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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

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

1980 Festival Plaza Drive, Suite 750, Las Vegas, Nevada 89135
(Address of principal executive office)                                             (Zip Code)

(702) 669-1480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Shares, no par value
MGP
New York Stock Exchange


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

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

MGM Growth Properties LLC    Yes     No  
MGM Growth Properties Operating Partnership LP     Yes     No  


Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

MGM Growth Properties LLC     Yes      No 
MGM Growth Properties Operating Partnership LP     Yes      No 

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     No 
MGM Growth Properties Operating Partnership LP     Yes      No 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, 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      No  
MGM Growth Properties Operating Partnership LP     Yes      No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or 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
Smaller reporting company
Emerging growth company


MGM Growth Properties Operating Partnership LP
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller 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:       

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  
MGM Growth Properties Operating Partnership LP      Yes      No   

The aggregate market value of the Registrant’s Class A shares held by non-affiliates of the Registrant as of June 28, 2019 (based on the closing price on the New York Stock Exchange Composite Tape on June 28, 2019) was $2.8 billion. As of February 24, 2020, 131,331,077 shares of the Registrant’s Class A shares, no par value, were outstanding.

There is no public trading market for the limited partnership units of MGM Growth Properties Operating Partnership LP. As a result, the aggregate market value of such units cannot be determined.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the MGM Growth Properties LLC’s definitive Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 




EXPLANATORY NOTE

This report combines the Annual Reports on Form 10-K for the year ended December 31, 2019 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 December 31, 2019, MGP owned approximately 36.3% of the Operating Partnership units in the Operating Partnership. The remaining approximately 63.7% 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 Annual Reports on Form 10-K 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 its 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 offerings 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 consolidated financial statements of MGP and those of the Operating Partnership. The Operating Partnership units held by subsidiaries of MGM are accounted for as limited partners’ capital in the Operating Partnership’s consolidated financial statements and as noncontrolling interest within equity in MGP’s 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 consolidated financial statements and within Class A shareholders’ equity in MGP’s 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 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 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 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 9A. Controls and Procedures” sections and separate Exhibit 31 and 32 certifications for each of MGP 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.




TABLE OF CONTENTS
 
 
 
 
 
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
 
 
 
 
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
 




PART I

ITEM 1
BUSINESS

The Company

MGP is one of the leading publicly traded REITs engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts, whose tenants generally offer diverse amenities including casino gaming, hotel, convention, dining, entertainment and retail offerings.

MGP is a limited liability company that was formed in Delaware in October 2015. We conduct our operations through the Operating Partnership, a Delaware limited partnership formed by MGM in January 2016 and acquired by MGP on April 25, 2016 (the “IPO Date”). MGP has elected to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016.

MGP is organized in an umbrella partnership REIT (commonly referred to as an “UPREIT”) structure in which MGP owns substantially all of its assets and conducts substantially all of its business through the Operating Partnership, which is owned by MGP and certain other subsidiaries of MGM and whose sole general partner is one of MGP’s subsidiaries. MGP has two classes of authorized and outstanding voting common shares: Class A shares and a 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 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. MGM holds a controlling interest in MGP through its ownership of MGP’s Class B share, but does not hold any of MGP’s Class A shares. The Class B share structure was put in place to align MGM’s voting rights in MGP with its economic interest in the Operating Partnership. MGM will no longer be entitled to the voting rights provided by the Class B share if MGM 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 operating agreement provided that 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 an independent conflicts committee, not to be unreasonably withheld.

As of December 31, 2019, we generated all of our revenue by leasing our real estate properties through a wholly owned subsidiary of the Operating Partnership to a subsidiary of MGM pursuant to a long-term triple-net master lease agreement (the “MGM-MGP Master Lease”).

As of December 31, 2019, our portfolio includes six large-scale entertainment and gaming-related properties located on the Las Vegas Strip (the “Strip”): Mandalay Bay, The Mirage, Park MGM, New York-New York, Luxor and Excalibur, and The Park, a dining and entertainment district located between New York-New York and Park MGM. Outside of Las Vegas, we also own five market-leading casino resort properties: MGM Grand Detroit in Detroit, Michigan, Beau Rivage and Gold Strike Tunica, both of which are located in Mississippi, Borgata in Atlantic City, New Jersey, and MGM National Harbor in Prince George’s County, Maryland. We also own MGM Northfield Park in Northfield, Ohio and Empire City in Yonkers, New York. In the future, we plan to explore opportunities to expand by acquiring similar properties as well as strategically targeting a broader universe of real estate assets within the entertainment, hospitality and leisure industries.

Business Developments

Empire City Transaction

On January 29, 2019, we acquired the developed real property associated with the Empire City Casino’s race track and casino (“Empire City”) from MGM upon its acquisition of Empire City (“Empire City Transaction”), for total consideration of approximately $634 million, consisting of the assumption of $246 million of debt by the Operating Partnership, which was repaid with borrowings under its senior secured credit facility and the issuance of 12.9 million Operating Partnership units to MGM. Empire City was added to the MGM-MGP Master Lease. As a result, the annual rent payment to MGP increased by $50 million. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below. In addition, pursuant to the lease, MGP has a right of first offer with respect to certain undeveloped land adjacent to the property to the extent MGM develops additional gaming facilities and chooses to sell or transfer the property in the future.

Park MGM Lease Transaction

On March 7, 2019, we completed the transaction relating to renovations undertaken by MGM regarding the Park MGM and NoMad Las Vegas property (the “Park MGM Transaction”) for total consideration of $637.5 million. We funded the transaction with $605.6 million in cash and the issuance of approximately 1.0 million of Operating Partnership units to a subsidiary of MGM. As a result of the

1


transaction, we recorded a lease incentive asset and the MGM-MGP Master Lease annual rent payment to us increased by $50 million, prorated for the remainder of the lease year. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below.

Northfield Transaction

On April 1, 2019, we transferred the membership interests of Northfield Park Associates, LLC, (“Northfield”), the entity that formerly owned the real estate assets and operations of the Hard Rock Rocksino Northfield Park, to a subsidiary of MGM for fair value consideration transferred of approximately $305.2 million consisting primarily of approximately 9.4 million Operating Partnership units that were ultimately redeemed by the Operating Partnership and the Company retained the real estate assets. Our taxable REIT subsidiary (“TRS”) that owned Northfield liquidated immediately prior to the transfer. Subsequently, MGM rebranded the operations it acquired (“Northfield OpCo”) to MGM Northfield Park, which was then added to the MGM-MGP Master Lease. As a result, the annual rent payment to us increased by $60 million. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below. Northfield OpCo is presented as discontinued operations in our consolidated statements of operations for all periods presented in which we owned Northfield OpCo and the related operating assets and liabilities are presented as assets held for sale and liabilities related to assets held for sale in our consolidated balance sheet as of December 31, 2018. Refer to Note 3 of the accompanying financial statements for additional discussion.

MGP BREIT Venture Transaction

On February 14, 2020, the Operating Partnership completed a series of transactions (collectively the “MGP BREIT Venture Transaction”) pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place) were contributed to a newly formed entity (“MGP BREIT Venture”), which, following the transactions, is owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”). In exchange for the contribution of the Mandalay Bay real estate assets, the Operating Partnership received consideration of $2.1 billion, which was comprised of $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGM BREIT Venture, the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture, and the remainder in cash. In addition, MGM received $2.4 billion of cash distributed from the MGP BREIT Venture as consideration for its contribution of the MGM Grand Las Vegas real estate assets, and, additionally, the Operating Partnership issued 2.6 million Operating Partnership units to MGM representing 5% of the equity value of MGP BREIT Venture. In connection with the transactions, MGM provided a shortfall guaranty of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereto). On the closing date, BREIT also purchased 4.9 million Class A common shares of MGP for $150 million.

In connection with the transactions, MGP BREIT Venture entered into a lease with a subsidiary of MGM for the real estate assets of Mandalay Bay and MGM Grand Las Vegas. The lease (the “MGP BREIT Venture Lease”) provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $292 million, escalating annually at a rate of 2% per annum for the first fifteen years and thereafter equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3%. In addition, the lease will require the tenant to spend 3.5% of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and MGM to comply with certain financial covenants, which, if not met, will require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. MGM provided a guarantee of the tenant’s obligations under the lease.

In connection with the MGP BREIT Venture Transaction, the MGM-MGP Master Lease was modified to remove the Mandalay Bay property and the rent under the MGM-MGP Master Lease was reduced by $133 million.

Also, on January 14, 2020, the Operating Partnership, MGP, and MGM entered into an agreement for the Operating Partnership to waive its right to issue MGP Class A shares, in lieu of cash, to MGM in connection with MGM exercising its right to require the Operating Partnership to redeem the Operating Partnership units it holds. The waiver provides that the units will be purchased at a price per unit equal to a 3% discount to the applicable cash amount as calculated in accordance with the operating agreement. The waiver terminates on the earlier of 24 months following the closing of the MGP BREIT Venture Transaction and MGM receiving cash proceeds of $1.4 billion as consideration for the redemption of its Operating Partnership units.

Overview of MGM

The tenant under the MGM-MGP Master Lease is a wholly owned subsidiary of MGM, and MGM guarantees its performance and payments under the lease. MGM is a premier operator of a portfolio of well-known destination resort brands.

MGM has significant holdings in gaming, hospitality and entertainment with current ownership or operating interests in a high-quality portfolio of casino resorts.


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Overview of the MGM-MGP Master Lease

The MGM-MGP Master Lease has an initial lease term of ten years beginning on April 25, 2016 (other than with respect to MGM National Harbor, as described below) with the potential to extend the term for four additional five-year terms thereafter at the option of the tenant. The lease provides that any extension of its term must apply to all of the properties under the lease at the time of the extension. The lease provides that the initial term with respect to MGM National Harbor ends on August 31, 2024. Thereafter, the initial term of the lease with respect to MGM National Harbor may be renewed at the option of the tenant for an initial renewal period lasting until the earlier of the end of the then-current term of the lease or the next renewal term (depending on whether MGM elects to renew the other properties under the lease in connection with the expiration of the initial ten-year term). If, however, the tenant chooses not to renew the lease with respect to MGM National Harbor after the initial MGM National Harbor term under the lease, the tenant would also lose the right to renew the lease with respect to the rest of the properties when the initial ten-year lease term ends in 2026. The lease has a triple-net structure, 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 rent, ensuring that the cash flows associated with the lease will remain relatively predictable for the duration of its term. Additionally, the lease provides us with a right of first offer with respect to MGM Springfield and with respect to any future gaming development by MGM on the undeveloped land adjacent to Empire City, which we may exercise should MGM elect to sell either property in the future.

Rent under the lease consists of a “base rent” component (the “Base Rent”) and a “percentage rent” component (the “Percentage Rent”). As of December 31, 2019, the Base Rent represents approximately 90% of the annual rent amount under the lease and the Percentage Rent represents approximately 10% of the annual rent amount under the lease. The Base Rent includes a fixed annual rent escalator of 2.0% for the second through the sixth lease years (as defined in the lease). Thereafter, the annual escalator of 2.0% will be subject to the tenant and, without duplication, the MGM operating subsidiary sublessees of our tenant, collectively meeting an adjusted net revenue to rent ratio of 6.25:1.00 based on their adjusted net revenue from the leased properties subject to the lease (excluding net revenue attributable to certain scheduled subleases and, at the tenant’s option, certain reimbursed costs). The Percentage Rent is a fixed amount for the first six lease years and will then be adjusted every five years based on the average annual adjusted net revenues of our tenant and, without duplication, the subtenants from the leased properties (calculated in accordance with the terms of the lease). The lease includes covenants that impose ongoing reporting obligations on the tenant relating to MGM’s financial statements which, in conjunction with MGM’s public disclosures to the Securities and Exchange Commission (“SEC”) gives us insight into MGM’s financial condition on an ongoing basis. The lease also requires MGM, on a consolidated basis with the tenant, to maintain an EBITDAR to rent ratio (as described in the lease) of 1.10:1.00.

The annual rent payments under the lease for the fourth lease year, which commenced on April 1, 2019, increased to $946.1 million from $770.3 million at the start of the third lease year, driven by the $50 million in additional rent related to the Park MGM Transaction and Empire City Transaction, the $60 million of additional rent for MGM Northfield Park and the third 2.0% fixed annual rent escalator that went into effect on April 1, 2019.

Overview of Management and Governance

We have a dedicated, experienced management team with extensive experience in the real estate and gaming, lodging and leisure industries. This leadership team is bolstered by a board of directors that includes independent directors.

Our operating agreement provides that whenever a potential conflict of interest exists or arises between MGM or any of its affiliates (other than the Company and its subsidiaries), on the one hand, and the Company or any of its subsidiaries, on the other hand, any resolution or course of action by our board of directors in respect of such conflict of interest shall be conclusively deemed to be fair and reasonable to the Company if it is (i) approved by a majority of a conflicts committee which consists solely of independent directors (which we refer to as “Special Approval”) (such independence determined in accordance with the New York Stock Exchange’s listing standards, the standards established by the Securities Exchange Act of 1934 to serve on an audit committee of a board of directors and certain additional independence requirements in our operating agreement), (ii) determined by our board of directors to be fair and reasonable to the Company or (iii) approved by the affirmative vote of the holders of at least a majority of the voting power of the outstanding voting shares (excluding voting shares owned by MGM and its affiliates); provided, however, that our operating agreement provides that any transaction, individually or in the aggregate, over $25 million between MGM or any of its affiliates (other than the Company and its subsidiaries), on the one hand, and the Company or any of its subsidiaries, on the other hand, shall be permitted only if (i) Special Approval is obtained or (ii) such transaction is approved by the affirmative vote of the holders of at least a majority of the voting power of the outstanding voting shares (excluding voting shares owned by MGM and its affiliates).


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Our Properties

The following table summarizes certain features of our properties, as of December 31, 2019. Our properties are diversified across a range of primary uses, including gaming, hotel, convention, dining, entertainment, retail and other resort amenities and activities.

 
Location
 
Hotel
Rooms
 
Approximate
Acres
 
Approximate
Casino
Square
Footage (1)
 
Approximate
Convention
Square
Footage
 
Las Vegas Strip
 
 
 
 
 
 
 
 
 
 
Mandalay Bay
Las Vegas, NV
 
4,750

(2) 
124

 
152,000

 
2,121,000

(3) 
The Mirage
Las Vegas, NV
 
3,044

 
77

 
94,000

 
170,000

 
New York—New York and The Park
Las Vegas, NV
 
2,024

 
23

 
81,000

 
31,000

 
Luxor
Las Vegas, NV
 
4,397

 
58

 
101,000

 
35,000

 
Park MGM
Las Vegas, NV
 
2,898

(4) 
21

 
66,000

 
77,000

 
Excalibur
Las Vegas, NV
 
3,981

 
51

 
94,000

 
25,000

 
Subtotal
 
 
21,094

 
354

 
588,000

 
2,459,000

 
Regional
 
 
 
 
 
 
 
 
 
 
MGM Grand Detroit
Detroit, MI
 
400

 
24

 
127,000

 
30,000

 
Beau Rivage
Biloxi, MS
 
1,740

 
26

(5) 
87,000

 
50,000

 
Gold Strike Tunica
Tunica, MS
 
1,133

 
24

 
48,000

 
17,000

 
Borgata
Atlantic City, NJ
 
2,767

 
37

(6) 
160,000

 
106,000

 
MGM National Harbor
Prince George’s County, MD
 
308

 
23

(7) 
146,000

 
50,000

 
MGM Northfield Park
Northfield, OH
 

 
113

 
73,000

 

 
Empire City
Yonkers, NY
 

 
41

 
137,000

 

 
Subtotal
 
 
6,348

 
288

 
778,000

 
253,000

 
Total
 
 
27,442

 
642

 
1,366,000

 
2,712,000

 

(1)
Casino square footage is approximate and includes the gaming floor, race and sports, high limit areas and casino specific walkways, and excludes casino cage and other non-gaming space within the casino area.
(2)
Includes 1,117 rooms at the Delano and 424 rooms at the Four Seasons Hotel, both of which are located at our Mandalay Bay property.
(3)
Includes 26,000 square feet at the Delano and 30,000 square feet at the Four Seasons, both of which are located at our Mandalay Bay property.
(4)
Includes 293 rooms at NoMad which is located at our Park MGM property.
(5)
Ten of the 26 acres at Beau Rivage are subject to a tidelands lease. The ground lease rent is reimbursed or paid directly by the tenant pursuant to the MGM-MGP Master Lease.
(6)
Eleven of the 37 acres at Borgata are subject to ground leases. The ground lease rent is reimbursed or paid directly by the tenant pursuant to the MGM-MGP Master Lease.
(7)
All 23 acres at MGM National Harbor are subject to ground lease. The ground lease rent is reimbursed or paid directly by the tenant pursuant to the MGM-MGP Master Lease.

Competition

We compete with other REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, gaming companies and other investors. For further discussion of the potential impact of competitive conditions on our business, see Item 1A. Risk Factors – Risks Related to Our Business and Operations – Our pursuit of investments in, and acquisitions or development of, additional properties may be unsuccessful or fail to meet our expectations.

Environmental Regulations and Potential Liabilities

Government Regulation Relating to the Environment. Many laws and governmental regulations relating to the environment are applicable to our properties, and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently and may adversely affect us.


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Costs related to environmental compliance. As an owner of real property, we are subject to various federal, state and local environmental and health and safety laws and regulations. Although we do not operate or manage our properties, we may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any property from which there has been a release or threatened release of a regulated material as well as other affected properties, regardless of whether we knew of or caused the release. We are not aware of any environmental issues that are expected to have a material impact on the operations of any of our properties.

In addition to these costs, which are typically not limited by law or regulation and could exceed the property’s value, we could be liable for certain other costs, including governmental fines and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs the government incurs in connection with such contamination. The presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.

Pursuant to the MGM-MGP Master Lease, any liability arising from or relating to environmental liabilities arising from the businesses and operations located at MGM’s real property holdings prior to our initial public offering is retained by the tenant and the tenant has indemnified us (and our subsidiaries, directors, officers, employees and agents and certain other related parties) against any losses arising from or relating to such environmental liabilities. There can be no assurance that the tenant will be able to fully satisfy its indemnification obligations, or that MGM will be able to fully satisfy its obligations pursuant to its guarantee. Moreover, even if we ultimately succeed in receiving from the tenant or MGM any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from the tenant or MGM.

Environmental sustainability. We believe that incorporating the tenets of environmental sustainability in our business decisions advances a platform for innovation and operational efficiency. Certain assets in the MGM Growth Properties portfolio are certified to one or more third-party environmental certifications for building design, construction or operations. MGM Grand Detroit, Beau Rivage, and Gold Strike Tunica have all achieved Green Key certification. Mandalay Bay, The Mirage, Park MGM, New York-New York, Luxor and Excalibur have all achieved Green Globes and Green Key certification. MGM National Harbor and The Park have Leadership in Energy & Environmental Design (LEED®) Gold certification from the U.S. Green Building Council.

Regulation

The ownership, operation, and management of gaming facilities are subject to pervasive regulation. Gaming laws are generally based upon declarations of public policy designed to protect gaming consumers and the viability and integrity of the gaming industry. Gaming laws also may be designed to protect and maximize state and local revenues derived through taxes and licensing fees imposed on gaming industry participants as well as to enhance economic development and tourism. To accomplish these public policy goals, gaming laws establish procedures to ensure that participants in the gaming industry meet certain standards of character and fitness. In addition, gaming laws require gaming industry participants to:

ensure that unsuitable individuals and organizations have no role in gaming operations;
establish procedures designed to prevent cheating and fraudulent practices;
establish and maintain responsible accounting practices and procedures;
maintain effective controls over their financial practices, including establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues;
maintain systems for reliable record keeping;
file periodic reports with gaming regulators;
ensure that contracts and financial transactions are commercially reasonable, reflect fair market value and are arms-length transactions; and
establish programs to promote responsible gaming.

These regulations impact our business in two important ways: (1) our ownership of land and buildings in which gaming activities are operated by third party tenants pursuant to long-term leases; and (2) the operations of our gaming tenants. Many gaming and racing regulatory agencies in the jurisdictions in which our gaming tenants operate require MGP and its affiliates to maintain a license as a principal entity, entity qualifier or supplier because of its status as landlord, including Maryland, Michigan, Mississippi, New Jersey, New York and Ohio.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, health care, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

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Intellectual Property

We have a royalty-free intellectual property rights license agreement (the “IP License Agreement) with MGM pursuant to which we will have the right to use “MGM in the corporate names of our company and our subsidiaries without royalties for up to 50 years. Pursuant to the IP License Agreement, we will also have the right to use the “MGM mark and the “MGM logo in our advertising materials without royalties for up to 50 years. We are reliant on MGM to maintain and protect its intellectual property rights and we could be adversely impacted by infringement, invalidation, unauthorized use or litigation affecting the licensed intellectual property or brand names used in the operation of the properties.

Cautionary Statement Concerning Forward-Looking Statements

This Annual Report on Form 10-K 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 dividends 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 leased to MGM for substantially all of our anticipated cash flows.
We, or the MGP BREIT Venture, as applicable, may not be able to re-lease the properties following the expiration or termination of the lease.
MGP’s sole material assets are Operating Partnership units representing 36.3% of the ownership interests in the Operating Partnership, as of December 31, 2019, 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.
Our ability to sell our properties is restricted by the terms of the leases or may otherwise be limited.
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 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 significant number of our major gaming resorts are concentrated on 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 rights of first offer with respect to MGM Springfield and with respect to any future gaming developments by MGM on the undeveloped land adjacent to Empire City) 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.

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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 MGM-MGP 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 MGM-MGP Master Lease’s tenant, a bankruptcy court may determine that the MGM-MGP 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 MGM-MGP 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 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.
The anticipated benefits of our prior, anticipated and future investments and acquisitions, including our investment in MGP BREIT Venture, may not be realized fully and may take longer to realize than expected.

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 Annual Report on Form 10-K 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.

Employees of the Registrants

We are managed by an executive management team. As of December 31, 2019, we employed four other employees aside from our executive management team. MGM has agreed to provide MGP and its subsidiaries with financial, administrative and operational support services pursuant to a corporate services agreement (the “Corporate Services Agreement”), 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. The Corporate Services Agreement provides that the Operating Partnership will reimburse MGM for all costs MGM incurs directly related to providing such services.

Information about our Executive Officers

The following table sets forth, as of February 27, 2020, the name, age and position of each of our executive officers. Executive officers are elected by and serve at the pleasure of the Board of Directors.
 
Name
 
Age
 
Position
James C. Stewart
 
54
 
Chief Executive Officer
Andy H. Chien
 
44
 
Chief Financial Officer and Treasurer

Mr. Stewart has been employed as the Chief Executive Officer of MGP and the Operating Partnership since our initial public offering in April 2016. Prior to joining MGP, Mr. Stewart served as a Managing Director of Greenhill & Co., Inc. from 2009 to 2016,

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during which time he founded their Los Angeles Office and was responsible for the Gaming, Lodging and Leisure sector. From 2006 to 2009, Mr. Stewart was a Managing Director of UBS Investment Bank, served as Co-Head of the Los Angeles Office and was responsible for the Gaming and Leisure sector. Mr. Stewart worked in Morgan Stanley’s New York and Los Angeles offices from 1992 to 2005, advising on a number of significant gaming industry, real estate and other transactions and rising from Associate to Managing Director. Mr. Stewart started his career as a financial analyst at Salomon Brothers Inc. from 1988 to 1990. Mr. Stewart earned his Master of Business Administration with distinction from the Tuck School of Business at Dartmouth College, where he was named an Amos Tuck Scholar, and his Bachelor of Commerce from the University of Calgary.

Mr. Chien has been employed as the Chief Financial Officer and Treasurer of MGP and the Operating Partnership since our initial public offering in April 2016. Prior to joining MGP, Mr. Chien worked at Greenhill & Co., Inc. from 2009 to 2016, most recently serving as a Managing Director responsible for the firm’s REIT, gaming, lodging and leisure clients. Prior to that, Mr. Chien served as a Director at UBS Investment Bank in Los Angeles, where he worked from 2004 to 2009 and was focused on the real estate, gaming, lodging and leisure industries. Mr. Chien’s previous experience also includes various roles as a member of the real estate group at Citigroup/Salomon Smith Barney as well as various positions at Commerce One and Intel Corporation. Mr. Chien earned his Master of Business Administration from the Anderson School at UCLA, and his Bachelor of Science in Engineering, summa cum laude, from the University of Michigan.

Available Information

We maintain a website at www.mgmgrowthproperties.com that includes financial and other information for investors. We provide access to our Securities and Exchange Commission (“SEC”) filings, including filings made by the Operating Partnership and our joint Annual Report on Form 10-K and Quarterly Reports on Form 10-Q (including related filings in XBRL format), filed and furnished current reports on Form 8-K, and amendments to those reports on our website, free of charge, through a link to the SEC’s EDGAR database. Through that link, our filings are available as soon as reasonably practicable after we file or furnish the documents with the SEC. These filings are also available on the SEC’s website at www.sec.gov.

Reference in this document to our website address does not incorporate by reference the information contained on the website into this Annual Report on Form 10-K.

ITEM 1A.
RISK FACTORS

You should be aware that the occurrence of any of the events described in this section and elsewhere in this report or in any other of our filings with the SEC could have a material adverse effect on our business, financial position, results of operations and cash flows. In evaluating us, you should consider carefully, among other things, the risks described below. Please refer to the section entitled “Cautionary Statement Concerning Forward-Looking Statements.”

Risks Related to Our Business and Operations

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. Subsidiaries of MGM are the tenants under both the MGM-MGP Master Lease and the MGP BREIT Venture Lease, which collectively account for a substantial portion of our cash flows. Additionally, because the leases are triple-net leases, we, and the MGP BREIT Venture, depend on the tenants to pay all insurance, taxes, utilities, maintenance and repair expenses in connection with these properties and to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses. There can be no assurance that the tenants will have sufficient assets, income or liquidity to satisfy their respective payment obligations under the leases, including any payment obligations that may arise in connection with the indemnities, or that MGM will be able to satisfy its guarantees of the tenants’ obligations under the leases. Furthermore, there can be no assurance that we will have the right to seek reimbursement against an insurer or have any recourse against the tenants or MGM in connection with such liabilities. The tenants and MGM rely on the properties they own and/or operate for income to satisfy their obligations, including their debt service requirements and lease payments due to us, or the MGP BREIT Venture, under the applicable lease. If income from these properties were to decline for any reason, or if the tenants’ or MGM’s debt service requirements or other financial obligations were to increase, whether due to an increase in interest rates, additional rent payments or otherwise, the tenants may become unable or unwilling to satisfy their respective payment obligations under the leases and MGM may become unable or unwilling to make payments under its guarantees of the leases If either tenant were unable or unwilling to meet its rent obligations and other obligations for one or more of the properties, there can be no assurances that we, or the MGP BREIT Venture, would be able to contract with other lessees on similar terms as the leases or at all. The inability or unwillingness of the tenants to meet their rent obligations and other obligations under the leases could materially adversely affect our business, financial position or results of operations, including our ability to pay distributions to our shareholders as required to maintain our status as a REIT. For these reasons, if the tenants or MGM were to experience

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a material adverse effect on their respective businesses, financial positions or results of operations, our business, financial position or results of operations could also be materially adversely affected.

Due to our dependence on rental payments from the tenants or from MGM (pursuant to its guarantee) and distributions from the MGP BREIT Venture as the primary source of our cash flows, we may be limited in our ability to enforce our rights under the leases. In addition, our venture partner in the MGP BREIT Venture would have the ability to remove us and assume the role of managing member of the MGP BREIT Venture, if there were (i) a default by the tenant under the MGP BREIT Venture Lease, (ii) a transfer or dilution resulting in us directly or indirectly owning less than 35% of the interest in the MGP BREIT Venture, or (iii) certain bad acts by us as the managing member of the MGP BREIT Venture. Such removal could further limit our ability to enforce our rights under the MGP BREIT Venture Lease. In addition, in the event of our removal as the managing member of MGP BREIT Venture for a bad act, we would lose the right to approve certain other major decisions related to the MGP BREIT Venture. We may also be limited in our ability to enforce our rights under the MGM-MGP Master Lease or MGP BREIT Venture Lease because they are unitary leases and do not provide for termination with respect to individual properties by reason of the default of the tenant. While we believe that the tenants will have an interest in complying with the terms of the leases, failure by the tenants to comply with the terms of the leases or to comply with the gaming regulations to which the properties under the leases are subject could require us, or the MGP BREIT Venture, to find another lessee for all of the properties under the leases. During this period, there could be a decrease or cessation of rental payments by the tenants. In such event, we, or the MGP BREIT Venture, may be unable to locate a suitable lessee at similar rental rates in a timely manner or at all, which could have the effect of reducing our rental revenues and/or our distributions from the MGP BREIT Venture.

We depend on the properties leased to MGM for substantially all of our anticipated cash flows. Unless and until we acquire additional properties, we will depend on properties operated by subsidiaries of MGM for substantially all of our anticipated cash flows. We may not immediately acquire other properties to further diversify and increase our sources of cash flow and reduce our portfolio concentration. Any default with regard to any property under either lease will cause a default with regard to the entire portfolio covered by such lease. Consequently, the impairment or loss of any one or more of the properties could materially and disproportionately reduce our, or the MGP BREIT Venture’s, ability to collect rent and, as a result, have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our shareholders.

We, or the MGP BREIT Venture, as applicable, may not be able to re-lease the properties following the expiration or termination of the leases. When the current leases expire (or are earlier terminated), the properties subject thereto, together or individually, may not be relet in a timely manner or at all, or the terms of reletting, including the cost of allowances and concessions to future tenants, including MGM or its subsidiaries, may be less favorable than the current lease terms. The loss of the tenant, or future tenants on acquired properties, through lease expiration or other circumstances may require us to spend (in addition to other reletting expenses) significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs in the form of ongoing expenses for property maintenance, taxes, insurance and other expenses.

The MGM-MGP Master Lease allows the tenant to cease operations at any of the properties at any time as long as at the time of such cessation of operations of the adjusted revenue to rent ratio (as described in the MGM-MGP Master Lease) is at least 1.90:1.00 for the preceding twelve month period, after giving effect to the cessation of operations at the applicable property on a pro forma basis. If the tenant were to cease operations at a property, whether due to market or economic conditions or for any other reason, the value of such property may be impaired and we will not have the right to re-lease the property as a result of tenant’s continuing rights to such property.

The leases are especially suited to MGM, the parent of the tenants under the leases. Because the properties have been designed or physically modified for a particular tenant, if a lease is terminated or not renewed, we may be required to renovate such properties at substantial costs, decrease the rent we charge or provide other concessions to re-lease such properties. In addition, if we are required to sell a property, we may have difficulty selling it to a party other than to a gaming operator due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand. To the extent that we are not able to re-lease our properties or that we incur significant capital expenditures as a result of property vacancies, our business, results of operations and financial condition could be materially adversely affected. Further, if we were unable to re-lease our properties following the expiration or termination of a lease, our cash flow, liquidity and dividend yield on our Class A shares may be adversely affected.

In addition, following the expiration or earlier termination of the MGP BREIT Venture Lease, if MGM is still our controlling shareholder, our joint venture partner will make all decisions related to the identification of a successor tenant as well as the ultimate terms of any new lease with respect to those properties. While we believe our joint venture partner would seek to enter into a new lease on the most economically advantageous terms, we will not be ultimately involved in any such decision

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and no assurance can be made that the terms of any new lease will be the similar to the terms of the existing lease and to the extent the terms are less advantageous than the terms of the existing lease, our results of operations may be adversely affected.

We may have assumed, and in the future may assume, unknown liabilities in connection with acquisitions. Our properties may be subject to unknown existing liabilities. These liabilities might include liabilities for clean-up or remediation of undisclosed environmental conditions, claims by tenants, vendors or other persons dealing with the properties, tax liabilities and accrued but unpaid liabilities incurred in the ordinary course of business. While the leases will allocate responsibility for many of these liabilities to the tenants under the leases, if the tenants fail to discharge these liabilities, we or the MGP BREIT Venture could be required to do so. Additionally, while in some instances we or the MGP BREIT Venture may have the right to seek reimbursement against an insurer, any recourse against third parties, including the prior investors in our assets, for certain of these liabilities will be limited. There can be no assurance that we or the MGP BREIT Venture will be entitled to any such reimbursement or that ultimately we or the MGP BREIT Venture will be able to recover in respect of such rights for any of these historical liabilities.

MGP’s sole material assets are Operating Partnership units representing 36.3% of the ownership interests in the Operating Partnership, as of December 31, 2019, over which MGP has operating control through its ownership of the Operating Partnership’s general partner. Because MGP’s interest in the Operating Partnership represents its only cash-generating asset, its cash flows and distributions depend entirely on the performance of the Operating Partnership and its ability to distribute cash to MGP. MGP is a holding company whose sole material assets are Operating Partnership units representing 36.3% of the ownership interests in the Operating Partnership, as of December 31, 2019, and its ownership interest in the general partner of the Operating Partnership. The source of MGP’s earnings and operating cash flow consists exclusively of cash distributions from the Operating Partnership. Therefore, MGP’s ability to make distributions to its Class A shareholders is completely dependent on the performance of the Operating Partnership and its ability to distribute funds to MGP. The Operating Partnership’s partnership agreement requires it to distribute to MGP all or such portion of its available cash each quarter as determined by the general partner. The general partner, MGP’s wholly owned subsidiary, intends to cause the Operating Partnership to make such distributions and retain such cash reserves to provide for the proper conduct of its business, to enable it to make distributions to MGP so that MGP can make distributions to its Class A shareholders, or to comply with applicable law or any of the Operating Partnership’s debt or other agreements.

To the extent that MGP needs funds, and the Operating Partnership is restricted from making such distributions pursuant to the terms of the agreements governing its debt or under applicable law or regulation, or is otherwise unable to provide such funds, it could materially and adversely affect MGP’s liquidity and financial condition. In addition, the Operating Partnership will also rely on distributions from the MGP BREIT Venture as a source of cash for future distributions to the Company, which distributions could be limited in the future in the event there is a default under the MGP BREIT Venture’s debt agreements. The earnings from, or other available assets of, the Operating Partnership may not be sufficient to make distributions or loans to MGP to enable MGP to make distributions on its Class A shares, taxes and other expenses.

Our ability to sell any of our properties may be restricted by the terms of the leases or may be otherwise limited. Our ability to sell or dispose of the properties may be hindered by the fact that such properties are subject to the leases, as the terms of the leases may make such properties less attractive to a potential buyer than alternative properties that may be for sale. In addition, the leases provide that we may not sell the respective properties to certain competitors of MGM, limiting the number of potential purchasers of our properties for as long as the properties are subject to the leases. Furthermore, even if any potential sale or disposition were not restricted by the applicable lease, real estate investments are relatively illiquid and may be difficult to sell quickly. Accordingly, our ability to promptly sell any of the properties in our portfolio in response to any changes in economic, financial, industry or other conditions may be limited.

If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives. Our success depends in large part upon the leadership and performance of our executive management team, particularly James C. Stewart, our Chief Executive Officer, and Andy H. Chien, our Chief Financial Officer. The appointment of certain key members of our executive management team will be subject to regulatory approvals based upon suitability determinations by gaming regulatory authorities in the jurisdictions where our properties are located. If Messrs. Stewart or Chien are found unsuitable by any such gaming regulatory authorities, or if we otherwise lose their services, we would have to find alternative candidates and may not be able to successfully manage our business or achieve our business objectives.

We may face extensive regulation from certain 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. The ownership, operation and management of gaming facilities are subject to pervasive regulation. Certain gaming authorities in the jurisdictions in which MGM operates may require us and our affiliates to maintain a license as a key business entity or supplier because of our status as landlord. Gaming authorities also retain great discretion to require

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us to be found suitable as a landlord, and certain of our shareholders, officers and directors may be required to be found suitable as well.

Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities. If the gaming authorities were to find us unsuitable as a landlord, MGM may be required to sever its relationship with us and we could be compelled to sell the properties.

Gaming authorities may conduct investigations into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards. If we are required to be found suitable and are found suitable as a landlord, we will be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a shareholder or to have any other relationship with us, we:
pay that person any distribution or interest upon any of our voting securities;
allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;
pay remuneration in any form to that person for services rendered or otherwise; or
fail to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities including if necessary, the immediate purchase of the voting securities for cash at fair market value.

Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities, typically 5%, of registered public companies or companies that have been found suitable and, in some jurisdictions, non-voting securities to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a public company’s voting securities for investment purposes only. In addition, to the extent a person or institution also holds shares in MGM, such shares may be aggregated with the shares they hold in us in connection with calculating such person’s or institution’s beneficial ownership for purposes of complying with any regulatory requirements in an applicable jurisdiction.

Further, our directors, officers, key employees and investors in our shares must meet approval standards of certain gaming regulatory authorities. If such gaming regulatory authorities were to find such a person or investor unsuitable, we may be required to sever our relationship with that person or the investor may be required to dispose of his, her or its interest in us. Our operating agreement provides that all of our shares held by investors who are found to be unsuitable by regulatory authorities are subject to redemption upon our receipt of notice of such finding. Gaming regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees or investors to ensure compliance with applicable standards.

Additionally, if we are registered as a public company with the gaming authorities neither we nor any of our subsidiaries may make a public offering of securities without the prior approval of certain gaming authorities. Changes in control through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or otherwise are subject to receipt of prior approval of gaming authorities. Entities seeking to acquire control of us or one of our subsidiaries must satisfy gaming authorities with respect to a variety of stringent standards prior to assuming control.

We will have future capital needs and may not be able to obtain additional financing on acceptable terms. As of December 31, 2019, we had outstanding indebtedness in principal amount of $4.4 billion. We may also incur additional indebtedness in the future to refinance our existing indebtedness or to finance newly acquired properties or for general corporate or other purposes. Any significant additional indebtedness could require a substantial portion of our cash flow to make interest and principal payments due on our indebtedness. Greater demands on our cash resources may reduce funds available to us to pay distributions, make capital expenditures and acquisitions or carry out other aspects of our business strategy. Increased indebtedness can also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service obligations may limit the Operating Partnership’s and MGP’s operational flexibility, including our ability to acquire properties, finance or refinance our properties, contribute properties to joint ventures or sell properties as needed. Further, to the extent we were required to incur indebtedness, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

Moreover, our ability to obtain additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, which is subject to then prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other

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factors, many of which are beyond our control. The prolonged continuation or worsening of current credit market conditions would have a material adverse effect on our ability to obtain financing on favorable terms, if at all.

We may be unable to obtain additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under indebtedness outstanding from time to time (if any). Among other things, the absence of an investment grade credit rating or any credit rating downgrade could increase our financing costs and could limit our access to financing sources. If financing is not available when needed, or is available on unfavorable terms, we may be unable to develop new or enhance our existing properties, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

We may raise additional funds in the future through the issuance of equity securities and, as a result, our shareholders may experience significant dilution, which may make it more difficult for our shareholders to sell our Class A shares at a time and price that they deem appropriate and could impair our future ability to raise capital through an offering of our equity securities.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the notes and our other debt. We have a significant amount of indebtedness. As of December 31, 2019, we and our subsidiaries on a consolidated basis had $4.4 billion principal amount of debt and $1.4 billion available for borrowing under our revolving credit facility. Our substantial indebtedness could have important consequences to our financial health. For example, it could:

make it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to debt service, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared to our competitors that are not as highly leveraged;
limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds; and
result in an event of default if we fail to satisfy our obligations under the notes or our other debt or fail to comply with the financial and other restrictive covenants contained in the indentures or our other debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.

Any of the above listed factors could have a material adverse effect on our business, financial condition and results of operations.

In addition, our credit facility calculates interest on outstanding balances using the London Inter-bank Offer Rate (“LIBOR”). On July 27, 2017, the United Kingdom Financial Conduct Authority (the “FCA”) announced it would phase out LIBOR as a benchmark by the end of 2021. Although our credit agreement includes LIBOR replacement provisions that contemplate an alternate benchmark rate to be mutually agreed upon by us and the administrative agent, if necessary, any such changes may result in interest obligations which are more than, or do not otherwise correlate over time with, the payments that would have been made if LIBOR was available in its current form. As a result, there can be no assurance that discontinuation of LIBOR will not result in significant increases in benchmark interest rates, substantially higher financing costs or a shortage of available debt financing, any of which could have an adverse effect on us. In addition, we are party to certain interest rate swaps to mitigate the interest rate risk inherent in our senior credit facility. We expect that amendments will be made to our interest rate swap agreements that will result in the LIBOR-based swap rate reverting, upon the occurrence of such events, to the same rate that would be expected to be used as the replacement rate or alternate base rate under our credit agreement, but no assurance can be made that we will ultimately enter into any such amendments. The full impact of the expected transition away from LIBOR and the potential discontinuation of LIBOR after 2021 is not known, but if an alternative to LIBOR is not available and widely accepted after 2021, our ability to borrow at variable interest rates may be adversely impacted, and the costs associated with our current or any potential future interest rate swaps requiring us to pay floating interest rates may also increase.

Further, the terms of our existing debt agreements do not, and any future debt may not, fully prohibit us from incurring additional debt. If new debt is added to our current debt levels, the related risks that we now face could intensify.

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. The agreements governing our indebtedness contain customary covenants, including restrictions on the Operating Partnership’s ability to grant liens on the Operating Partnership’s

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assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and pay certain distributions and other restricted payments. In addition, the Operating Partnership is required to comply with certain financial covenants. These restrictions may limit our operational flexibility. Covenants that limit our operational flexibility as well as defaults under the Operating Partnership’s debt instruments could have a material adverse effect on our business, financial position or results of operations.

We have agreed to a limited waiver with MGM to purchase up to $1.4 billion of MGM’s operating partnership units for cash (in lieu of Class A shares) for a period of 24 months following the closing of the MGP BREIT Venture Transaction. In connection with the MGP BREIT Venture Transaction, we entered into an agreement with MGM that will require us to purchase up to $1.4 billion of MGM’s operating partnership units for cash over a 24-month period following the closing of the transaction, should MGM elect to tender such units. To the extent MGM makes such an election, we may be required to access the debt capital markets to fulfill the redemption request and there can be no assurances that we will be able to borrow the funds required to make the redemption on terms that are favorable to us or at all.

The MGM-MGP Master Lease requires us to pay for certain capital improvements or to purchase certain personal property from the tenant in certain circumstances, and we may be required to obtain additional financing. The MGM-MGP Master Lease provides that, if MGM were required to cease consolidating us within its financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) at any time in the future (a “deconsolidation event”), we may be required to pay the tenant, should the tenant so elect, an amount equal to the fair market value of certain capital improvements made by or at the direction of the tenant or the MGM-MGP Master Lease operating subtenants from the start of the term of the MGM-MGP Master Lease until the deconsolidation event, subject to an initial cap of $100 million in the first year of the MGM-MGP Master Lease increasing annually by $75 million each year thereafter. Rent under the MGM-MGP Master Lease will increase by a factor applied to such amount paid by us to the tenant. If such a deconsolidation event were to occur and we do not elect to pay in equity, we may not have sufficient liquidity to fund these payments in respect of capital improvements, and may be required to obtain additional financing, which could adversely affect funds for future acquisitions and have a material adverse effect on our business, financial position or results of operations. Alternatively, we may elect to make payments in respect of the capital improvements in the form of equity, which could be dilutive to existing shareholders.

In addition, the MGM-MGP Master Lease provides that, under certain circumstances in connection with the expiration of the MGM-MGP Master Lease, we may be required to purchase certain tangible personal property of the tenant or subtenants at the properties then subject to the MGM-MGP Master Lease, including gaming equipment and hotel furniture, fixtures and equipment, for fair market value. If we were required to purchase these assets (subject to applicable gaming laws), we may not have sufficient liquidity to fund these purchases, and may be required to obtain additional financing, which could adversely affect funds for future acquisitions and have a material adverse effect on our business, financial position or results of operations.

Rising expenses could reduce cash flow and funds available for future acquisitions and distributions. Our properties will be subject to increases in tax rates and tax assessments, utility costs, insurance costs, repairs, maintenance and administrative expenses, and other operating expenses. We may also incur significant expenditures as a result of deferred maintenance for the properties and other properties we may acquire in the future. While the properties under the leases are leased on a triple-net basis, if a tenant or any future tenant fails to pay required tax, utility and other impositions and other operating expenses, or if a tenant or any future tenant fails to maintain any leased properties in the condition required by the leases, respectively, and if we are required to incur a high level of capital expenditures, we could be required to pay those costs which may require that we obtain additional financing and could adversely affect funds available for future acquisitions or cash available for distributions.

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. As the owner of properties associated with gaming facilities, we will be impacted by the risks associated with the gaming industry. Therefore, our success is to some degree dependent on the gaming industry, which could be adversely affected by economic conditions in general, changes in consumer trends, reductions in discretionary consumer spending and corporate spending on conventions and business development and preferences and other factors over which we and MGM have no control. Economic contraction, economic uncertainty or the perception by our customers of weak or weakening economic conditions may cause a decline in demand for hotels, casino resorts, trade shows and conventions, and for the type of luxury amenities offered at our properties. In addition, changes in discretionary consumer spending or consumer preferences could be driven by factors such as the increased cost of travel, an unstable job market, perceived or actual disposable consumer income and wealth, outbreaks of contagious diseases or fears of war and future acts of terrorism. Because a component of the rent under the MGM-MGP Master Lease is based, over time, on the actual net revenues (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) of the tenant and, without duplication, the subtenants

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from the leased properties subject to the MGM-MGP Master Lease, a decrease in the gaming business would likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio.

Because a significant number of our major gaming resorts are concentrated on the Strip, we are subject to greater risks than a company that is more geographically diversified. Given that a significant number of our major resorts are concentrated on the Strip, including the properties held by the MGP BREIT Venture, our business may be significantly affected by risks common to the Las Vegas tourism industry. For example, the cost and availability of air services and the impact of any events that disrupt air travel to and from Las Vegas can adversely affect the business of the tenants. We cannot control the number or frequency of flights to or from Las Vegas, but the tenants rely on air traffic for a significant portion of their visitors. Reductions in flights by major airlines as a result of higher fuel prices or lower demand can impact the number of visitors to our properties. Additionally, there is one principal interstate highway between Las Vegas and Southern California, where a large number of the customers that frequent our properties reside. Capacity constraints of that highway or any other traffic disruptions may also affect the number of customers who visit our facilities. Moreover, due to the concentration of our major resorts that operate on the Strip, we may be disproportionately affected by general risks such as acts of terrorism, natural disasters, including major fires, floods and earthquakes, and severe or inclement weather, should such developments occur in or nearby Las Vegas.

Our pursuit of investments in, and acquisitions or development of, additional properties (including our rights of first offer with respect to MGM Springfield and with respect to any future gaming developments by MGM on the undeveloped land adjacent to Empire City) may be unsuccessful or fail to meet our expectations. We operate in a highly competitive industry and face competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, lenders, gaming companies and other investors, some of whom are significantly larger and have greater resources and lower costs of capital. Increased competition will make it more challenging to identify and successfully capitalize on acquisition opportunities that meet our investment objectives, particularly if the properties or assets we are seeking to acquire are owned or operated by competitors of MGM. Additionally, although our MGM-MGP Master Lease provides us with a right of first offer with respect to MGM Springfield and any future gaming development by MGM on the undeveloped land adjacent to Empire City, there can be no assurance that MGM will sell these properties in the future, or we may be unable to reach an agreement with MGM on the terms of the purchase of such properties if MGM were to elect to sell them in the future. Accordingly, there can be no assurance that we will be able to acquire any additional properties in the future.

If we cannot identify and purchase a sufficient quantity of gaming properties and other properties at favorable prices or if we are unable to finance acquisitions on commercially favorable terms, our business, financial position or results of operations could be materially adversely affected. Additionally, the fact that we must distribute at least 90% of our net taxable income (determined without regard to the dividends-paid deduction and excluding any net capital gains) in order to maintain our qualification as a REIT may limit our ability to rely upon rental payments from our leased properties or subsequently acquired properties in order to finance acquisitions. As a result, if debt or equity financing is not available on acceptable terms, further acquisitions might be limited or curtailed.

Investments in and acquisitions of gaming properties and other properties we might seek to acquire entail risks associated with real estate investments generally, including that the investments’ performance will fail to meet expectations, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant, operator or manager will underperform. Real estate development projects present other risks, including construction delays or cost overruns that increase expenses, the inability to obtain required zoning, occupancy and other governmental approvals and permits on a timely basis, and the incurrence of significant development costs prior to completion of the project.

Further, even if we were able to acquire additional properties in the future, there is no guarantee that such properties would be able to maintain their historical performance, or that we would be able to realize the same margins from those properties as the previous owners. In addition, our financing of these acquisitions could negatively impact our cash flows and liquidity, require us to incur substantial debt or involve the issuance of substantial new equity, which would be dilutive to existing shareholders. In addition, we cannot assure you that we will be successful in implementing our growth strategy or that any expansion will improve operating results. The failure to identify and acquire new properties effectively, or the failure of any acquired properties to perform as expected, could have a material adverse effect on us and our ability to make distributions to our shareholders.

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. MGM (and any future tenants of our gaming properties) will be required to be licensed under applicable law in order to operate any of our gaming properties as gaming facilities. If any lease or any future lease agreement we may enter into is terminated (which could be required by a regulatory agency) or expires, any new tenant must be licensed and receive other regulatory approvals to operate the properties as gaming facilities. Any delay in or inability of the new tenant to receive required licenses and other regulatory approvals from the applicable state

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and county government agencies may prolong the period during which we are unable to collect the applicable rent or, with respect to the MGP BREIT Venture Lease, receive continued distributions from the MGP BREIT Venture. Further, in the event that any lease or future agreement is terminated or expires and a new tenant is not licensed or fails to receive other regulatory approvals, the gaming properties may not be operated as gaming facilities and we will not be able to collect the applicable rent or, with respect to the MGP BREIT Venture Lease, receive continued distributions from the MGP BREIT Venture. Moreover, we may be unable to transfer or sell the affected properties as gaming properties, which would adversely impact our financial condition and results of operation.

Our operating agreement restricts the ownership and transfer of MGP’s outstanding Class A shares, which may have the effect of delaying, deferring or preventing a transaction or change of control of our company. In order for MGP to qualify to be taxed as a REIT, not more than 50% in value of its outstanding shares may be owned, actually or constructively, by five or fewer individuals at any time during the last half of each taxable year after the first year for which it elects to qualify to be taxed as a REIT. Additionally, at least 100 persons must beneficially own MGP’s shares during at least 335 days of a taxable year (other than the first taxable year for which we elect to be taxed as a REIT). Also, subject to limited exceptions, neither we nor an actual or constructive owner of 10% or more (by value) of our shares may actually or constructively own 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Any tenant that exceeds such ownership limits is referred to as a related party tenant, and rent from a related party tenant generally will not qualify under the REIT income tests.

MGP’s operating agreement, with certain exceptions, authorizes the board of directors to take such actions as are necessary and desirable to preserve MGP’s qualification as a REIT. MGP’s operating agreement also provides, subject to certain exceptions, that no person may beneficially or constructively own more than 9.8% in value or in number, whichever is more restrictive, of any class of MGP’s shares (other than the Class B share) or 9.8% of the value of the aggregate outstanding shares of all classes and series of MGP’s shares. The constructive ownership rules are complex and may cause shares owned directly or constructively by a group of related individuals or entities to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our shares or otherwise be in the best interests of our shareholders. The acquisition of less than 9.8% of our shares by an individual or entity could cause that individual or entity to own beneficially or constructively in excess of 9.8% in value of our outstanding shares, and thus violate our operating agreement’s ownership limit.

Any attempt to own or transfer MGP’s shares in violation of these restrictions may result in the transfer being automatically void. MGP’s operating agreement also provides that shares acquired or held in excess of the ownership limit will be transferred to a trust for the benefit of one or more designated charitable beneficiaries to be subsequently sold by the trust, and that any person who acquires our shares in violation of the ownership limit will not be entitled to any distributions on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the market price on the day the shares were transferred to the trust or the amount realized from the sale. We or our designee will have the right to purchase the shares from the trustee at this calculated price as well.

Any mechanic’s liens incurred by the applicable tenant or the subtenants will attach to, and constitute liens on, our interest in the properties. To the extent the tenants under the leases or their subtenants make any improvements, these improvements could cause mechanic’s liens to attach to the properties. To the extent that mechanic’s liens, or similar claims, are recorded against any of the properties or any properties we may acquire in the future, the holders of such mechanic’s liens or claims may enforce them by court action and courts may cause the applicable properties or future properties to be sold to satisfy such liens or claims, which could negatively impact our revenues, results of operations and our distributions to shareholders. Further, holders of such liens or claims could have priority over MGP’s Class A shareholders in the event of bankruptcy or liquidation, and as a result, a trustee in bankruptcy may have difficulty realizing or foreclosing on such properties in any such bankruptcy or liquidation, and the amount of distributions MGP’s Class A shareholders could receive in such bankruptcy or liquidation could be reduced.

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. A significant portion of our cash flow is generated from the MGM-MGP Master Lease or the MGP BREIT Venture Lease, which are triple net leases, and provide greater flexibility to the tenants related to the use of leased property than would be the case with ordinary property leases, such as the right to freely sublease portions of each leased property, to make alterations in the leased premises and to terminate the leases prior to expiration under specified circumstances. Furthermore, net leases typically have longer lease terms and, thus, there is an increased risk that contractual rental increases in future years will fail to result in fair market rental rates during those years. As a result, our income and distributions to our shareholders could be lower than they would otherwise be if we did not enter into net leases.

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The MGM-MGP Master Lease’s tenant may assign its responsibilities under the MGM-MGP Master Lease to unaffiliated third parties. The MGM-MGP Master Lease’s tenant may assign its obligations under the MGM-MGP Master Lease (including with respect to one or more individual properties) to a third party assignee without our consent if such assignee meets certain conditions under the MGM-MGP Master Lease regarding its experience operating large-scale casinos (or in the case of any of our non-gaming properties, experience operating similar properties), licensing status and economic condition, among other requirements. Despite these assignment requirements, there can be no assurances that any future assignee of the tenant’s obligations under the MGM-MGP Master Lease would be as creditworthy as the tenant or MGM, or would be able to operate the properties with the same operational expertise as the tenant and MGM, which could have a material adverse effect on our business, financial condition, results of operations.

We may be unable to realize the anticipated benefit of the rent escalators in our MGM-MGP Master Lease. Although the MGM-MGP Master Lease provides that the base rent will be escalated annually by 2.0% for the second through the sixth lease years (as defined in the MGM-MGP Master Lease), thereafter this rent escalation is subject to the tenant and, without duplication, the MGM-MGP Master Lease 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 MGM-MGP 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). If the rent escalation were not to apply in any particular year, no arrears would accrue or be payable in future lease years. Therefore, there can be no assurance that we will ever realize the benefit of the rent escalators in the MGM-MGP Master Lease after the sixth lease year, which could have a material adverse effect on anticipated future cash flows and our ability to increase our distributions to shareholders.

Even if we were able to receive rent escalators under the MGM-MGP Master Lease, the rent escalators may lag behind inflation rates. The annual escalators under the leases are based on fixed percentage increases, and, under the MGM-MGP Master Lease, subject to certain conditions. If these annual escalations lag behind inflation, it could adversely impact our financial condition, results of operations, cash flow, trading price of our Class A shares, our ability to satisfy our debt obligations and our ability to pay distributions to our shareholders.

Our dividend yield could be reduced if we were to sell any of our properties in the future. If we elect to sell one or more of the properties in the future, our results of operations could decrease, which could result in a lower level of distributions to our unitholders and shareholders than we made prior to such sale or sales. If our distributions were to decrease, the effective dividend yield of MGP’s Class A shares (i.e., the yield as a percentage of the then-market price of MGP’s Class A shares) could subsequently decrease as well, which could have a material adverse effect on the market price of MGP’s Class A shares.

An increase in market interest rates could increase our interest costs on existing and future debt and could adversely affect the price of MGP’s Class A shares. If interest rates increase, so could our interest costs for any new debt and our variable rate debt obligations. This increased cost could make the financing of any acquisition more costly, as well as lower future period earnings. Rising interest rates could limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing. In addition, an increase in interest rates could decrease the access third parties have to credit, thereby decreasing the amount they are willing to pay for our assets and consequently limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.

Further, the dividend yield on MGP’s Class A shares, as a percentage of the price of such shares, will influence the price of such shares. Thus, an increase in market interest rates may lead prospective purchasers of MGP’s Class A shares to expect a higher dividend yield, which would adversely affect the market price of MGP’s Class A shares.

The tenant may choose not to renew the MGM-MGP Master Lease or seek to renegotiate the terms of the MGM-MGP Master Lease at each renewal term. The MGM-MGP Master Lease generally has an initial lease term of ten years with the potential to extend the term for four additional five-year terms thereafter (other than with respect to MGM National Harbor, as described below), solely at the option of the tenant. The initial term of the MGM-MGP Master Lease with respect to MGM National Harbor ends on August 31, 2024. Thereafter, the initial term of the MGM-MGP Master Lease with respect to MGM National Harbor may be renewed at the option of the tenant for an initial renewal period lasting until the earlier of the end of the then-current term of the MGM-MGP Master Lease or the next renewal term (depending on whether MGM elects to renew the other properties under the MGM-MGP Master Lease in connection with the expiration of the initial ten-year term). If, however, the tenant chooses not to renew the lease with respect to MGM National Harbor after the initial MGM National Harbor term under the MGM-MGP Master Lease, the tenant would also lose the right to renew the MGM-MGP Master Lease with respect to the rest of the properties when the initial ten-year lease term related to the rest of the properties ends in 2026. At the expiration of any additional renewal term thereafter, the tenant may choose not to renew the MGM-MGP Master Lease or seek to renegotiate the terms of the MGM-MGP Master Lease. If the MGM-MGP Master Lease expires without renewal,

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or the terms of the MGM-MGP Master Lease are modified in a way which is adverse to us, our results of operations and our ability to maintain previous levels of distributions to unitholders and shareholders may be adversely affected.

We may be required to contribute insurance proceeds with respect to casualty events at our properties to the lenders under our debt financing agreements. In the event that we were to receive insurance proceeds with respect to a casualty event at any of our properties, we may be required under the terms of our debt financing agreements to contribute all or a portion of those proceeds to the repayment of such debt, which may prevent us from restoring such properties to their prior state. If the remainder of the proceeds (after any such required repayment) were insufficient to make the repairs necessary to restore the damaged properties to a condition substantially equivalent to its state immediately prior to the casualty, we may not have sufficient liquidity to otherwise fund these repairs and may be required to obtain additional financing, which could have a material adverse effect on our business, financial position or results of operations.

There can be no assurance that we will be able to make distributions to our unitholders and Class A shareholders or maintain our anticipated level of distributions over time. We will determine future distributions based on a number of factors, including, among other things, our operating results, our financial condition, especially in relation to our anticipated future capital needs, our then-current expansion plans, the distribution requirements for REITs under the Code, and other factors our board deems relevant. For example, if any tenant was unable to make rental payments under the applicable lease and MGM was unable to fulfill its obligations under its applicable guarantee, our ability to make distributions would be materially impaired. Our ability to make distributions to our unitholders and Class A shareholders, to maintain our anticipated level of distributions over time, and the timing, amount and composition of any future distributions will be at the sole discretion of our board in light of conditions then existing. Consequently, there can be no assurance that we will ever be able to make distributions at the anticipated distribution rate or be able to maintain our anticipated distribution rate over time, and any change in our distribution policy could have a material adverse effect on the market price of our Class A shares.

Delaware law and provisions in our operating agreement may delay or prevent takeover attempts by third parties and therefore inhibit our shareholders from realizing a premium on their shares. Our operating agreement and Delaware law both contain provisions that are intended to prevent coercive takeover practices and inadequate takeover bids and to require prospective acquirers to negotiate with our board of directors.

MGP’s operating agreement does, among other things:

provide majority voting rights to the holder of MGP’s outstanding Class B share;
provide that any merger, consolidation, conversion, sale or other disposition of our assets requires approval of our board of directors;
require advance notice for our shareholders to nominate candidates for election to our board of directors or to propose business to be considered by our shareholders at a meeting of our shareholders;
allow us to issue additional securities, including, but not limited to, preferred shares, without approval by our shareholders;
allow the board of directors to amend the operating agreement without the approval of the shareholders except under certain specified circumstances;
require that (subject to certain exceptions) no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% of the aggregate value or number (whichever is more restrictive) of any class of MGP’s shares (other than MGP’s Class B share) or more than 9.8% in value of the aggregate outstanding shares of all classes and series of MGP’s shares; and
limit the ability of our shareholders to call special meetings of our shareholders or to act by written consent.

In addition, our operating agreement does not limit or impair the ability of our board of directors to adopt a “poison pill” or shareholder or other similar rights plan, whether such poison pill or plan contains “dead hand” provisions, “no hand” provisions or other provisions relating to the redemption of the poison pill or plan.

Our board of directors believes these provisions will protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors. These provisions will apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our board of directors determines is not in our best interests. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

The bankruptcy or insolvency of a tenant could result in the termination of a lease and material losses to us. Although the tenants’ performance and payments under the leases are guaranteed by MGM, a default by a tenant with regard to any property under a lease, or by MGM with regard to its guarantee of such lease, will cause a default with regard to the entire portfolio covered by such lease. There can be no assurances that a tenant or MGM would assume the applicable lease or guarantee, as

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applicable, in the event of a bankruptcy, and if such lease or guarantee were rejected, the tenant or MGM, as applicable, may not have sufficient funds to pay the damages that would be owed to us as a result of the rejection. For these and other reasons, the bankruptcy of a tenant or MGM could have a material adverse effect on our business, financial condition and results of operations.

In the event of a bankruptcy of a tenant under one of the leases, a bankruptcy court may determine that such 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 or the MGP BREIT Venture own that are subject to a lease could be rejected by a tenant while tenant-favorable leases are allowed to remain in place. The tenants, which are subsidiaries of MGM, lease all of the properties pursuant to the leases. Bankruptcy laws afford certain protections to tenants that may also affect the leases, each of which may be treated for purposes of bankruptcy laws as either a single lease for all the applicable properties or as separate and severable leases for each of such properties. Subject to certain restrictions, a tenant under a lease generally is required to assume or reject the lease as a whole, rather than making the decision on a property-by-property basis. This prevents the tenant from assuming only the better performing properties and terminating the lease with respect to the poorer performing properties. However, it is possible that a bankruptcy court could determine that a single “master lease” covering multiple properties is not a single indivisible lease but rather is multiple severable leases each of which can be assumed or rejected independently. Whether or not a bankruptcy court will require that either lease must be assumed or rejected as a whole depends upon a “facts and circumstances” analysis considering a number of factors, including the parties’ intent, the nature and purpose of the relevant documents, whether there was separate and distinct consideration for each property included in such lease, whether the landlord or tenant under such lease had the ability to dispose of its interest in any property included in such lease, the provisions contained in the relevant documents and applicable state law. If a bankruptcy court in a bankruptcy of a tenant were to determine that such tenant’s lease is not a single lease but rather multiple severable leases each of which can be assumed or rejected independently, certain underperforming leases related to properties we or the MGP BREIT Venture own could be rejected by such tenant in bankruptcy while tenant-favorable leases are allowed to remain in place, thereby adversely affecting payments to us or the MGP BREIT Venture derived from the properties.

A bankruptcy court may judicially recharacterize either lease as a secured lending transaction, in which case we or the MGP BREIT Venture would not be treated as the owner of the applicable properties and could lose certain rights as the owners in the bankruptcy proceedings. It is possible that, if we or the MGP BREIT Venture were to become subject to bankruptcy proceedings, a bankruptcy court could re-characterize the lease transactions set forth in the applicable lease as secured lending transactions depending on its interpretation of the terms of such lease, including, among other factors, the length of such lease relative to the useful life of the leased property. If a lease were judicially recharacterized as a secured lending transaction, we or the MGP BREIT Venture, as applicable, would not be treated as the owner of the applicable properties and could lose the legal as well as economic attributes of the owners of the properties, which could have a material adverse effect on our business, financial position or results of operations.

We may experience uninsured or underinsured losses, which could result in a significant loss of the capital we or the MGP BREIT Venture, as applicable, have invested in a property, decrease anticipated future revenues or cause us to incur unanticipated expense. While each lease requires, and any new lease agreements are expected to require, that comprehensive insurance and hazard insurance be maintained by the tenant, there are certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, that are or will be subject to sublimits and may be uninsurable or not economically insurable. Insurance coverage may not be sufficient to pay the full current market value or current replacement cost of a loss. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the economic position with respect to such property.

If we experience a loss that is uninsured or that exceeds the policy coverage limits of the insurance maintained by the tenant under the applicable lease, we or the MGP BREIT Venture, as applicable, could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties were subject to recourse indebtedness, we or the MGP BREIT Venture, as applicable, could continue to be liable for the indebtedness even if these properties were irreparably damaged.

In addition, even if damage to our properties is covered by insurance, a disruption of our business caused by a casualty event may result in the loss of business or tenants. The business interruption insurance carried by the tenants may not fully compensate us or the MGP BREIT Venture, as applicable, for the loss of business due to an interruption caused by a casualty event. Further, if the tenants have insurance but are underinsured, they may be unable to satisfy their payment obligations under the applicable lease.


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A disruption in the financial markets may make it more difficult to evaluate the stability, net assets and capitalization of insurance companies and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us, the MGP BREIT Venture or the applicable tenant upon an event of loss covered by an insurance policy could adversely affect our business, financial condition and results of operations.

Changes in building and/or zoning laws may require us to update a property in the event of recapture or prevent us from fully restoring a property in the event of a substantial casualty loss and/or require us to meet additional or more stringent construction requirements. Due to changes, among other things, in applicable building and zoning laws, ordinances and codes that may affect certain of our properties that have come into effect after the initial construction of the properties, certain properties may not comply fully with current building and/or zoning laws, including electrical, fire, health and safety codes and regulations, use, lot coverage, parking and setback requirements, but may qualify as permitted non-conforming uses. Although each lease requires the tenant to pay for and ensure continued compliance with applicable law, there is no assurance that future leases will be negotiated on the same basis or that the tenants or other future tenants will make the required changes as required by the terms of such lease and/or any future leases we may enter into. In addition, such changes may limit a tenant’s ability to restore the premises of a property to its previous condition in the event of a substantial casualty loss with respect to the property or the ability to refurbish, expand or renovate such property to remain compliant, or increase the cost of construction in order to comply with changes in building or zoning codes and regulations. If a tenant is unable to restore a property to its prior use after a substantial casualty loss or is required to comply with more stringent building or zoning codes and regulations, we or MGP BREIT Venture may be unable to re-lease the space at a comparable effective rent or sell the property at an acceptable price, which may materially and adversely affect us.

Environmental compliance costs and liabilities associated with real estate properties owned by us may materially impair the value of those investments. As an owner of real property, we are subject to various federal, state and local environmental and health and safety laws and regulations. Although we will not operate or manage most of our property, we may be held primarily or jointly and severally liable for costs relating to the investigation and clean-up of any property from which there has been a release or threatened release of a regulated material as well as other affected properties, regardless of whether we knew of or caused the release.

In addition to these costs, which are typically not limited by law or regulation and could exceed the property’s value, we could be liable for certain other costs, including governmental fines and injuries to persons, property or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs the government incurs in connection with such contamination. The presence of contamination or the failure to remediate contamination may adversely affect our ability to sell or lease the real estate or to borrow using the real estate as collateral.
 
Certain properties are subject to restrictions pursuant to reciprocal easement agreements, operating agreements, or similar agreements. Many of the properties are, and properties that we acquire in the future may be, subject to use restrictions and/or operational requirements imposed pursuant to ground leases, restrictive covenants or conditions, reciprocal easement agreements or operating agreements that could adversely affect our ability to lease space to third parties. Such restrictions could include, for example, limitations on alterations, changes, expansions or reconfiguration of properties; limitations on use of properties; limitations affecting parking requirements; or restrictions on exterior or interior signage or facades. In certain cases, consent of the other party or parties to such agreements may be required when altering, reconfiguring, expanding or redeveloping. Failure to secure such consents when necessary may harm our ability to execute leasing strategies, which could adversely affect our business, financial condition or results of operations.

Our properties are subject to risks from natural disasters such as earthquakes, hurricanes and severe weather. Our properties are located in areas that may be subject to natural disasters, such as earthquakes, and extreme weather conditions, including, but not limited to, hurricanes. Such natural disasters or extreme weather conditions may interrupt operations at the casino resorts, damage our properties, and reduce the number of customers who visit our facilities in such areas. A severe earthquake in Las Vegas could damage or destroy a number of our properties. In addition, our operations could be adversely impacted by a drought or other cause of water shortage. A severe drought of extensive duration experienced in Las Vegas or in the other regions in which we expect to operate could adversely affect the business and results of operations at our properties. Although the tenants are required to maintain both property and business interruption insurance coverage for certain extreme weather conditions, such coverage is subject to deductibles and limits on maximum benefits, including limitation on the coverage period for business interruption, and we cannot assure you that we or MGP BREIT Venture, as applicable, or the tenants will be able to fully insure such losses or fully collect, if at all, on claims resulting from such natural disasters or extreme weather conditions. Furthermore, to the extent that climate change causes changes in weather patterns, risks from natural disasters and severe weather could be exacerbated, which could result in additional adverse effects on our properties and results of operation.


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In addition, the MGM-MGP Master Lease allows the tenant to elect to remove a property from the MGM-MGP Master Lease following certain casualty or condemnation events. If the insurance proceeds received in such a casualty event are insufficient to restore the affected property, responsibility for the shortfall of insurance proceeds will be allocated between the landlord and the tenant as set forth in the MGM-MGP Master Lease. If the condemnation award received in such a condemnation event is insufficient to restore the affected property, the shortfall in the condemnation award will be borne entirely by the landlord. In either event, there can be no assurance that we would have access to sufficient funds to restore the affected property. Even if we are able to restore the affected property, we could be limited to selling or leasing such property to a new tenant in order to obtain an alternate source of revenue, which may not happen on comparable terms or at all. Any such removal also could lead to a reduction in the amount of rent we would receive under the MGM-MGP Master Lease and negatively impact our revenues.  

Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations. Terrorist attacks or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by the tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that a tenant is affected by future attacks, its business similarly could be adversely affected, including its ability to continue to meet obligations under its lease. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our new or redeveloped properties, and limit our access to capital or increase our cost of raising capital.

We rely on MGM to maintain the security and integrity of our IT networks and related systems. We rely extensively on MGM to maintain the security and integrity of our IT networks and related systems and, as a result, we are subject to risks associated with security breaches at MGM, whether through cyber-attacks or cyber-intrusions, and other disruptions of MGM’s IT systems. There can be no assurance that MGM’s security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any disruption in the availability of our computer systems, through cyber-attacks or otherwise, could adversely affect our operations. For example, a security breach or other significant disruption involving our IT networks and related systems could impact the proper functioning of our networks and systems, result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines, result in our inability to monitor our compliance with the rules and regulations regarding our qualification as a REIT, result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes, require significant management attention and resources to remedy any damages that result, subject us to claims for breach of contract, damages, credits, penalties or termination of certain agreements, cause an increase in cybersecurity protection or insurance costs, or damage our reputation among our investors generally. Any or all of the foregoing could adversely affect our financial condition, results of operations, cash flow and ability to make distributions with respect to, and the market price of, our Class A shares.

The operation of our properties will require, and the operation of properties acquired in the future will likely require, the use of certain brand names. The operation of our properties requires the use of certain brand names, and the terms of the leases do not require the tenants, MGM or any of its subsidiaries to transfer any intellectual property rights associated with any casino resort to us or MGP BREIT Venture or to potential new tenants. If the tenants or another subsidiary of MGM were to cease being the tenants of the properties under the leases, we or MGP BREIT Venture, as applicable, or a successor tenant may be required to rebrand and/or renovate such properties at substantial cost. If we or MGP BREIT Venture, as applicable, are unable to successfully manage the transition of our or its business to new brands in order to accommodate future tenants, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have a royalty-free IP License Agreement with MGM pursuant to which we will have the right to use “MGM” in the corporate names of our company and our subsidiaries without royalties for up to 50 years. Pursuant to the IP License Agreement, we will also have the right to use the “MGM” mark and the “MGM” logo in our advertising materials without royalties for up to 50 years. We are reliant on MGM to maintain and protect its intellectual property rights and we could be adversely impacted by infringement, invalidation, unauthorized use or litigation affecting the licensed intellectual property or brand names used in the operation of the properties. When our right to use the MGM brand name and logo expires under the terms of the IP License Agreement, or if such agreement is terminated earlier due to a breach or otherwise, we may not be able to maintain or enjoy comparable name recognition or status under our new brand. If we are unable to successfully manage the transition

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of our business to our new brand, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have engaged and may engage in hedging transactions that may limit gains or result in losses. We have used derivatives to hedge certain of our liabilities and we currently have interest rate swap agreements in place. As of December 31, 2019, we have interest rate swap agreements to mitigate the interest rate risk inherent in our senior secured credit facility that are currently effective with a total $1.9 billion of notional amount. We have an additional $900 million of notional amount of forward starting swaps that are not yet effective. The counterparties of these arrangements are major financial institutions; however, we are exposed to credit risk in the event of non-performance by the counterparties. This has certain risks, including losses on a hedge position, which may reduce the return on our investments. Such losses may exceed the amount invested in such instruments. In addition, counterparties to a hedging arrangement could default on their obligations. We may have to pay certain costs, such as transaction fees or breakage costs, related to hedging transactions.

Risks Related to Our Affiliation with MGM

We are controlled by MGM, whose interests in our business may conflict with ours or yours. MGP’s Class B share, representing a majority of the voting power of its shares, is owned by MGM, whose interests may differ from or conflict with the interests of MGP’s other shareholders. MGM has the ability to exercise control over MGP’s affairs, including control over the outcome of all matters submitted to MGP’s shareholders for approval, including the election of directors and significant transactions. MGM will also have the power to prevent or cause a change in control as a result of its beneficial ownership of MGP’s Class B share, which could, among other things, discourage a potential acquirer from attempting to obtain control of MGP in a manner that provides a control premium to any shareholders other than MGM. Moreover, in such a change of control, shareholders are not entitled to dissenters’ rights of appraisal under our operating agreement or applicable Delaware law. As a result, unless and until MGM and its controlled affiliates’ (excluding us and our subsidiaries) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership falls below 30%, MGM will be able to effectively control us.

It is possible that MGM’s interests may, in some circumstances, conflict with your interests as a shareholder. For example, MGM may prevent us from selling properties if such sales would result in unfavorable tax allocations to MGM under Section 704(c) of the Code, which would require allocations to be made to MGM upon a transfer of any properties contributed by it to the Operating Partnership on account of the difference between the fair market value of those properties and their adjusted tax basis on the date that MGM contributed such properties, even if such a sale would be advantageous to MGP. In addition, because of our dual class structure, MGM will continue to be able to elect MGP’s board of directors and control all matters submitted to MGP’s shareholders for approval even though it does not own any Class A shares. This concentrated control will limit the ability of shareholders to influence corporate matters and, as a result, we may take actions that our shareholders do not view as beneficial, which could adversely affect the market price of MGP’s Class A shares.

Various conflicts of interest between MGM and us could arise. Some of MGP’s directors may own more stock in MGM than in our company. Ownership interests of officers and directors of MGM in MGP’s shares, or a person’s service as either an officer or director of both companies, could create or appear to create potential conflicts of interest when those officers and directors are faced with decisions that could have different implications for MGM and us. Potential conflicts of interest could also arise if we enter into any new commercial arrangements with MGM while it maintains control through the Class B share. Furthermore, our ability to lease our properties to or acquire properties from companies other than MGM or its affiliates in the future could be limited. In particular, we are prevented from selling or leasing our properties or interests in the Operating Partnership or the MGM-MGP Master Lease landlord to competitors of MGM. Our operating agreement provides that MGM has no duty to refrain from engaging in the same or similar business activities or lines of business, doing business with any of our customers or employing or otherwise engaging any of our directors, officers or employees, and MGM is not obligated to identify, acquire or sell us any properties in the future.

Pursuant to the terms of MGP’s operating agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to, among others, MGM and its affiliates and our directors or executive officers or any of their affiliates. Some of MGP’s executive officers and directors may also serve as officers and directors of MGM. No such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any shareholder for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Therefore, MGM and its affiliates may compete with us for investment opportunities and may own an interest in entities that compete with us on an operations basis.


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We have various agreements that govern our relationship with MGM, some of which were entered into at the time of our initial public offering and, as a result, were determined by MGM and thus may not be representative of what we have achieved on a stand-alone basis or from an unaffiliated third party.

We are dependent on MGM for the provision of administration services to our operations and assets. The operation of our business depends on the administration services provided by MGM, including, among others, accounting, financial reporting, human resources, information systems, tax and legal services. MGM’s personnel and support staff that provide services to us are not required to act exclusively for us, and no specific individuals are required to be provided to us by MGM. Any failure to effectively manage our operations or to implement our strategy could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If MGM were to default in the performance of its obligations to provide us with services, we may be unable to contract with a substitute service provider on similar terms or at all. The costs of substituting service providers may be substantial. In addition, in light of MGM’s familiarity with our properties, a substitute service provider may not be able to provide the same level of service due to lack of pre-existing synergies. If we cannot locate a service provider that is able to provide us with substantially similar services as MGM does under our current agreements on similar terms, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

MGP’s operating agreement contains provisions that reduce or eliminate duties (including fiduciary duties) of its directors, officers and others. MGP’s operating agreement provides that its board of directors, in exercising its rights in its capacity as members of the board of directors, is entitled to consider only such interests and factors as they desire, including MGM’s interests, and has no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting us and is not subject to any different standards imposed by our operating agreement, the Limited Liability Company Act of Delaware or under any other law, rule or regulation or in equity. Similarly, MGP’s operating agreement provides that its officers, MGM and its affiliates and any other person eligible for indemnification under the terms of our operating agreement do not have any duties or liabilities, including fiduciary duties, to the fullest extent permitted by law, to us, any shareholder or any other person.

MGM has no obligation to fund our future capital needs. MGM has no obligation to fund our business and operations, and does not guarantee or otherwise provide credit support for our indebtedness. We cannot assure our unitholders and shareholders that adequate sources of funding will be available to us on favorable terms or at all. As a result, we may not be able to fund our future capital needs, which could have an adverse effect on our business, financial condition and results of operations.

If MGM engages in the same type of business we conduct, our ability to successfully operate and expand our business may be hampered. Our operating agreement provides that:

the doctrine of corporate opportunity, or any analogous doctrine, does not apply to, among others, MGM and its affiliates and our directors or executive officers or any of their affiliates;
no such persons or entities will have any duty to communicate or offer any opportunity, of which such person becomes aware, relating to a potential transaction, agreement, arrangement or other matter that may be an opportunity for such other persons;
no such persons or entities will be liable to such other persons for breach of any fiduciary duty or other duty by reason of the fact that such person pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to such other persons or entities; and
MGM and its affiliates may compete with us for investment opportunities and may own an interest in entities that compete with us on an operations basis.

If MGM were to engage in a business in direct competition with us, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The MGM-MGP 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. We have various agreements that govern our relationship with MGM. These agreements include the MCA, Corporate Services Agreement, IP License Agreement, Registration Rights Agreement and a sublease agreement. While MGM endeavored to have these agreements reflect customary, arm’s-length commercial terms and conditions, these agreements are not the result of arm’s-length negotiations, and consequently there can be no assurance that the terms of these agreements are as favorable to us as if they had been negotiated with unaffiliated third parties. In addition, we may choose not to enforce, or to enforce less vigorously, our rights under our agreements with MGM because of our desire to maintain our ongoing relationship with MGM and its affiliates.

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MGM may undergo a change of control without the consent of us or of our unitholders and shareholders. MGM is not required to seek our consent or the consent of our shareholders in connection with a change of control involving MGM, and accordingly, MGM’s controlling interest in us may become controlled by a new owner of MGM in the event of such change of control. If a new owner were to acquire MGM and thereby acquire MGM’s interest in us, and appoint new directors or officers of its own choosing, it would be able to exercise substantial influence over our policies and procedures and exercise substantial influence over our management and the types of acquisitions that we make. Such changes could result in our capital being used to make acquisitions that are substantially different from our targeted acquisitions. Additionally, we cannot predict with any certainty the effect that any change of control of MGM and transfer in MGM’s interest in us would have on the trading price of our shares or on our ability to raise capital or make investments in the future, because such matters would depend to a large extent on the identity of the new owner and the new owner’s intentions with regard to us. As a result, our future would be uncertain, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are a “controlled company” within the meaning of applicable stock market rules and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies. MGM owns more than 50% of the voting power of our outstanding shares entitled to vote generally in the election of directors, and we are a “controlled company” under applicable stock exchange corporate governance standards. As a controlled company, we intend to rely on exemptions from certain stock exchange corporate governance standards, including the requirements that:

the majority of our board of directors consists of independent directors;
we have a nominating and governance committee composed entirely of independent directors with a written operating agreement addressing the committee’s purpose and responsibilities; and
we have a compensation committee composed entirely of independent directors with a written operating agreement addressing the committee’s purpose and responsibilities.
We intend to rely on these exemptions, and, as a result, you will not have the same protections afforded to shareholders of companies that are subject to all of the stock exchange corporate governance requirements.

Risks Related to MGP’s REIT Election and Status as a REIT

If MGP fails to remain qualified to be taxed as a REIT, we 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. We intend to continue to operate in a manner that will allow MGP to continue to qualify to be taxed as a REIT for U.S. federal income tax purposes. We received opinions of Weil, Gotshal & Manges LLP (“REIT Tax Counsel”) that, commencing with our taxable year ended December 31, 2016, MGP was organized in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws and MGP’s proposed method of operations will enable it to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ended December 31, 2019 and subsequent taxable years. You should be aware, however, that opinions of counsel are not binding on the Internal Revenue Service (“IRS”) or any court. The opinion of REIT Tax Counsel represents only the view of REIT Tax Counsel, based on its review and analysis of existing law and on certain representations as to factual matters and covenants made by MGM and us, including representations relating to the values of our assets and the sources of our income. The opinion was expressed as of the date issued. REIT Tax Counsel will have no obligation to advise MGM, us or the holders of our shares of any subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the validity of the opinion of REIT Tax Counsel and our qualification to be taxed as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis, the results of which will not be monitored by REIT Tax Counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Any failure to qualify to be taxed as a REIT, or failure to remain to be qualified to be taxed as a REIT, would have an adverse effect on our business, financial condition and results of operations.

Qualifying to be taxed as a REIT involves highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and violations of these provisions could jeopardize our REIT qualification. Qualification to be taxed as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize MGP’s REIT qualification. MGP’s qualification to be taxed as a REIT will depend on its satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. In addition, MGP’s ability to satisfy the requirements to qualify to be taxed as a REIT may depend in part on the actions of third parties over which we have no control or only limited influence.

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The ownership limits that apply to REITs, as prescribed by the Code and by our operating agreement, may inhibit market activity in our shares and restrict our business combination opportunities. In order for MGP to qualify to be taxed as a REIT, not more than 50% in value of its outstanding shares may be owned, beneficially or constructively, by five or fewer individuals, as defined in the Code to include certain entities, at any time during the last half of each taxable year after the first year for which MGP elects to qualify to be taxed as a REIT. Additionally, at least 100 persons must beneficially own MGP’s shares during at least 335 days of a taxable year (other than the first taxable year for which it elects to be taxed as a REIT). Also, subject to limited exceptions, neither MGP nor an actual or constructive owner of 10% or more (by value) of its shares may actually or constructively own 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Any tenant that exceeds such ownership limits is referred to as a related party tenant, and rent from a related party tenant generally will not qualify under the REIT income tests. Subject to certain exceptions, MGP’s operating agreement authorizes its board of directors to take such actions as are necessary and desirable to preserve its qualification to be taxed as a REIT. MGP’s operating agreement also provides that, unless exempted by the board of directors in its sole discretion, no person may own more than 9.8% in value or in number, whichever is more restrictive, of any class of its shares (other than its Class B share) or 9.8% in value of the aggregate outstanding shares of all classes and series of its shares, including if repurchases by us cause a person’s holdings to exceed such limitations. The constructive ownership rules are complex and may cause Class A shares owned directly or constructively by a group of related individuals to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction or a change in control of us that might involve a premium price for our shares or otherwise be in the best interests of our shareholders.

Distributions payable by REITs qualify for a less favorable tax rate than the reduced tax rates available for some dividends. While distributions payable by REITs for tax years beginning after December 31, 2017 are eligible for a new 20% pass-through deduction pursuant to the Tax Act (as defined herein), the resultant net tax rate will generally be higher than the more favorable tax rates applicable to regular corporate qualified dividends. Although these rules do not adversely affect the taxation of REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts or estates to perceive investments in REITs to be less attractive than investments in the shares of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including MGP’s Class A shares.

REIT distribution requirements could adversely affect our ability to execute our business plan. To maintain REIT status, MGP must meet a number of organizational and operational requirements, including a requirement that it annually distributes to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gains. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but distribute less than 100% of our REIT taxable income, determined without regard to the dividends-paid deduction and including any net capital gains, MGP will be subject to U.S. federal corporate income tax on its undistributed net taxable income. In addition, MGP will be subject to a nondeductible 4% excise tax if the amount that we actually distribute to Class A shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to make distributions to Class A shareholders to comply with the REIT requirements of the Code.

From time to time, we may generate taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, we could be required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce the value of our equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of MGP’s Class A shares.



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To fund our growth strategy and refinance our indebtedness, we may depend on external sources of capital, which may not be available to us on commercially reasonable terms or at all. To maintain REIT status, MGP must meet a number of organizational and operational requirements, including a requirement that it annually distributes to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gains. As a result of these requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, solely from operating cash flows. Consequently, we intend to rely on third-party capital market sources for debt or equity financing to fund our business strategy. In addition, we will likely need third-party capital market sources to refinance our indebtedness at maturity. Continued or increased turbulence in the United States or international financial markets and economies could adversely affect our ability to replace or renew maturing liabilities on a timely basis or access the capital markets to meet liquidity requirements and may result in adverse effects on our business, financial condition and results of operations. As such, we may not be able to obtain the financing on favorable terms or at all. Our access to third-party sources of capital also depends, in part, on:

the market’s perception of our growth potential;
our then-current levels of indebtedness;
our historical and expected future earnings, cash flows and cash distributions; and
the market price of MGP’s Class A shares.

In addition, our ability to access additional capital may be limited by the terms of the indebtedness we have previously incurred, which may restrict our incurrence of additional debt. If we cannot obtain capital when needed, we may not be able to acquire or develop properties when strategic opportunities arise or refinance our debt, which could have a material adverse effect on our business, financial condition and results of operations.

Even if MGP remains qualified to be taxed as a REIT, we may face other tax liabilities that reduce our cash flow. Even if MGP remains qualified for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes. We may in the future own one or more TRSs subject to federal, state and local corporate-level income taxes as a regular C corporation. In addition, we may incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these taxes would decrease cash available for distribution to our shareholders.

Complying with REIT requirements may cause us to liquidate investments or forgo otherwise attractive opportunities. To qualify to be taxed as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities. The remainder of our investments (other than government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, qualified real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing MGP’s REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate or forgo otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our unitholders and shareholders.

In addition to the asset tests set forth above, to qualify to be taxed as a REIT MGP must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to Class A shareholders and the ownership of MGP’s Class A shares. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying to be taxed as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.

Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into primarily to manage risk of currency fluctuations or to manage risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because a TRS may be subject to tax on gains or expose us to greater risks associated

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with changes in interest rates than we would otherwise choose to bear. In addition, losses in a TRS will generally not provide any tax benefit, except that such losses could theoretically be carried back or forward against past or future taxable income in the TRS.

If MGP fails to meet the REIT income tests as a result of receiving non-qualifying income, we would be required to pay a penalty tax in order to retain MGP’s REIT status, or MGP may fail to qualify as a REIT. Certain income we receive could be treated as non-qualifying income for purposes of the REIT requirements. For example, rents we receive or accrue from the tenant will not be treated as qualifying rent for purposes of these requirements if the MGM-MGP Master Lease is not respected as a true lease for U.S. federal income tax purposes and is instead treated as a service contract, joint venture or some other type of arrangement. If the MGM-MGP Master Lease is not respected as a true lease for U.S. federal income tax purposes, MGP may fail to qualify to be taxed as a REIT. Even if MGP has reasonable cause for a failure to meet the REIT income tests as a result of receiving non-qualifying income, we would nonetheless be required to pay a penalty tax in order to retain MGP’s REIT status.

Legislative or other actions affecting REITs could have a negative effect on us. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our investors, our business plans or us. For instance, it is possible that future legislation could result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed, for federal income tax purposes, as a corporation. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect MGP’s ability to qualify as a REIT or the U.S. federal income tax consequences of such qualification.

Risks Related to MGP’s Class A Shares

The market price and trading volume of our shares may be volatile. The market price of MGP’s Class A shares may be volatile. In addition, the trading volume in MGP’s Class A shares may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of MGP’s Class A shares will not fluctuate or decline significantly in the future.

Some of these factors, many of which are beyond our control, could negatively affect the market price of MGP’s Class A shares or result in fluctuations in the price or trading volume of MGP’s Class A shares include:

actual or anticipated variations in our quarterly results of operations or distributions;
changes in our funds from operations or earnings estimates;
publication of research reports about us or the real estate or gaming industries;
changes in market interest rates that may cause purchasers of our shares to demand a different yield;
changes in market valuations of similar companies;
market reaction to any additional debt we may incur in the future;
additions or departures of key personnel;
actions by institutional shareholders;
speculation in the press or investment community about our company or industry or the economy in general;
the occurrence of any of the other risk factors presented in our periodic reports;
general market and economic conditions; and
enactment of legislation that could materially reduce or eliminate the tax advantages of REITs.

Our cash available for distribution to shareholders may not be sufficient to make distributions at expected levels, and we may need to borrow in order to make such distributions, make such distributions in the form of shares or may not be able to make such distributions in full. Distributions that we make are authorized and determined by MGP’s board of directors in its sole discretion out of funds legally available therefor. While we anticipate maintaining relatively stable distribution(s) during each year, the amount, timing and frequency of distributions are at the sole discretion of MGP’s board of directors and will be declared based upon various factors, including, but not limited to: future taxable income, limitations contained in debt instruments, debt service requirements, operating cash inflows and outflows including capital expenditures and acquisitions, and applicable law.  

For purposes of satisfying the minimum distribution requirement to qualify for and maintain REIT status, MGP’s taxable income will be calculated without reference to our cash flow. Consequently, under certain circumstances, we may not have available cash to pay our required distributions, and we may need to increase our borrowings in order to fund our intended distributions, or we may distribute a portion of our distributions in the form of MGP’s Class A shares, which could result in significant shareholder dilution, or in the form of our debt instruments. While the IRS has issued a revenue procedure treating

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certain distributions that are paid partly in cash and partly in stock as taxable dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for U.S. federal income tax purposes, no assurances can be provided that we would be able to structure such distributions in a manner that would meet the requirements of the revenue procedure. Therefore, it is unclear whether and to what extent we will be able to make taxable dividends payable in-kind. In addition, to the extent we were to make distributions that include MGP’s Class A shares or debt instruments, a Class A shareholder will be required to report dividend income as a result of such distributions even though we distributed no cash or only nominal amounts of cash to such Class A shareholder.

Future offerings of debt and/or preferred equity securities, which may be senior to our shares for purposes of distributions or upon liquidation, or of additional Class A shares could adversely affect the market price of MGP’s Class A shares. In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred shares. If a liquidation event were to occur, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our shares. Additional equity offerings, including any future sales of Class A shares through our “at-the-market offering” (“ATM”) program, may dilute the holdings of our existing shareholders or reduce the market price of MGP’s Class A shares, or both. Holders of MGP’s Class A shares are not entitled to preemptive rights or other protections against dilution. MGP’s preferred shares, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our ability to make a distribution to the holders of MGP’s Class A shares. Since our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of MGP’s Class A shares and diluting their shareholdings in us.

Our earnings and cash distributions could affect the market price of MGP’s Class A shares. MGP’s Class A shares may trade at prices that are higher or lower than the net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves or other purposes rather than distributing the cash flows to shareholders, these retained funds, while increasing the value of our underlying assets, may negatively impact the market price of MGP’s Class A shares. Our failure to meet market expectations with regard to future earnings and cash distributions could adversely affect the market price of MGP’s Class A shares.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

ITEM 2.
PROPERTIES

The location and general characteristics of our properties are provided in Part I, Item 1. Business

As of December 31, 2019, the land and substantially all of the assets of our properties, other than MGM National Harbor and Empire City, secure the obligations under the Operating Partnership’s senior secured credit facility. 

ITEM 3.
LEGAL PROCEEDINGS

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.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


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PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities with respect to MGP

Market Information

Our Class A shares are traded on the New York Stock Exchange (“NYSE”) under the symbol “MGP.”

Holders

There were 47 record holders of our Class A shares as of February 24, 2020. A nominee of DTC is one of the record holders for the Class A shares, which holds on behalf of brokers, dealers, banks and other direct participants in the DTC system. Such direct participants may hold securities for their own accounts or for the accounts of their customers.

Distribution Policy

MGP has declared cash dividends each quarter. While we plan to continue to make quarterly dividends, the amount, declaration and payment of any future dividends will be authorized and determined by our board of directors in its sole discretion out of funds legally available therefore and are dependent upon a number of factors, including restrictions under applicable law. If we have underestimated our cash available for distribution, we may need to increase the borrowings made by the Operating Partnership in order to fund our intended dividends. We expect that our dividends may exceed our net income under U.S. GAAP because of non-cash expenses included in net income. Notwithstanding the forgoing, the Operating Partnership’s credit agreement and the indentures governing the Operating Partnership’s senior notes restrict the Operating Partnership’s ability to make restricted payments, including to make distributions and pay dividends on or redeem or repurchase Operating Partnership units. 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.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities with respect to the Operating Partnership

Market Information

There is currently no established public trading market for Operating Partnership units. 

Holders

There were 15 record holders of our Operating Partnership units as of February 24, 2020 consisting entirely of MGP, MGM and subsidiaries of MGM.

Distribution Policy

The Operating Partnership has made distributions each quarter. While the Operating Partnership plans to continue to make quarterly distributions, no assurances can be made as to the frequency of any future distributions. Distributions made by the Operating Partnership are authorized and determined by the Operating Partnership’s general partner in its sole discretion out of funds legally available therefor, and are dependent upon a number of factors, including restrictions under applicable law. If the Operating Partnership has underestimated its cash available for distribution, it may need to increase its borrowings in order to fund its intended distributions. We expect that its distributions may exceed its net income under U.S. GAAP because of non-cash expenses included in net income. Notwithstanding the forgoing, the Operating Partnership’s credit agreement and the indentures governing its senior notes restrict its ability to make restricted payments, including to make distributions on or redeem or repurchase Operating Partnership units. 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.


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Recent Sales of Unregistered Securities

In connection with the registered offering of 13.2 million Class A shares by the Company on September 11, 2017, the Operating Partnership issued 13.2 million Operating Partnership units to the Company pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

The Operating Partnership issued 9.8 million Operating Partnership units to a subsidiary of MGM on October 5, 2017 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Operating Partnership units were issued as part of the consideration for the transfer of the real estate assets related to MGM National Harbor from a subsidiary of MGM.

The Operating Partnership issued 12.9 million Operating Partnership units to a subsidiary of MGM on January 29, 2019 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Operating Partnership units were issued as part of the consideration relating to the acquisition of the real property associated with Empire City from MGM.

In connection with the registered offering of 19.6 million Class A shares by the Company on January 31, 2019, the Operating Partnership issued 19.6 million Operating Partnership units to the Company pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

The Operating Partnership issued 1.0 million Operating Partnership units to a subsidiary of MGM on March 7, 2019 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Operating Partnership units were issued as part of the consideration relating to the Park MGM Transaction.

The Operating Partnership redeemed 9.4 million Operating Partnership units from a subsidiary of MGM on April 1, 2019 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Operating Partnership units were redeemed as part of the consideration relating to the Northfield Park OpCo disposition.

In connection with the offering of 5.3 million Class A shares by the Company throughout 2019 as part of the Company’s “at-the-market-offering” (“ATM”) program, the Operating Partnership issued 5.3 million Operating Partnership units to the Company pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

In connection with the registered offering of 18.0 million Class A shares by the Company on November 22, 2019, the Operating Partnership issued 18.0 million Operating Partnership units to the Company pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.

Subsequent to year-end, the Operating Partnership issued 12.0 million Operating Partnership units to a subsidiary of MGM from February 11 through February 13, 2020 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities law. The Operating Partnership units were issued in connection with the settlement of forward sale agreements entered into by the Company on November 22, 2019.

Subsequent to year-end, the Operating Partnership issued 0.6 million Operating Partnership units to a subsidiary of MGM on February 12, 2020 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities law. The Operating Partnership units were issued in connection with the settlement of forward sale agreements entered into by the Company as part of the Company’s ATM program.

Subsequent to year-end, the Operating Partnership also issued 2.6 million Operating Partnership units to MGM on February 14, 2020 pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities law. The Operating Partnership units were issued to MGM in connection with the MGP BREIT Venture Transaction.

Subsequent to year-end, in connection with the registered sale of 4.9 million Class A shares to BREIT by the Company on February 14, 2020, the Operating Partnership issued 4.9 million Operating Partnership units to the Company pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.




29


PERFORMANCE GRAPH
The graph below matches our cumulative 44-month total shareholder return on common stock with the cumulative total returns of the S&P 500 index and the FTSE NAREIT Equity REITs index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends as required by the SEC) from April 20, 2016 to December 31, 2019. The return shown on the graph is not necessarily indicative of future performance.
The following performance graph shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into a filing.
chart-1c6ea1f5c0c15d4e981.jpg


Index
4/20/16
6/16
9/16
12/16
3/17
6/17
9/17
12/17
MGM Growth Properties
100.00
122.49
121.43
119.73
129.84

141.99

148.87

145.73

S&P 500
100.00
102.46
106.40
110.47
117.17

120.79

126.20

134.59

FTSE NAREIT Equity REITs
100.00
106.96
105.42
102.37
103.56

105.14

106.13

107.72

Index
3/18
6/18
9/18
12/18
3/19
6/19
9/19
12/19
MGM Growth Properties
134.78

156.87

154.13

140.35

173.86

167.78

167.07

174.82

S&P 500
133.57

138.15

148.81

128.69

146.25

152.55

155.14

169.21

FTSE NAREIT Equity REITs
98.89

108.82

110.16

102.74

119.52

121.01

130.45

129.46



30


ITEM 6.
SELECTED FINANCIAL DATA

The following tables set forth selected historical financial data for MGP and the Operating Partnership that should be read in conjunction with “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined and consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The historical results set forth below are not necessarily indicative of the results of operations to be expected in the future.

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 properties at the IPO Date, which were controlled by MGM, and have been determined to be the predecessor of MGP and the Operating Partnership for accounting purposes. These historical financial statements include allocations of income, expenses, assets and liabilities from MGM that reflect significant assumptions, and the consolidated financial statements 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 standalone 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. The financial position, results of operations and cash flows presented from the IPO Date through December 31, 2016 reflect the results of MGP and the Operating Partnership subsequent to the April 25, 2016 initial public offering.

MGM Growth Properties LLC
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except per share data)
Statement of Operations:
 
 
 
 
 
 
 
 
 
Total Revenues
$
881,078

 
$
869,495

 
$
765,695

 
$
467,548

 
$

Income (loss) from continuing operations, net of tax
259,349

 
214,139

 
165,990

 
35,346

 
(261,954
)
Income from discontinued operations, net of tax
16,216

 
30,563

 

 

 

Net income (loss)
275,565

 
244,702

 
165,990

 
35,346

 
(261,954
)
Net income attributable to Class A shareholders
90,260

 
67,065

 
41,775

 
29,938

 

Net income per Class A sharebasic:
 
 
 
 
 
 
 
 
 
Income from continuing operations per Class A share
$
0.92

 
$
0.83

 
$
0.68

 
$
0.52

 
N/A

Income from discontinued operations per Class A share
0.05

 
0.11

 

 

 
N/A

Net income per Class A share
$
0.97

 
$
0.94

 
$
0.68

 
$
0.52

 
N/A

Net income per Class A share—diluted:
 
 
 
 
 
 
 
 
 
Income from continuing operations per Class A share
$
0.92

 
$
0.83

 
$
0.67

 
$
0.52

 
N/A

Income from discontinued operations per Class A share
0.05

 
0.11

 

 

 
N/A

Net income per Class A share
$
0.97

 
$
0.94

 
$
0.67

 
$
0.52

 
N/A


 
As of December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands)
Balance Sheet:
 
 
 
 
 
 
 
 
 
Real estate investments, net
$
10,827,972

 
$
10,506,129

 
$
10,021,938

 
$
9,079,678

 
$
7,793,639

Total assets
11,910,272

 
10,951,307

 
10,351,120

 
9,506,740

 
7,793,639

Debt, net
4,307,354

 
4,666,949

 
3,934,628

 
3,621,942

 

Operating lease liabilities
337,956

 

 

 

 



31


 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except per share data)
Other Data:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
100,706

 
$
556,801

 
$
482,578

 
$
297,781

 
$
(58,473
)
Net cash provided by (used in) investing activities
3,779

 
(1,068,528
)
 
(462,988
)
 
(138,987
)
 
(129,308
)
Net cash provided by (used in) financing activities
93,621

 
256,000

 
(120,360
)
 
201,698

 
187,781

Net cash provided by (used in) discontinued operations
(22,321
)
 
55,822

 

 

 

Dividends declared per Class A share
$
1.8725

 
$
1.7350

 
$
1.5975

 
$
1.0400

 
N/A


See Item 7 for information affecting comparability of the above information year over year.

MGM Growth Properties Operating Partnership LP

 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except per unit data)
Statement of Operations:
 
 
 
 
 
 
 
 
 
Total Revenues
$
881,078

 
$
869,495

 
$
765,695

 
$
467,548

 
$

Income (loss) from continuing operations, net of tax
259,349

 
214,139

 
165,990

 
35,346

 
(261,954
)
Income from discontinued operations, net of tax
16,216

 
30,563

 

 

 

Net income (loss)
275,565

 
244,702

 
165,990

 
35,346

 
(261,954
)
Net income per Operating Partnership unitbasic:
 
 
 
 
 
 
 
 
 
Income from continuing operations per unit
$
0.88

 
$
0.80

 
$
0.67

 
$
0.52

 
N/A

Income from discontinued operations per unit
0.06

 
0.12

 

 

 
N/A

Net income per Operating Partnership unit
$
0.94

 
$
0.92

 
$
0.67

 
$
0.52

 
N/A

Net income per Operating Partnership unit—diluted:
 
 
 
 
 
 
 
 
 
Income from continuing operations per unit
$
0.88

 
$
0.80

 
$
0.66

 
$
0.52

 
N/A

Income from discontinued operations per unit
0.06

 
0.12

 

 

 
N/A

Net income per Operating Partnership unit
$
0.94

 
$
0.92

 
$
0.66

 
$
0.52

 
N/A


Net income per Operating Partnership units and the effect of dilutive securities outstanding are presented for the period including and subsequent to the IPO Date.

 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands)
Balance Sheet:
 
 
 
 
 
 
 
 
 
Real estate investments, net
$
10,827,972

 
$
10,506,129

 
$
10,021,938

 
$
9,079,678

 
$
7,793,639

Total assets
11,910,272

 
10,951,307

 
10,351,120

 
9,506,740

 
7,793,639

Debt, net
4,307,354

 
4,666,949

 
3,934,628

 
3,621,942

 

Operating lease liabilities
337,956

 

 

 

 



32


 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except per unit data)
Other Data:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
100,706

 
$
556,801

 
$
482,578

 
$
297,781

 
$
(58,473
)
Net cash provided by (used in) investing activities
3,779

 
(1,068,528
)
 
(462,988
)
 
(138,987
)
 
(129,308
)
Net cash provided by (used in) financing activities
93,621

 
256,000

 
(120,360
)
 
201,698

 
187,781

Net cash provided by (used in) discontinued operations
(22,321
)
 
55,822

 

 

 

Distributions declared per Operating Partnership unit
$
1.8725

 
$
1.7350

 
$
1.5975

 
$
1.0400

 
N/A


See Item 7 for information affecting comparability of the above information year over year.

ITEM 7.
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.

The following discussion and analysis is based on, and should be read in conjunction with, the consolidated financial statements and the related notes thereto, of MGP and the Operating Partnership for the years ended December 31, 2019, 2018 and 2017.

Executive Overview
 
MGP is one of the leading publicly traded REITs engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts, whose tenants generally offer diverse amenities including casino gaming, hotel, convention, dining, entertainment and retail offerings.

MGP is a limited liability company that was formed in Delaware in October 2015. MGP conducts its operations through the Operating Partnership, a Delaware limited partnership formed by MGM in January 2016 that became a subsidiary of MGP on the IPO Date. The Company has elected to be treated as a REIT commencing with its taxable year ended December 31, 2016.

As of December 31, 2019, we generated all of our revenues by leasing our real estate properties pursuant to the MGM-MGP Master Lease which requires the tenant to pay substantially all costs associated with each property, including real estate taxes, ground lease rent, insurance, utilities and routine maintenance, in addition to the base rent and the percentage rent, each as described below. The lease has an initial lease term of ten years (other than with respect to MGM National Harbor, whose initial lease term ends on August 31, 2024) with the potential to extend the term for four additional five-year terms thereafter at the option of the tenant. 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 lease, as we have determined such renewal terms to be reasonably assured.

Additionally, we expect to grow our portfolio through acquisitions with third parties and with MGM. In pursuing external growth initiatives, we will generally seek to acquire properties that can generate stable rental revenue through long-term, triple-net leases with tenants with established operating histories, and we will consider various factors when evaluating acquisitions.

As of December 31, 2019, our portfolio consisted of eleven premier destination resorts in Las Vegas and elsewhere across the United States, MGM Northfield Park in Northfield, Ohio, Empire Resorts Casino, in Yonkers, New York, as well as a retail and entertainment district, The Park in Las Vegas.

On January 29, 2019, we completed the Empire City Transaction. Empire City was added to the MGM-MGP Master Lease. As a result, the annual rent payment to MGP increased by $50 million. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below. In addition, pursuant to the lease, MGP has a right of first offer with respect to certain undeveloped land adjacent to the property to the extent MGM develops additional gaming facilities and chooses to sell or transfer the property in the future.

On March 7, 2019, we completed the Park MGM Transaction for total consideration of $637.5 million. We funded the transaction with $605.6 million in cash and the issuance of approximately 1.0 million of Operating Partnership units to a subsidiary of MGM.

33


As a result of the transaction, we recorded a lease incentive asset and the MGM-MGP Master Lease annual rent payment to us increased by $50 million, prorated for the remainder of the lease year. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below.
On April 1, 2019, we transferred the membership interests of Northfield to a subsidiary of MGM and the Company retained the real estate assets. Our TRS that owned Northfield liquidated immediately prior to the transfer. Subsequently, MGM rebranded Northfield OpCo to MGM Northfield Park, which was then added to the MGM-MGP Master Lease. As a result, the annual rent payment to MGP increased by $60 million. Consistent with the lease terms, 90% of this rent is fixed and will contractually grow at 2% per year until 2022 with escalators thereafter subject to the tenant meeting an adjusted net revenue to rent ratio as described below. Northfield OpCo is presented as discontinued operations in our consolidated statements of operations for all periods presented in which we owned Northfield OpCo and the related operating assets and liabilities are presented as assets held for sale and liabilities related to assets held for sale in our consolidated balance sheet as of December 31, 2018. Refer to Note 3 of the accompanying financial statements for additional discussion.
On February 14, 2020, the Operating Partnership completed a series of transactions (collectively the “MGP BREIT Venture Transaction”) pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place) were contributed to a newly formed entity (“MGP BREIT Venture”), which, following the transactions, is owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”). In exchange for the contribution of the Mandalay Bay real estate assets, the Operating Partnership received consideration of $2.1 billion, which was comprised of $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGM BREIT Venture, the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture, and the remainder in cash. In addition, MGM received $2.4 billion of cash distributed from the MGP BREIT Venture as consideration for its contribution of the MGM Grand Las Vegas real estate assets, and, additionally, the Operating Partnership issued 2.6 million Operating Partnership units to MGM representing 5% of the equity value of MGP BREIT Venture. In connection with the transactions, MGM provided a shortfall guaranty of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereto). On the closing date, BREIT also purchased 4.9 million Class A common shares of MGP for $150 million.

In connection with the transactions, MGP BREIT Venture entered into a lease with a subsidiary of MGM for the real estate assets of Mandalay Bay and MGM Grand Las Vegas. The lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $292 million, escalating annually at a rate of 2% per annum for the first fifteen years and thereafter equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3%. In addition, the lease will require the tenant to spend 3.5% of net revenues over a rolling five-year period at the properties on capital expenditures and for the tenant and MGM to comply with certain financial covenants, which, if not met, will require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. MGM provided a guarantee of tenant’s obligations under the lease.

In connection with the MGP BREIT Venture Transaction, the MGM-MGP Master Lease was modified to remove the Mandalay Bay property and the rent under the MGM-MGP Master Lease was reduced by $133 million.

Also, on January 14, 2020, the Operating Partnership, MGP, and MGM entered into an agreement for the Operating Partnership to waive its right to issue MGP Class A shares, in lieu of cash, to MGM in connection with MGM exercising its right to require the Operating Partnership to redeem the Operating Partnership units it holds. The waiver provides that the units will be purchased at a price per unit equal to a 3% discount to the applicable cash amount as calculated in accordance with the operating agreement. The waiver terminates on the earlier of 24 months following the closing of the MGP BREIT Venture Transaction and MGM receiving cash proceeds of $1.4 billion as consideration for the redemption of its Operating Partnership units.

Combined Results of Operations for MGP and the Operating Partnership

The following is a comparative discussion of results of operations for the years ended December 31, 2019 and 2018. Refer to the audited consolidated financial statements and notes for the fiscal year ended December 31, 2018, which were included in our annual report on Form 10-K, filed with the SEC on February 27, 2019, and the audited and consolidated financial statements and notes for the fiscal year ended December 31, 2018, as retrospectively recasted for discontinued operations, which were filed on current report on Form 8-K filed with the SEC on August 16, 2019, for the comparative discussion of the results of operations for the years ended December 31, 2018 and 2017.


34


Overview

The following table summarizes our financial results for the years ended December 31, 2019, 2018 and 2017:

 
Year ended December 31,
 
2019
 
2018
 
2017
 
(in thousands)
Total Revenues
$
881,078

 
$
869,495

 
$
765,695

Total Expenses
355,911

 
429,355

 
412,910

Income from continuing operations, net of tax
259,349

 
214,139

 
165,990

Income from discontinued operations, net of tax
16,216

 
30,563

 

Net income
275,565

 
244,702

 
165,990

Net income attributable to Class A shareholders
90,260

 
67,065

 
41,775


Revenues

Rental revenue. Rental revenues, including tenant reimbursements and other, for the years ended December 31, 2019 and 2018 were $881.1 million and $869.5 million, respectively. The $11.6 million, or 1%, increase for 2019 compared to 2018 was primarily due to an increase in rental revenues, excluding the lease incentive amortization, of $126.5 million as a result of the Empire City Transaction in January 2019, the Park MGM Transaction in March 2019, and the addition of MGM Northfield Park to the MGM-MGP Master Lease in April 2019. The increase was offset by a $93.7 million decrease in reimbursed revenues as we no longer recognize reimbursed revenue for property taxes in accordance with the adoption of ASC 842 on January 1, 2019 and a $16.4 million decrease in revenues for the amortization of the lease incentive asset recorded as part of the Park MGM Transaction.

Expenses

Depreciation. Depreciation expense was $294.7 million and $266.6 million for the years ended December 31, 2019 and 2018, respectively. The $28.1 million, or 11%, increase for 2019 as compared to 2018 was primarily due to the full year of depreciation recorded in 2019 for the acquisitions of MGM Northfield Park in July 2018 and Empire City in January 2019.

Property transactions, net. Property transactions, net were $10.8 million in 2019 compared to $20.3 million in 2018. Property transactions, net in all years relate to normal losses on the disposition of assets recognized during the year and fluctuate year over year based on the timing of our disposition of assets.

Ground lease and other reimbursable expenses. Ground lease and other reimbursable expenses were $23.7 million and $119.5 million for the years ended December 31, 2019 and 2018, respectively. The $95.9 million, or 80%, decrease for 2019 as compared to 2018 was primarily due to a $93.7 million decrease reflecting the adoption of ASC 842 effective January 1, 2019, under which we no longer recognize the property taxes paid by the tenant under the MGM-MGP Master Lease.

Acquisition-related expenses. Acquisition-related expenses were $10.2 million and $6.1 million for the years ended December 31, 2019 and 2018, respectively. The $4.0 million, or 65%, increase for 2019 as compared to 2018 primarily relates to expenses related to the Empire City Transaction and the MGP BREIT Venture Transaction offset by expenses incurred in the prior year relating to the Northfield acquisition.

General and administrative expenses. General and administrative expenses for the years ended December 31, 2019 and 2018 were $16.5 million and $16.0 million, respectively. The $0.5 million, or 3%, increase for 2019 as compared to 2018 was primarily due to increased financial, administrative and operational support costs.
Other Expenses
Other expenses for the years ended December 31, 2019 and 2018 were $258.2 million and $220.2 million, respectively. The $38.0 million, or 17%, increase for 2019 as compared to 2018 was primarily related to an increase of interest expense on the senior notes, which primarily related to the $750 million 5.75% senior notes issued in January 2019, the loss on extinguishment of debt of $6.2 million and the $3.9 million loss on unhedged interest rate swaps, net.

35


Discontinued Operations
Income from discontinued operations, net of tax for the years ended December 31, 2019 and 2018 were $16.2 million and $30.6 million, respectively, and were entirely attributable to Northfield OpCo in both years. See Note 3 of the accompanying financial statements for additional discussion.

Provision for Income Taxes
Our effective tax rate was 2.8% and 2.6% for the years ended December 31, 2019 and 2018, respectively. Variations of the effective tax rate among these periods is primarily the result of activities of the TRS, which was liquidated in April 2019. Refer to Note 2 and Note 8 of the accompanying financial statements for additional discussion.

Non-GAAP Measures

Funds From Operations (“FFO”) is net income (computed in accordance with U.S. GAAP), excluding gains and losses from sales or disposals of property (presented as property transactions, net), plus depreciation, as defined by the National Association of Real Estate Investment Trusts.

Adjusted Funds From Operations (“AFFO”) is FFO as adjusted for amortization of financing costs and cash flow hedges; non-cash compensation expense; straight-line rent (which is defined as the difference between contractual rent and cash rent payments, excluding lease incentive asset amortization); amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements; acquisition-related expenses; non-cash ground lease rent, net; other expenses; loss on unhedged interest rate swaps, net; provision for income taxes related to the REIT and other, net - discontinued operations.

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; amortization of financing costs and cash flow hedges; non-cash compensation expense; straight-line rent; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements; acquisition-related expenses; non-cash ground lease rent, net; other expenses; loss on unhedged interest rate swaps, net; other, net - discontinued operations; interest income; interest expense (including amortization of financing costs and cash flow hedges) and provision for income taxes.

FFO, FFO per unit, AFFO, AFFO per unit and Adjusted EBITDA are supplemental performance measures that have not been prepared in conformity with 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.

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.


36


The following table provides a reconciliation of our net income to FFO, AFFO and Adjusted EBITDA:

 
Year ended December 31,
 
2019
 
2018
 
2017
 
(in thousands)
Net income(1)
$
275,565

 
$
244,702

 
$
165,990

Real estate depreciation (2)
294,705

 
266,622

 
260,455

Property transactions, net
10,844

 
20,319

 
34,022

Funds From Operations
581,114

 
531,643

 
460,467

Amortization of financing costs and cash flow hedges
12,520

 
12,572

 
11,713

Non-cash compensation expense
2,277

 
2,093

 
1,336

Straight-line rental revenues, excluding lease incentive asset
41,447

 
20,680

 
6,415

Amortization of lease incentive asset and deferred revenue on non-normal tenant improvements
14,347

 
(3,711
)
 
(2,352
)
Acquisition-related expenses
10,165

 
6,149

 
17,304

Non-cash ground lease rent, net
1,038

 
686

 
686

Other expenses
7,615

 
7,191

 
1,621

Loss on unhedged interest rate swaps, net
3,880

 

 

Provision for income taxes - REIT
7,598

 
5,779

 
4,906

Other, net - discontinued operations
3,707

 
9,147