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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
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☐ | 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. 001-10362
MGM Resorts International
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 88-0215232 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3600 Las Vegas Boulevard South, Las Vegas, Nevada 89109
(Address of principal executive offices)
(702) 693-7120
(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 |
Common stock (Par Value $0.01) | MGM | New York Stock Exchange (NYSE) |
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). 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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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 Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | | | | |
Class | | Outstanding at April 28, 2022 |
Common Stock, $0.01 par value | | 426,052,260 shares |
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
FORM 10-Q
I N D E X
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
ASSETS |
Current assets | | | |
Cash and cash equivalents | $ | 2,719,115 | | | $ | 4,703,059 | |
Restricted cash | 500,101 | | | 500,000 | |
Accounts receivable, net | 593,466 | | | 583,915 | |
Inventories | 102,050 | | | 96,374 | |
Income tax receivable | 234,659 | | | 273,862 | |
Prepaid expenses and other | 365,554 | | | 258,972 | |
Total current assets | 4,514,945 | | | 6,416,182 | |
| | | |
Property and equipment, net | 14,144,526 | | | 14,435,493 | |
| | | |
Other assets | | | |
Investments in and advances to unconsolidated affiliates | 1,008,144 | | | 967,044 | |
Goodwill | 3,474,861 | | | 3,480,997 | |
Other intangible assets, net | 3,555,466 | | | 3,616,385 | |
Operating lease right-of-use assets, net | 11,438,442 | | | 11,492,805 | |
Other long-term assets, net | 513,621 | | | 490,210 | |
Total other assets | 19,990,534 | | | 20,047,441 | |
| $ | 38,650,005 | | | $ | 40,899,116 | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
Current liabilities | | | |
Accounts payable | $ | 281,225 | | | $ | 263,097 | |
Construction payable | 20,703 | | | 23,099 | |
Current portion of long-term debt | 1,250,000 | | | 1,000,000 | |
Accrued interest on long-term debt | 169,630 | | | 172,624 | |
Other accrued liabilities | 1,878,043 | | | 1,983,444 | |
Total current liabilities | 3,599,601 | | | 3,442,264 | |
| | | |
Deferred income taxes, net | 2,442,618 | | | 2,439,364 | |
Long-term debt, net | 10,507,140 | | | 11,770,797 | |
Operating lease liabilities | 11,810,047 | | | 11,802,464 | |
Other long-term obligations | 280,077 | | | 319,914 | |
Commitments and contingencies (Note 8) | | | |
Redeemable noncontrolling interests | 130,898 | | | 147,547 | |
Stockholders' equity | | | |
Common stock, $0.01 par value: authorized 1,000,000,000 shares, issued and outstanding 430,562,057 and 453,803,759 shares | 4,306 | | | 4,538 | |
Capital in excess of par value | 761,559 | | | 1,750,135 | |
Retained earnings | 4,321,482 | | | 4,340,588 | |
Accumulated other comprehensive loss | (22,007) | | | (24,616) | |
Total MGM Resorts International stockholders' equity | 5,065,340 | | | 6,070,645 | |
Noncontrolling interests | 4,814,284 | | | 4,906,121 | |
Total stockholders' equity | 9,879,624 | | | 10,976,766 | |
| $ | 38,650,005 | | | $ | 40,899,116 | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Revenues | | | |
Casino | $ | 1,420,910 | | | $ | 1,098,633 | |
Rooms | 557,073 | | | 198,419 | |
Food and beverage | 492,854 | | | 157,412 | |
Entertainment, retail and other | 371,566 | | | 135,222 | |
Reimbursed costs | 11,906 | | | 58,061 | |
| 2,854,309 | | | 1,647,747 | |
Expenses | | | |
Casino | 674,365 | | | 551,905 | |
Rooms | 196,113 | | | 104,213 | |
Food and beverage | 368,662 | | | 135,227 | |
Entertainment, retail and other | 218,749 | | | 78,381 | |
Reimbursed costs | 11,906 | | | 58,061 | |
General and administrative | 776,837 | | | 546,407 | |
Corporate expense | 111,241 | | | 78,037 | |
Preopening and start-up expenses | 434 | | | 5 | |
Property transactions, net | 54,738 | | | 26,071 | |
Depreciation and amortization | 288,638 | | | 290,551 | |
| 2,701,683 | | | 1,868,858 | |
Loss from unconsolidated affiliates | (46,838) | | | (25,579) | |
Operating income (loss) | 105,788 | | | (246,690) | |
Non-operating income (expense) | | | |
Interest expense, net of amounts capitalized | (196,091) | | | (195,295) | |
Non-operating items from unconsolidated affiliates | (15,133) | | | (20,836) | |
Other, net | 34,302 | | | 32,185 | |
| (176,922) | | | (183,946) | |
Loss before income taxes | (71,134) | | | (430,636) | |
Benefit for income taxes | 36,341 | | | 94,698 | |
Net loss | (34,793) | | | (335,938) | |
Less: Net loss attributable to noncontrolling interests | 16,777 | | | 4,109 | |
Net loss attributable to MGM Resorts International | $ | (18,016) | | | $ | (331,829) | |
Loss per share | | | |
Basic | $ | (0.06) | | | $ | (0.69) | |
Diluted | $ | (0.06) | | | $ | (0.69) | |
Weighted average common shares outstanding | | | |
Basic | 442,916 | | | 494,864 | |
Diluted | 442,916 | | | 494,864 | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Net loss | $ | (34,793) | | | $ | (335,938) | |
Other comprehensive income, net of tax: | | | |
Foreign currency translation adjustment | (17,966) | | | (13,022) | |
Unrealized gain on cash flow hedges | 36,031 | | | 15,298 | |
Other comprehensive income | 18,065 | | | 2,276 | |
Comprehensive loss | (16,728) | | | (333,662) | |
Less: Comprehensive loss attributable to noncontrolling interests | 1,321 | | | 1,579 | |
Comprehensive loss attributable to MGM Resorts International | $ | (15,407) | | | $ | (332,083) | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net loss | $ | (34,793) | | | $ | (335,938) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 288,638 | | | 290,551 | |
Amortization of debt discounts, premiums and issuance costs | 10,285 | | | 9,734 | |
Provision for credit losses | 253 | | | 2,127 | |
Stock-based compensation | 23,344 | | | 16,549 | |
Property transactions, net | 54,738 | | | 26,071 | |
Noncash lease expense | 60,118 | | | 44,467 | |
Other investment gains | (14,983) | | | — | |
Loss from unconsolidated affiliates | 61,971 | | | 46,415 | |
Distributions from unconsolidated affiliates | 25,444 | | | 16,294 | |
Deferred income taxes | 1,070 | | | (80,293) | |
Change in operating assets and liabilities: | | | |
Accounts receivable | (10,385) | | | (45,970) | |
Inventories | (5,780) | | | 5,911 | |
Income taxes receivable and payable, net | 39,204 | | | 1,238 | |
Prepaid expenses and other | (13,768) | | | (27,258) | |
Accounts payable and accrued liabilities | (60,563) | | | (23,763) | |
Other | (4,311) | | | (33,745) | |
Net cash provided by (used in) operating activities | 420,482 | | | (87,610) | |
Cash flows from investing activities | | | |
Capital expenditures | (101,583) | | | (78,914) | |
Dispositions of property and equipment | 2,917 | | | 505 | |
Investments in unconsolidated affiliates | (129,177) | | | (76,845) | |
Distributions from unconsolidated affiliates | 475 | | | — | |
Other | (10,015) | | | 342 | |
Net cash used in investing activities | (237,383) | | | (154,912) | |
Cash flows from financing activities | | | |
Net borrowings (repayments) under bank credit facilities - maturities of 90 days or less | (18,134) | | | 125,902 | |
Issuance of long-term debt | — | | | 749,775 | |
Retirement of senior notes | (1,000,000) | | | — | |
Debt issuance costs | (1,367) | | | (9,212) | |
Issuance of MGM Growth Properties Class A shares, net | — | | | 676,034 | |
Dividends paid to common shareholders | (1,090) | | | (1,237) | |
Distributions to noncontrolling interest owners | (118,039) | | | (76,390) | |
Purchases of common stock | (1,001,972) | | | (119,269) | |
Other | (24,985) | | | (32,104) | |
Net cash provided by (used in) financing activities | (2,165,587) | | | 1,313,499 | |
Effect of exchange rate on cash, cash equivalents, and restricted cash | (1,355) | | | (1,102) | |
Cash, cash equivalents, and restricted cash | | | |
Net change for the period | (1,983,843) | | | 1,069,875 | |
Balance, beginning of period | 5,203,059 | | | 5,101,637 | |
Balance, end of period | $ | 3,219,216 | | | $ | 6,171,512 | |
Supplemental cash flow disclosures | | | |
Interest paid, net of amounts capitalized | $ | 183,513 | | | $ | 146,631 | |
Federal, state and foreign income tax refunds received, net | (67,294) | | | (2,401) | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | |
| Shares | | Par Value | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total MGM Resorts International Stockholders' Equity | | Noncontrolling Interests | | Total Stockholders' Equity |
Balances, January 1, 2022 | 453,804 | | | $ | 4,538 | | | $ | 1,750,135 | | | $ | 4,340,588 | | | $ | (24,616) | | | $ | 6,070,645 | | | $ | 4,906,121 | | | $ | 10,976,766 | |
Net loss | — | | | — | | | — | | | (18,016) | | | — | | | (18,016) | | | (19,046) | | | (37,062) | |
Currency translation adjustment | — | | | — | | | — | | | — | | | (10,184) | | | (10,184) | | | (7,782) | | | (17,966) | |
Cash flow hedges | — | | | — | | | — | | | — | | | 12,793 | | | 12,793 | | | 23,238 | | | 36,031 | |
Stock-based compensation | — | | | — | | | 22,381 | | | — | | | — | | | 22,381 | | | 963 | | | 23,344 | |
Issuance of common stock pursuant to stock-based compensation awards | 104 | | | 1 | | | (2,312) | | | — | | | — | | | (2,311) | | | — | | | (2,311) | |
Cash distributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | (5,761) | | | (5,761) | |
Dividends declared and paid to common shareholders ($0.0025 per share) | — | | | — | | | — | | | (1,090) | | | — | | | (1,090) | | | — | | | (1,090) | |
MGP dividend payable to Class A shareholders | — | | | — | | | — | | | — | | | — | | | — | | | (83,080) | | | (83,080) | |
Issuance of restricted stock units | — | | | — | | | 1,941 | | | — | | | — | | | 1,941 | | | 186 | | | 2,127 | |
Repurchases of common stock | (23,346) | | | (233) | | | (1,001,739) | | | — | | | — | | | (1,001,972) | | | — | | | (1,001,972) | |
Adjustment of redeemable noncontrolling interest to redemption value | — | | | — | | | (8,986) | | | — | | | — | | | (8,986) | | | — | | | (8,986) | |
Other | — | | | — | | | 139 | | | — | | | — | | | 139 | | | (555) | | | (416) | |
Balances, March 31, 2022 | 430,562 | | | $ | 4,306 | | | $ | 761,559 | | | $ | 4,321,482 | | | $ | (22,007) | | | $ | 5,065,340 | | | $ | 4,814,284 | | | $ | 9,879,624 | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | |
| Shares | | Par Value | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total MGM Resorts International Stockholders' Equity | | Noncontrolling Interests | | Total Stockholders' Equity |
Balances, January 1, 2021 | 494,318 | | | $ | 4,943 | | | $ | 3,439,453 | | | $ | 3,091,007 | | | $ | (30,677) | | | $ | 6,504,726 | | | $ | 4,675,182 | | | $ | 11,179,908 | |
Net loss | — | | | — | | | — | | | (331,829) | | | — | | | (331,829) | | | (6,254) | | | (338,083) | |
Currency translation adjustment | — | | | — | | | — | | | — | | | (7,353) | | | (7,353) | | | (5,669) | | | (13,022) | |
Cash flow hedges | — | | | — | | | — | | | — | | | 7,099 | | | 7,099 | | | 8,199 | | | 15,298 | |
Stock-based compensation | — | | | — | | | 15,503 | | | — | | | — | | | 15,503 | | | 1,046 | | | 16,549 | |
Issuance of common stock pursuant to stock-based compensation awards | 706 | | | 7 | | | (9,351) | | | — | | | — | | | (9,344) | | | — | | | (9,344) | |
Cash distributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | (3,112) | | | (3,112) | |
Dividends declared and paid to common shareholders ($0.0025 per share) | — | | | — | | | — | | | (1,237) | | | — | | | (1,237) | | | — | | | (1,237) | |
MGP dividend payable to Class A shareholders | — | | | — | | | — | | | — | | | — | | | — | | | (75,895) | | | (75,895) | |
Repurchases of common stock | (3,150) | | | (31) | | | (119,238) | | | — | | | — | | | (119,269) | | | — | | | (119,269) | |
Adjustment of redeemable noncontrolling interest to redemption value | — | | | — | | | (9,428) | | | — | | | — | | | (9,428) | | | — | | | (9,428) | |
MGP Class A share issuances | — | | | — | | | 83,142 | | | — | | | 2,868 | | | 86,010 | | | 561,744 | | | 647,754 | |
Redemption of Operating Partnership units | — | | | — | | | 171,332 | | | — | | | 5,327 | | | 176,659 | | | (227,487) | | | (50,828) | |
Other | — | | | — | | | (2,227) | | | — | | | (2,482) | | | (4,709) | | | (2,063) | | | (6,772) | |
Balances, March 31, 2021 | 491,874 | | | $ | 4,919 | | | $ | 3,569,186 | | | $ | 2,757,941 | | | $ | (25,218) | | | $ | 6,306,828 | | | $ | 4,925,691 | | | $ | 11,232,519 | |
The accompanying notes are an integral part of these consolidated financial statements.
MGM RESORTS INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 — ORGANIZATION
Organization. MGM Resorts International (together with its consolidated subsidiaries, unless otherwise indicated or unless the context requires otherwise, the “Company”) is a Delaware corporation that acts largely as a holding company and, through subsidiaries, owns and operates casino resorts.
As of March 31, 2022, the Company operates the following integrated casino, hotel and entertainment resorts in Las Vegas, Nevada: Aria (including Vdara), Bellagio, MGM Grand Las Vegas (including The Signature), The Mirage, Mandalay Bay, Luxor, New York-New York, Park MGM, and Excalibur. The Company also operates MGM Grand Detroit in Detroit, Michigan, MGM National Harbor in Prince George’s County, Maryland, MGM Springfield in Springfield, Massachusetts, Borgata in Atlantic City, New Jersey, Empire City in Yonkers, New York, MGM Northfield Park in Northfield Park, Ohio, and the following resorts in Mississippi: Beau Rivage in Biloxi and Gold Strike Tunica in Tunica. Additionally, the Company operates The Park, a dining and entertainment district located between New York-New York and Park MGM, and the Company owns and operates Shadow Creek, an exclusive world-class golf course located approximately ten miles north of the Las Vegas Strip, and Fallen Oak golf course in Saucier, Mississippi.
MGM Growth Properties LLC (“MGP”), a consolidated subsidiary of the Company as of March 31, 2022 and until the closing of the VICI Transaction, as discussed below, was organized as an umbrella partnership REIT (commonly referred to as an UPREIT) structure in which substantially all of its assets were owned by and substantially all of its operations were conducted through MGM Growth Properties Operating Partnership LP (the “Operating Partnership”). Prior to the closing of the VICI Transaction, MGP had two classes of authorized and outstanding voting common shares (collectively, the “shares”): Class A shares and a single Class B share. The Company owned MGP’s Class B share, which did not provide its holder any rights to profits or losses or any rights to receive distributions from operations of MGP or upon liquidation or winding up of MGP. MGP’s Class A shareholders were entitled to one vote per share, while the Company, as the owner of the Class B share, held a controlling interest in MGP as it was entitled to an amount of votes representing a majority of the total voting power of MGP’s shares so long as the Company and its controlled affiliates’ (excluding MGP) aggregate beneficial ownership of the combined economic interests in MGP and the Operating Partnership did not fall below 30%. The Company and MGP each held Operating Partnership units representing limited partner interests in the Operating Partnership. The general partner of the Operating Partnership was a wholly owned subsidiary of MGP. The Operating Partnership units held by the Company were exchangeable into Class A shares of MGP on a one-to-one basis, or cash at the Fair Market Value of a Class A share (as defined in the Operating Partnership’s partnership agreement). The determination of settlement method was at the option of MGP’s independent conflicts committee. As of March 31, 2022, the Company owned 41.5% of the Operating Partnership units, and MGP held the remaining 58.5% ownership interest in the Operating Partnership.
Prior to the closing of the VICI Transaction, the Company leased the real estate assets of The Mirage, Luxor, New York-New York, Park MGM, Excalibur, The Park, Gold Strike Tunica, MGM Grand Detroit, Beau Rivage, Borgata, Empire City, MGM National Harbor, MGM Northfield Park, and MGM Springfield pursuant to a master lease agreement between a subsidiary of the Company and a subsidiary of the Operating Partnership.
The Company leases the real estate assets of Bellagio pursuant to a lease agreement between a subsidiary of the Company and a venture that is 5% owned by such subsidiary and 95% owned by a subsidiary of Blackstone Real Estate Income Trust, Inc. (“BREIT”, and such venture, the “Bellagio BREIT Venture”). Additionally, the Company leases the real estate assets of Mandalay Bay and MGM Grand Las Vegas, pursuant to a lease agreement between a subsidiary of the Company and a venture that is 50.1% owned by a subsidiary of the Operating Partnership and 49.9% by a subsidiary of BREIT (such venture, the “MGP BREIT Venture”). Further, the Company leases the real estate assets of Aria (including Vdara) pursuant to a lease agreement between a subsidiary of the Company and funds managed by The Blackstone Group ("Blackstone"), as further discussed below. Refer to Note 7 for further discussion of the leases.
VICI Transaction
On April 29, 2022, the Company completed a series of transactions with VICI Properties, Inc. (“VICI”) and MGP whereby VICI acquired MGP in a stock-for-stock transaction (such transaction, the “VICI Transaction”). MGP Class A shareholders received 1.366 shares of newly issued VICI stock in exchange for each MGP Class A share outstanding and the Company received 1.366 units of the new VICI operating partnership (“VICI OP”) in exchange for each Operating
Partnership unit held by the Company. The fixed exchange ratio represents an agreed upon price of $43 per share of MGP Class A share to the five-day volume weighted average price of VICI stock as of the close of business on July 30, 2021. In connection with the exchange, VICI OP redeemed the majority of the Company’s VICI OP units for cash consideration of $4.4 billion, with the Company retaining an approximate 1% ownership interest in VICI OP with a fair value of approximately $375 million. MGP’s Class B share that was held by the Company was cancelled. Accordingly, the Company no longer holds a controlling interest in MGP and deconsolidated MGP upon the closing of the April 2022 transactions.
In connection with the VICI Transaction, the Company entered into an amended and restated master lease with VICI. The new master lease has an initial term of 25 years, with three 10-year renewals, and initial annual rent of $860 million, escalating annually at a rate of 2% per annum for the first 10 years and thereafter equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3%. The lease has a triple-net structure, which requires the Company to pay substantially all costs associated with each property, including real estate taxes, insurance, utilities and routine maintenance, in addition to the rent. Additionally, the Company is required to pay the rent payments under the ground leases of the Borgata, Beau Rivage, and National Harbor.
Pending Transactions
On September 26, 2021, the Company entered into an agreement to acquire the operations of The Cosmopolitan of Las Vegas (“The Cosmopolitan”) for cash consideration of $1.625 billion, subject to customary working capital adjustments. Additionally, the Company will enter into a lease agreement for the real estate assets of The Cosmopolitan. The Cosmopolitan lease will have an initial term of 30 years with three subsequent 10-year renewal periods, exercisable at the Company’s option. The initial term of the lease provides for an initial annual cash rent of $200 million with a fixed 2% escalator for the first 15 years, and thereafter, an escalator equal to the greater of 2% and the CPI increase during the prior year, subject to a cap of 3%. The transaction is expected to close in the first half of 2022, subject to regulatory approvals and other customary closing conditions.
In addition, on December 13, 2021, the Company entered into an agreement to sell the operations of The Mirage to an affiliate of Seminole Hard Rock Entertainment, Inc. ("Hard Rock") for cash consideration of $1.075 billion, subject to certain purchase price adjustments. Upon closing, the master lease between the Company and VICI will be amended and restated to reflect a $90 million reduction in annual cash rent. The transaction is expected to close during the second half of 2022, subject to certain closing conditions, including, but not limited to, the receipt of regulatory approvals.
On May 2, 2022, the Company commenced a public offer to the shareholders of LeoVegas AB (publ) (“LeoVegas”) to tender 100% of the shares of LeoVegas at a price of SEK 61 in cash per share, equivalent to a total tender offer value of approximately SEK 6.0 billion (approximately $607 million, based on exchange rates at April 29, 2022). The transaction is expected to close in the second half of 2022, subject to certain regulatory approvals, the receipt of valid tenders of more than 90% of LeoVegas' shares, and customary closing conditions.
MGM China
The Company has an approximate 56% controlling interest in MGM China Holdings Limited (together with its subsidiaries, “MGM China”), which owns MGM Grand Paradise, S.A. (“MGM Grand Paradise”). MGM Grand Paradise owns and operates MGM Macau and MGM Cotai, two integrated casino, hotel and entertainment resorts in Macau, as well as the related gaming subconcession and land concessions.
Gaming in Macau is currently administered by the Macau Government through concessions awarded to three different concessionaires and three subconcessionaires, of which a subsidiary of MGM China, MGM Grand Paradise, is a subconcessionaire. In 2019, the expiration of MGM Grand Paradise’s subconcession term was extended from March 31, 2020 to June 26, 2022, consistent with the expiration of the other concessionaires and subconcessionaires. Pursuant to the current Macau gaming law, upon reaching the maximum duration of 20 years, the term of the concessions may be extended one or more times by order of the Chief Executive, which period may not exceed, in total, 5 years. On January 14, 2022, the Macau Government disclosed the content of a bill to amend Macau gaming law, which followed a 45-day public consultation process regarding draft amendment proposals that were issued in September 2021. Under the bill the existing subconcessions will be discontinued and a maximum of six concessions will be awarded for a term to be specified in the concession contract that may not exceed 10 years and which may be extended by three years under certain circumstances. The bill is subject to debate and approval by the Macau Legislative Assembly. The approval of the new gaming law bill will precede the public tender for the awarding of new gaming concessions. On March 3, 2022, the Macau Government
announced its intention to extend the term of Macau’s six concession and subconcession contracts from June 26, 2022 until December 31, 2022, and invited the concessionaires and subconcessionaires to submit a formal request for an extension. On March 11, 2022, MGM Grand Paradise submitted its request for an extension, along with a commitment to pay the Macau government up to MOP47 million (approximately US$6 million) and provide a bank guarantee to secure the fulfillment of MGM Grand Paradise's payment obligations towards its employees should MGM Grand Paradise be unsuccessful in tendering for a new concession contract after its subconcession expires. The extension of MGM Grand Paradise's subconcession is subject to approval by the Macau government as well as entering into a new subconcession extension contract with SJM Resorts, S.A. Unless MGM Grand Paradise's gaming subconcession is further extended or legislation with regard to reversion of casino premises is amended the casino area premises and gaming-related equipment subject to reversion will automatically be transferred to the Macau Government upon expiration, and MGM China will cease to generate any revenues from such gaming operations. In addition, certain events relating to the loss, termination, rescission, revocation or modification of MGM Grand Paradise’s gaming subconcession in Macau, where such events have a material adverse effect on the financial condition, business, properties, or results of operations of MGM China, taken as a whole, may result in a special put option triggering event under MGM China’s senior notes and in an event of default under MGM China’s revolving credit facilities. MGM China continues to closely monitor developments regarding the retendering process or concession extensions including the issuance of guidance by the Macau Government. MGM China intends to respond proactively to all relevant Macau Government requirements when known relating to the process. Management cannot provide any assurance that the gaming subconcession will be further extended beyond the current term or that it will be able to obtain a gaming concession in a public tender; however, management believes that MGM Grand Paradise will be successful in obtaining an extension of its gaming subconcession beyond its current term and a gaming concession when a public tender is held.
BetMGM
The Company owns 50% of BetMGM, LLC (“BetMGM”), which provides online sports betting and iGaming in certain jurisdictions in the United States. The other 50% of BetMGM is owned by Entain plc.
Reportable Segments
The Company has three reportable segments: Las Vegas Strip Resorts, Regional Operations and MGM China. See Note 11 for additional information about the Company’s segments.
Financial Impact of COVID-19. The spread of the novel coronavirus (“COVID-19”) and developments surrounding the global pandemic have had a significant impact on the Company’s business, financial condition, results of operations and cash flows since the onset of the pandemic, which continued in the first quarter of 2022 and may continue during the remainder of 2022 and thereafter. In the first quarter of 2022, all of the Company's properties were open and not subject to operating restrictions; however, travel and business volume were negatively affected in the early part of the first quarter of 2022 due to the spread of the omicron variant.
Although all of the Company’s properties have re-opened, in light of the unpredictable nature of the pandemic, including the emergence and spread of COVID-19 variants, the properties may be subject to new operating restrictions and/or temporary, complete, or partial shutdowns in the future. At this time, the Company cannot predict whether jurisdictions, states or the federal government will adopt similar or more restrictive measures in the future than in the past, including stay-at-home orders or the temporary closure of all or a portion of the Company’s properties as a result of the pandemic.
In Macau, the Company’s properties continue to operate subject to certain health safeguards, such as limiting the number of seats available at each table game, slot machine spacing, temperature checks, mask protection, and health declarations submitted through the Macau Health Code system. Although the issuance of tourist visas (including the individual visit scheme) for residents of mainland China to travel to Macau resumed in 2020, several travel and entry restrictions in Macau, Hong Kong and mainland China remain in place (including the temporary suspension of ferry services between Hong Kong and Macau, the negative nucleic acid test result certificate, and mandatory quarantine requirements for returning residents, for visitors from Hong Kong, Taiwan, and certain regions in mainland China, and bans on entry on other visitors), which significantly impacted visitation to the Company’s Macau properties. Macau is currently operating under a "dynamic zero" COVID-19 policy, as is Hong Kong and mainland China. Under this policy, when local infections are identified several restrictions may be imposed, including the lock down of sections of cities or entire cities and travel restrictions, imposition of mass mandatory nucleic acid testing, shortening of the validity period of negative test results for re-entry into mainland China from Macau and imposition of quarantine requirements, cancellation or suspension of certain events and, in some instances, closing of certain entertainment and leisure facilities. Although
gaming and hotel operations have remained open during these states of immediate prevention, such measures have had a negative effect on the MGM China's operations and it is uncertain whether further closures, including the closure of the Company’s properties, or travel restrictions to Macau will be implemented if additional local COVID-19 cases are identified.
NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2021 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s interim financial statements. The results for such periods are not necessarily indicative of the results to be expected for the full year.
Principles of consolidation. The Company evaluates entities for which control is achieved through means other than voting rights to determine if it is the primary beneficiary of a variable interest entity (“VIE”). A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is its primary beneficiary. For these VIEs, the Company records a noncontrolling interest in the consolidated balance sheets. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.
As of March 31, 2022, management determined that MGP is a VIE because the Class A equity investors as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company determined that it is the primary beneficiary of MGP and consolidates MGP because (i) its ownership of MGP’s single Class B share entitles it to a majority of the total voting power of MGP’s shares, and (ii) the exchangeable nature of the Operating Partnership units owned provide the Company the right to receive benefits from MGP that could potentially be significant to MGP. The Company recorded MGP’s ownership interest in the Operating Partnership as noncontrolling interest in the Company’s consolidated financial statements. As of March 31, 2022, on a consolidated basis MGP had total assets of $10.4 billion, primarily related to its real estate investments, and total liabilities of $5.0 billion, primarily related to its indebtedness. Refer to Note 1 for discussion regarding the deconsolidation of MGP upon closing of the VICI Transaction in April 2022.
Management has determined that Bellagio BREIT Venture is a VIE because the equity holders as a group lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance. The Company has determined that it is not the primary beneficiary of Bellagio BREIT Venture and, accordingly, does not consolidate the venture, because the Company does not have power to direct the activities that could potentially be significant to the venture; BREIT, as the managing member, has such power. The Company has recorded its 5% ownership interest in Bellagio BREIT Venture as an investment in unconsolidated affiliates in the Company’s consolidated financial statements, for which such amount was $58 million as of March 31, 2022. The Company’s maximum exposure to loss as a result of its involvement with Bellagio BREIT Venture is equal to the carrying value of its investment, assuming no future capital funding requirements, plus the exposure to loss resulting from the Company’s guarantee of the debt of Bellagio BREIT Venture, which guarantee is immaterial as of March 31, 2022, as further discussed in Note 8.
For entities determined not to be a VIE, the Company consolidates such entities in which the Company owns 100% of the equity. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity under the voting interest model if it has a controlling financial interest based upon the terms of the respective entities’ ownership agreements, such as MGM China. For these entities, the Company records a noncontrolling interest in
the consolidated balance sheets and all intercompany balances and transactions are eliminated in consolidation. If the entity does not qualify for consolidation under the voting interest model and the Company has significant influence over the operating and financial decisions of the entity, the Company accounts for the entity under the equity method, such as MGP BREIT Venture and BetMGM, which do not qualify for consolidation as the Company has joint control, given the entities are structured with substantive participating rights whereby both owners participate in the decision making process, which prevents the Company from exerting a controlling financial interest in such entities, as defined in ASC 810.
For equity interests in entities in which the Company does not have significant influence, the Company records its equity investment under ASC 321 and reflects such investments within “Other long-term assets, net” on the consolidated balance sheets. The fair value of such equity investment was $81 million as of March 31, 2022.
Fair value measurements. Fair value measurements affect the Company’s accounting and impairment assessments of its long-lived assets, investments in unconsolidated affiliates or equity interests, assets acquired, and liabilities assumed in an acquisition, and goodwill and other intangible assets. Fair value measurements also affect the Company’s accounting for certain of its financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1 inputs, such as quoted prices in an active market; Level 2 inputs, which are observable inputs for similar assets; or Level 3 inputs, which are unobservable inputs. The Company used the following inputs in its fair value measurements:
•Level 1 inputs when measuring its equity investments under ASC 321;
•Level 1 and Level 2 inputs for its long-term debt fair value disclosures. See Note 5; and
•Level 1, Level 2, and Level 3 inputs when assessing the fair value of assets acquired and liabilities assumed in the CityCenter acquisition. See Note 3.
Restricted cash. Restricted cash reflects cash held in an escrow account related to the reverse termination fee that was contractually required to be prefunded for The Cosmopolitan acquisition and is reflected as "Restricted Cash" on the condensed consolidated balance sheets. "Restricted Cash" and "Cash and cash equivalents" on the condensed consolidated balance sheets equal "Cash, cash equivalents, and restricted cash" on the condensed consolidated statements of cash flows.
Revenue recognition. The Company’s revenue from contracts with customers consists of casino wagers transactions, hotel room sales, food and beverage transactions, entertainment shows, and retail transactions.
For casino wager transactions that include incentives earned by customers under the Company’s loyalty programs, the Company allocates a portion of net win based upon the standalone selling price of such incentive (less estimated breakage). This allocation is deferred and recognized as revenue when the customer redeems the incentive. When redeemed, revenue is recognized in the department that provides the goods or service. Redemption of loyalty incentives at third party outlets are deducted from the loyalty liability and amounts owed are paid to the third party, with any discount received recorded as other revenue. After allocating revenue to other goods and services provided as part of casino wager transactions, the Company records the residual amount to casino revenue.
Contract and Contract-Related Liabilities. There may be a difference between the timing of cash receipts from the customer and the recognition of revenue, resulting in a contract or contract-related liability. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owed in exchange for gaming chips held by a customer, (2) loyalty program obligations, which represents the deferred allocation of revenue relating to loyalty program incentives earned, as discussed above, and (3) customer advances and other, which is primarily funds deposited by customers before gaming play occurs (“casino front money”) and advance payments on goods and services yet to be provided such as advance ticket sales and deposits on rooms and convention space or for unpaid wagers. These liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within “Other accrued liabilities” on the consolidated balance sheets.
The following table summarizes the activity related to contract and contract-related liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Chip Liability | | Loyalty Program | | Customer Advances and Other |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| (In thousands) |
Balance at January 1 | $ | 176,219 | | | $ | 212,671 | | | $ | 144,465 | | | $ | 139,756 | | | $ | 640,001 | | | $ | 382,287 | |
Balance at March 31 | 141,636 | | | 170,040 | | | 149,316 | | | 133,047 | | | 720,764 | | | 407,372 | |
Increase / (decrease) | $ | (34,583) | | | $ | (42,631) | | | $ | 4,851 | | | $ | (6,709) | | | $ | 80,763 | | | $ | 25,085 | |
Revenue by source. The Company presents the revenue earned disaggregated by the type or nature of the good or service (casino, room, food and beverage, and entertainment, retail and other) and by relevant geographic region within Note 11.
Leases. Refer to Note 7 for discussion of leases under which the Company is a lessee. The master lease agreement with MGP is eliminated in consolidation; refer to Note 12 for further discussion of the master lease with MGP. The Company is a lessor under certain other lease arrangements. Lease revenues earned by the Company from third parties are classified within the line item corresponding to the type or nature of the tenant’s good or service. During the three months ended March 31, 2022 and 2021, lease revenues from third-party tenants include $14 million and $4 million recorded within food and beverage revenue, respectively, and $26 million and $16 million recorded within entertainment, retail, and other revenue for the same such periods, respectively. Lease revenues from the rental of hotel rooms are recorded as rooms revenues within the consolidated statements of operations.
NOTE 3 — ACQUISITION
On September 27, 2021, the Company completed the acquisition of Infinity World's 50% ownership interest in CityCenter for cash consideration of $2.125 billion.
Through the acquisition, the Company obtained 100% of the equity interests in CityCenter and therefore consolidated CityCenter as of September 27, 2021. Prior to the acquisition, the Company held a 50% ownership interest, which was accounted for under the equity method. The fair value of the equity interests of CityCenter was determined by the transaction price and equaled $4.25 billion.
On September 28, 2021, the Company sold the real estate assets of Aria (including Vdara) for cash consideration of $3.89 billion and entered into a lease agreement pursuant to which the Company leases back the real property. The Company classified the real estate assets as held for sale as of the acquisition date and accordingly measured the real estate assets at fair value less costs to sell, as reflected in the table below. See Note 7 for additional information regarding the lease.
The Company recognized 100% of the assets and liabilities of CityCenter at fair value at the date of the acquisition. Under the acquisition method, the fair value was allocated to the assets acquired and liabilities assumed in the transaction. The Company estimated fair value using level 1 inputs, level 2 inputs, and level 3 inputs.
The following table sets forth the purchase price allocation (in thousands):
| | | | | |
Fair value of assets acquired and liabilities assumed: | |
Cash and cash equivalents | $ | 335,396 | |
Receivables and other current assets | 106,417 | |
Property and equipment - real estate assets held for sale | 3,888,431 | |
Property and equipment | 323,093 | |
Trademarks | 180,000 | |
Goodwill | 1,397,338 | |
Other long- term assets | 13,923 | |
Accounts payable, accrued liabilities, and other current liabilities | (201,093) | |
Debt | (1,729,451) | |
Other long-term liabilities | (64,054) | |
| $ | 4,250,000 | |
The Company recognized the identifiable intangible assets of CityCenter at fair value, which consisted of indefinite-lived trade names, which was determined using methodologies under the relief from royalty method based on significant inputs that were not observable. The goodwill is primarily attributable to the profitability of CityCenter in excess of identifiable assets, of which approximately 50% of the goodwill is deductible for income tax purposes. All of the goodwill was assigned to the Company’s Las Vegas Strip Resorts segment.
Unaudited pro forma information. The operating results for CityCenter are included in the accompanying consolidated statements of operations from the date of acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company’s acquisition of its controlling interest had occurred as of January 1, 2020 and excludes the gain on consolidation recognized by the Company. The pro forma information does not reflect transactions that occurred subsequent to acquisition, such as the subsequent sale-leaseback transaction or the repayment of CityCenter's assumed debt. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2020.
| | | | | |
| Three Months Ended March 31, |
| 2021 |
| (In thousands) |
Net revenues | $ | 1,727,909 | |
Net loss attributable to MGM Resorts International | (321,821) | |
NOTE 4 — INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Investments in and advances to unconsolidated affiliates consisted of the following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
MGP BREIT Venture (50.1% owned by the Operating Partnership) | $ | 818,053 | | | $ | 816,756 | |
BetMGM (50%) | 74,065 | | | 41,060 | |
Other | 116,026 | | | 109,228 | |
| $ | 1,008,144 | | | $ | 967,044 | |
The Company recorded its share of loss from unconsolidated affiliates, including adjustments for basis differences, as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Loss from unconsolidated affiliates | $ | (46,838) | | | $ | (25,579) | |
Non-operating items from unconsolidated affiliates | (15,133) | | | (20,836) | |
| $ | (61,971) | | | $ | (46,415) | |
The following table summarizes information related to the Company’s share of operating loss from unconsolidated affiliates:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
CityCenter | $ | — | | | $ | (2,831) | |
MGP BREIT Venture | 38,936 | | | 38,962 | |
BetMGM | (91,993) | | | (59,236) | |
Other | 6,219 | | | (2,474) | |
| $ | (46,838) | | | $ | (25,579) | |
Refer to Note 3 for discussion on the acquisition and consolidation of CityCenter in September 2021.
MGP BREIT Venture distributions. For the three months ended March 31, 2022 and 2021, the Operating Partnership received $24 million and $15 million in distributions from MGP BREIT Venture, respectively.
BetMGM contributions. For the three months ended March 31, 2022 and 2021, the Company contributed $125 million and $75 million to BetMGM, respectively.
NOTE 5 — LONG-TERM DEBT
Long-term debt consisted of the following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
Operating Partnership senior secured credit facility | $ | — | | | $ | 50,000 | |
MGM China first revolving credit facility | 390,697 | | | 360,414 | |
7.75% senior notes, due 2022 | — | | | 1,000,000 | |
6% senior notes, due 2023 | 1,250,000 | | | 1,250,000 | |
5.625% Operating Partnership senior notes, due 2024 | 1,050,000 | | | 1,050,000 | |
5.375% MGM China senior notes, due 2024 | 750,000 | | | 750,000 | |
6.75% senior notes, due 2025 | 750,000 | | | 750,000 | |
5.75% senior notes, due 2025 | 675,000 | | | 675,000 | |
4.625% Operating Partnership senior notes, due 2025 | 800,000 | | | 800,000 | |
5.25% MGM China senior notes, due 2025 | 500,000 | | | 500,000 | |
5.875% MGM China senior notes, due 2026 | 750,000 | | | 750,000 | |
4.5% Operating Partnership senior notes, due 2026 | 500,000 | | | 500,000 | |
4.625% senior notes, due 2026 | 400,000 | | | 400,000 | |
5.75% Operating Partnership senior notes, due 2027 | 750,000 | | | 750,000 | |
5.5% senior notes, due 2027 | 675,000 | | | 675,000 | |
4.75% MGM China senior notes, due 2027 | 750,000 | | | 750,000 | |
4.5% Operating Partnership senior notes, due 2028 | 350,000 | | | 350,000 | |
4.75% senior notes, due 2028 | 750,000 | | | 750,000 | |
3.875% Operating Partnership senior notes, due 2029 | 750,000 | | | 750,000 | |
7% debentures, due 2036 | 552 | | | 552 | |
| 11,841,249 | | | 12,860,966 | |
Less: Premiums, discounts, and unamortized debt issuance costs, net | (84,109) | | | (90,169) | |
| 11,757,140 | | | 12,770,797 | |
Less: Current portion | (1,250,000) | | | (1,000,000) | |
| $ | 10,507,140 | | | $ | 11,770,797 | |
Senior secured credit facility. At March 31, 2022, the Company’s senior secured credit facility consisted of a $1.675 billion revolving credit facility of which no amounts were drawn.
The Company’s senior secured credit facility contains customary representations and warranties, events of default and positive and negative covenants. The Company was in compliance with its credit facility covenants at March 31, 2022.
Operating Partnership senior secured credit facility. At March 31, 2022, the Operating Partnership senior secured credit facility consisted of a $1.35 billion revolving credit facility of which no amounts were drawn. The Operating Partnership was in compliance with its credit facility covenants at March 31, 2022.
The Operating Partnership terminated its interest rate swap agreements in March 2022.
MGM China first revolving credit facility. At March 31, 2022, the MGM China first revolving credit facility consisted of a $1.25 billion unsecured revolving credit facility. At March 31, 2022, $391 million was drawn on the MGM China first revolving credit facility and the weighted average interest rate was 3.02%.
The MGM China first revolving credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio. In February 2022, MGM China further amended its first revolving credit
facility to extend the financial covenant waivers through maturity in May 2024. MGM China was in compliance with its applicable MGM China first revolving credit facility covenants at March 31, 2022.
MGM China second revolving credit facility. At March 31, 2022, the MGM China second revolving credit facility consisted of a $400 million unsecured revolving credit facility with an option to increase the amount of the facility up to $500 million, subject to certain conditions. Draws will be subject to satisfaction of certain conditions precedent, including evidence that the MGM China first revolving credit facility has been fully drawn. At March 31, 2022, no amounts were drawn on the MGM China second revolving credit facility.
The MGM China second revolving credit facility contains customary representations and warranties, events of default, and positive, negative and financial covenants, including that MGM China maintains compliance with a maximum leverage ratio and a minimum interest coverage ratio. In February 2022, MGM China further amended its second revolving credit facility to extend the financial covenant waivers through maturity in May 2024. MGM China was in compliance with its applicable MGM China second revolving credit facility covenants at March 31, 2022.
Senior notes. In March 2022, the Company repaid its $1.0 billion 7.75% notes due 2022 upon maturity.
MGM China senior notes. In March 2021, MGM China issued $750 million in aggregate principal amount of 4.75% senior notes due 2027 at an issue price of 99.97%.
Fair value of long-term debt. The estimated fair value of the Company’s long-term debt was $11.7 billion and $13.4 billion at March 31, 2022 and December 31, 2021, respectively. Fair value was estimated using quoted market prices for the Company’s senior notes and credit facilities.
NOTE 6 — INCOME TAXES
For interim income tax reporting the Company estimates its annual effective tax rate and applies it to its year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company’s effective income tax rate was a benefit of 51.1% and 22.0% on loss before income taxes for the three months ended March 31, 2022 and 2021, respectively.
The Company recognizes deferred income tax assets, net of applicable reserves, related to net operating losses, tax credit carryforwards and certain temporary differences. The Company recognizes future tax benefits to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.
During the three months ended March 31, 2022, the Company reversed $13 million of unrecognized tax benefit upon the resolution of a tax accounting method issue related to its customer loyalty program.
NOTE 7 — LEASES
The Company leases the land underlying certain of its properties, real estate, and various equipment under operating and, to a lesser extent, finance lease arrangements. The MGP master lease, which is further discussed in Note 12, eliminates in consolidation and, accordingly, is not included within the disclosures below.
Land. As of March 31, 2022, the Company, through MGP, was a lessee of land underlying MGM National Harbor and a portion of the land underlying Borgata and Beau Rivage. MGP was obligated to make lease payments through the non-cancelable term of the ground leases, which is through 2051 for Beau Rivage, through 2070 for Borgata, and through 2082 for MGM National Harbor. Refer to Note 1 for discussion of the VICI Transaction.
Additionally, MGM Grand Paradise has MGM Macau and MGM Cotai land concession contracts, each with an initial 25-year contract term ending in April 2031 and January 2038, respectively. The land leases are classified as operating leases.
Real estate assets. The Company leases the real estate assets of Bellagio, Mandalay Bay, MGM Grand Las Vegas, and Aria (including Vdara) pursuant to triple-net lease agreements, which are classified as operating leases. Each of the leases obligates the Company to spend a specified percentage of net revenues at the properties on capital expenditures and that the Company comply with certain financial covenants, which, if not met, would require the Company to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to 1 year of rent under the Mandalay Bay and MGM Grand Las Vegas lease and Aria lease and 2 years of rent under the Bellagio lease. The Company was in compliance with its applicable covenants under its leases as of March 31, 2022.
Other information. Components of lease costs and other information related to the Company’s leases was:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| (In thousands) |
Operating lease cost, primarily classified within "General and administrative"(1) | $ | 271,849 | | | $ | 198,991 | |
| | | |
Finance lease costs | | | |
Interest expense(2) | $ | 893 | | | $ | (656) | |
Amortization expense | 20,157 | | | 17,814 | |
Total finance lease costs | $ | 21,050 | | | $ | 17,158 | |
(1)The Bellagio lease and the Mandalay Bay and MGM Grand Las Vegas lease are held with related parties, as further discussed in Note 12. Operating lease cost includes $83 million for each of the three months ended March 31, 2022 and 2021 related to the Bellagio lease. Operating lease cost includes $99 million for each of the three months ended March 31, 2022 and 2021 related to the Mandalay Bay and MGM Grand Las Vegas lease.
(2)For the three months ended March 31, 2021, interest expense includes the effect of COVID-19 related rent concessions which was recognized as negative variable rent expense.
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Supplemental balance sheet information | (In thousands) |
Operating leases | | | |
Operating lease right-of-use assets, net(1) | $ | 11,438,442 | | | $ | 11,492,805 | |
Operating lease liabilities - current, classified within "Other accrued liabilities" | $ | 31,806 | | | $ | 31,706 | |
Operating lease liabilities - long-term(2) | 11,810,047 | | | 11,802,464 | |
Total operating lease liabilities | $ | 11,841,853 | | | $ | 11,834,170 | |
| | | |
Finance leases | | | |
Finance lease right-of-use assets, net classified within "Property and equipment, net" | $ | 131,739 | | | $ | 151,909 | |
Finance lease liabilities - current, classified within "Other accrued liabilities" | $ | 82,975 | | | $ | 87,665 | |
Finance lease liabilities - long-term, classified within "Other long-term obligations" | 57,534 | | | 75,560 | |
Total finance lease liabilities | $ | 140,509 | | | $ | 163,225 | |
| | | |
Weighted-average remaining lease term (years) | | | |
Operating leases | 29 | | 29 |
Finance leases | 2 | | 2 |
| | | |
Weighted-average discount rate (%) | | | |
Operating leases | 7 | | | 7 | |
Finance leases | 3 | | | 3 | |
(1)As of March 31, 2022 and December 31, 2021, operating lease right-of-use assets, net included $3.6 billion related to the Bellagio lease for each of the respective periods, and $3.9 billion and $4.0 billion related to the Mandalay Bay and MGM Grand Las Vegas lease, respectively.
(2)As of March 31, 2022 and December 31, 2021, operating lease liabilities – long-term included $3.8 billion related to the Bellagio lease for each of the respective periods, and $4.2 billion related to the Mandalay Bay and MGM Grand Las Vegas lease for each of the respective periods.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Cash paid for amounts included in the measurement of lease liabilities | (In thousands) |
Operating cash outflows from operating leases | $ | 211,326 | | | $ | 154,504 | |
Operating cash outflows from finance leases | 945 | | | 1,456 | |
Financing cash outflows from finance leases(1) | 22,649 | | | 19,269 | |
| | | |
ROU assets obtained in exchange for new lease liabilities | | | |
Operating leases | $ | 4,480 | | | $ | — | |
Finance leases | — | | | — | |
(1)Included within “Other” within “Cash flows from financing activities” on the consolidated statements of cash flows.