers to the management, principal executive officer and principal financial officer of the Operating Partnership and of the Operating Partnership's general partner.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Pursuant to the MCA, any liability arising from or relating to legal proceedings involving the businesses and operations located at MGM’s real property holdings prior to the Formation Transactions have been retained by MGM and MGM will indemnify us (and our subsidiaries, directors, officers, employees and agents and certain other related parties) against any losses we may incur arising from or relating to such legal proceedings.

From time to time, we are a party to various claims and routine litigation arising in the ordinary course of business. As of June 30, 2017, we do not believe that the results of any such claims or litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position, results of operations or cash flows.

Item 1A. Risk Factors

A description of certain factors that may affect our future results and risk factors is set forth in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to those factors for the six months ended June 30, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits



10.1			Second Amendment to Credit Agreement, dated May 1, 2017, among MGM Growth Properties Operating Partnership LP, the other loan parties and lenders named therein and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 1, 2017)

31.1			Certification of Chief Executive Officer of MGM Growth Properties LLC pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Executive Officer of MGM Growth Properties Operating Partnership LP pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3			Certification of Chief Financial Officer of MGM Growth Properties LLC pursuant to Rule 13a-14(a) and15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4			Certification of Chief Financial Officer of MGM Growth Properties Operating Partnership LP pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of Chief Executive Officer of MGM Growth Properties LLC pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2			Certification of Chief Executive Officer of MGM Growth Properties Operating Partnership LP pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.3			Certification of Chief Financial Officer of MGM Growth Properties LLC pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.4			Certification of Chief Financial Officer of MGM Growth Properties Operating Partnership LP pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101			The following information from each of the MGM Growth Properties LLC and MGM Growth Properties Operating Partnership LP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets at June 30, 2017 (unaudited) and December 31, 2016 (audited); (ii) Unaudited Condensed Combined and Consolidated Statements of Operations for the three and six-months ended June 30, 2017 and 2016; (iii) Unaudited Condensed Combined and Consolidated Statements of Comprehensive Loss for the three and six-months ended June 30, 2017 and 2016; (iv) Unaudited Condensed Combined and Consolidated Statements of Cash Flows for the three and six-months ended June 30, 2017 and 2016; and (v) Condensed Notes to Unaudited Condensed Combined and Consolidated Financial Statements.

* Exhibits 32.1, 32.2, 32.3 and 32.4 shall not be deemed filed with the SEC, nor shall they be deemed incorporated by reference in any filing with the SEC under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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 thereunto duly authorized.



	MGM Growth Properties LLC

Date: August 8, 2017	By:	/s/ JAMES C. STEWART
		James C. Stewart
		Chief Executive Officer (Principal Executive Officer)

Date: August 8, 2017		/s/ ANDY H. CHIEN
		Andy H. Chien
		Chief Financial Officer and Treasurer (Principal Financial Officer)

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 thereunto duly authorized.



	MGM Growth Properties Operating Partnership LP
	By: MGM Growth Properties OP GP LLC, its general partner

Date: August 8, 2017	By:	/s/ JAMES C. STEWART
		James C. Stewart
		Chief Executive Officer (Principal Executive Officer)

Date: August 8, 2017		/s/ ANDY H. CHIEN
		Andy H. Chien
		Chief Financial Officer and Treasurer (Principal Financial Officer)

MGM Growth Properties LLC - FORM 10-Q - August 8, 2017

Attached files

MGM Growth Properties LLC Reports