MGM RESORTS INTERNATIONAL This management's discussion and analysis of financial condition and results of operations contain forward-looking statements that involve risks and uncertainties. Please see "Cautionary Statement Concerning Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, the audited consolidated financial statements and notes for the fiscal year endedDecember 31, 2020 , which were included in our Form 10-K, filed with theSecurities and Exchange Commission ("SEC") onFebruary 26, 2021 . The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.MGM Resorts International together with its subsidiaries may be referred to as "we," "us" or "our."MGM China Holdings Limited together with its subsidiaries is referred to as "MGM China ."MGM Growth Properties LLC together with its subsidiaries is referred to as "MGP."
Description of our business and key performance indicators
Our primary business is the ownership and operation of casino resorts which
offer gaming, hotel, convention, dining, entertainment, retail and other resort
amenities. We own or invest in several of the finest casino resorts in the world
and we continually reinvest in our resorts to maintain our competitive
advantage. Most of our revenue is cash-based, through customers wagering with
cash or paying for non-gaming services with cash or credit cards. We rely
heavily on the ability of our resorts to generate operating cash flow to fund
capital expenditures, provide excess cash flow for future development, repay
debt financings, and return capital to our shareholders. We make significant
investments in our resorts through newly remodeled hotel rooms, restaurants,
entertainment and nightlife offerings, as well as other new features and
amenities.
Financial Impact of COVID-19
The spread of coronavirus disease 2019 ("COVID-19") and developments surrounding
the global pandemic have had, and we expect will continue to have, a significant
impact on our business, financial condition, results of operations and cash
flows in 2021 and potentially thereafter. In March 2020 , all of our domestic
properties were temporarily closed pursuant to state and local government
restrictions imposed as a result of COVID-19. Throughout the second and third
quarters of 2020 all of our properties that were temporarily closed re-opened to
the public, but continue to operate without certain amenities and subject to
certain occupancy limitations, with restrictions varying by jurisdiction and
with further temporary re-closures and re-openings occurring for our properties
or portions thereof into the first quarter of 2021. Upon re-opening of the
properties, we implemented certain measures to mitigate the spread of COVID-19,
including limitations on the number of gaming tables allowed to operate and on
the number of seats at each table game, as well as slot machine spacing,
temperature checks, mask protection, limitations on restaurant capacity,
entertainment events and conventions as well as other measures to enforce social
distancing.
Beginning in the latter part of the first quarter of 2021 and continuing into
the second quarter of 2021, our domestic jurisdictions eased and removed prior
operating restrictions, including capacity and occupancy limits as well as
social distancing policies. However, certain operations and amenities are
limited or constrained due to available staffing and/or mid-week visitation
levels, and in July 2021 , certain jurisdictions reinstated mask protection
guidelines as a result of the emergence and spread of certain COVID-19 variants.
Although all of our 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 temporary, complete or partial shutdowns in the
future. At this time, we 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 our properties, and are unable to predict the length of time it
will take for our properties to fully return to normal operations.
In Macau , following a temporary closure of our properties on February 5, 2020 ,
operations resumed on February 20, 2020 , subject to certain health safeguards,
such as limiting the number of seats available at each table game, slot machine
spacing, reduced operating hours at a number of restaurants and bars,
temperature checks, and mask protection. Although the issuance of tourist visas
(including the individual visit scheme "IVS") for residents of Zhuhai, Guangdong
Province and all other provinces in mainland China to travel to Macau resumed on
August 12, 2020 , August 26, 2020 and September 23, 2020 , respectively, several
travel and entry restrictions in Macau , Hong Kong and mainland China remain in
place (including the temporary suspension of ferry services from Hong Kong to
Macau , a negative nucleic acid test result, and mandatory quarantine
requirements for visitors from Hong Kong and Taiwan , and bans on entry or
enhanced quarantine requirements on other visitors into Macau ), which have
significantly impacted visitation to our Macau properties. On August 3, 2021 ,
four new COVID-19 cases were reported in Macau , the first of such cases since
the onset of the pandemic in early 2020. As a result, the Macau government
declared a state of immediate prevention and cancelled or suspended certain
events and closed certain entertainment and leisure facilities throughout Macau ,
however gaming and hotel operations have remained open. On August 4, 2021 , mass
mandatory nucleic acid testing was imposed in Macau and the testing process is
expected to take three days to complete. It is uncertain whether further
closures, including the closure of our properties, or travel restrictions to
Macau will be implemented based on the outcome of the test results.
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--------------------------------------------------------------------------------Other Developments InMarch 2021 , we delivered a notice of redemption to MGP covering approximately 37 millionOperating Partnership units that we held which was satisfied with aggregate cash proceeds of approximately$1.2 billion . See Note 9 in the accompanying consolidated financial statements for information regarding this transaction, which eliminates in consolidation. InMay 2021 , we entered into an agreement with MGP whereby MGP will acquire the real estate assets ofMGM Springfield from us for$400 million of cash consideration.MGM Springfield will be added to the master lease between us and MGP. The transaction is expected to close in the fourth quarter of 2021, upon receipt of interim regulatory approvals from theMassachusetts Gaming Commission and the satisfaction of other customary closing conditions. See Note 1 and Note 11 in the accompanying consolidated financial statements for information regarding this transaction. All intercompany transactions, including transactions under the master lease with MGP, eliminate in consolidation. InJune 2021 , we entered into a definitive agreement to purchase the 50% interest inCityCenter held byInfinity World Development Corp ("Infinity World ") for cash consideration of$2.125 billion . The transaction is expected to close in the third quarter of 2021, subject to certain closing conditions. See Note 1 in the accompanying consolidated financial statements for information regarding this transaction. InJune 2021 , we also entered into an agreement pursuant to which a fund managed by Blackstone Group Inc. will acquire the real estate assets of Aria and Vdara from us for cash consideration of$3.89 billion and lease the properties back to us pursuant to a lease agreement. The transaction is expected to close in the third quarter of 2021, subject to certain closing conditions, which include the requisite closing of the equity interest purchase ofCityCenter , discussed above. See Note 1 in the accompanying consolidated financial statements for information regarding this transaction. InAugust 2021 , we entered into an agreement with VICI and MGP whereby VICI will acquire MGP. Pursuant to the agreement, MGP Class A shareholders will receive 1.366 shares of newly issued VICI stock in exchange for each MGP Class A share outstanding and we will receive 1.366 units of the new VICI operating partnership ("VICI OP") in exchange for eachOperating Partnership unit we hold. 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 onJuly 30, 2021 . Subsequent to the exchange, VICI OP will redeem the majority of our VICI OP units for cash consideration of$4.4 billion , with us retaining an approximate$370 million ownership interest in the VICI OP (based upon the close price of VICI stock as ofAugust 3, 2021 ). MGP's Class B share that we hold will be cancelled. As part of the transaction, we will enter into an amended and restated master lease with VICI. The new master lease will have an initial term of 25 years, with three ten-year renewals, and initial annual rent of$860 million , escalating annually at a rate of 2.0% per annum for the first ten years and thereafter 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 customary closing conditions, regulatory approvals, and approval by VICI stockholders. See "Item 1A. Risk Factors - The VICI Transaction, theCityCenter transaction and theMGM Springfield transaction each remains subject to the satisfaction of certain closing conditions, including the receipt of certain regulatory approvals, and any anticipated benefits from such transactions may take longer to realize than expected or may not be realized at all." Key Performance Indicators
Key performance indicators related to gaming and hotel revenue are:
• Gaming revenue indicators: table games drop and slots handle (volume
indicators); "win" or "hold" percentage, which is not fully controllable by
us. Historically, our normal table games hold percentage at our
Baccarat and 19.0% to 23.0% for non-Baccarat however, reduced gaming
volumes as a result of the COVID-19 pandemic could cause volatility in our
hold percentages; and
• Hotel revenue indicators (for
volume indicator); average daily rate ("ADR," a price indicator); and
revenue per available room ("REVPAR," a summary measure of hotel results,
combining ADR and occupancy rate). Our calculation of ADR, which is the
average price of occupied rooms per day, includes the impact of
complimentary rooms. Complimentary room rates are determined based on
standalone selling price. Because the mix of rooms provided on a
complimentary basis, particularly to casino customers, includes adisproportionate suite component, the composite ADR including complimentary
rooms is slightly higher than the ADR for cash rooms, reflecting the higher
retail value of suites. Rooms that were out of service during the six
months ended
as a result of property closures due to the COVID-19 pandemic were excluded
from the available room count when calculating hotel occupancy and REVPAR.
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Additional key performance indicators at
• Gaming revenue indicators -
of nonnegotiable chip wagers won by
chips purchased plus nonnegotiable chips exchanged less nonnegotiable chips
returned. Turnover provides a basis for measuring VIP casino win
percentage. Historically, win for VIP gaming operations at
typically in the range of 2.6% to 3.3% of turnover however, reduced gaming
volumes as a result of the COVID-19 pandemic could cause volatility in
China's hold percentages. Results of Operations Summary Financial Results
The temporary closure of our properties due to COVID-19 in the comparative periods impacted our financial results. Dates of temporary closure are shown below:
Las Vegas Strip Resorts Closure Date Initial Re-opening date Bellagio March 17, 2020 June 4, 2020 MGM Grand Las Vegas March 17, 2020 June 4, 2020 New York-New York March 17, 2020 June 4, 2020 Excalibur March 17, 2020 June 11, 2020 Luxor March 17, 2020 June 25, 2020 Mandalay Bay(1) March 17, 2020 July 1, 2020 The Mirage(2) March 17, 2020 August 27, 2020 Park MGM(1) March 17, 2020 September 30, 2020 Regional Operations Gold Strike March 17, 2020 May 25, 2020 Beau Rivage March 17, 2020 June 1, 2020 MGM Northfield Park March 14, 2020 June 20, 2020 MGM National Harbor March 15, 2020 June 29, 2020 MGM Springfield(3) March 15, 2020 July 13, 2020 Borgata March 16, 2020 July 26, 2020 MGM Grand Detroit(4) March 16, 2020 August 7, 2020 Empire City March 14, 2020 September 21, 2020
(1) Park MGM and
starting
hotel tower operations resumed on
(2) The Mirage's hotel tower operations were closed midweek beginning November
30, 2020. The entire property was closed midweek starting
and re-opened on
(3)
hotel operations resumed with midweek closures on
(4)
23, 2020, with the hotel tower operations resuming February 9, 2021 .
The following table summarizes our consolidated financial results for the three
and six months ended
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Net revenues $ 2,267,962 $ 289,809 $ 3,915,709 $ 2,542,626
Operating income (loss) 263,760 (1,034,529 ) 17,070 216,316
Net income (loss) 90,304 (936,487 ) (245,634 ) (261,968 )
Net income (loss) attributable to MGM
Resorts International 104,753 (857,257 ) (227,076 ) (50,388 )
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Summary Operating Results Consolidated net revenues were$2.3 billion for the quarter endedJune 30, 2021 compared to$290 million in the prior year quarter, an increase of 683%. While the current year quarter benefited from the easing of operational and capacity restrictions and an increase in travel, the prior year quarter was negatively affected by temporary property closures at ourLas Vegas Strip Resorts and Regional Operations due to the pandemic. AtMGM China , the prior year quarter was more significantly impacted by travel and entry restrictions inMacau than in the current quarter. These factors resulted in a 566% increase in net revenues at ourLas Vegas Strip Resorts , an 859% increase in net revenues at our Regional Operations, and an 836% increase in net revenues atMGM China . Consolidated operating income was$264 million for the quarter endedJune 30, 2021 compared to a loss of$1.0 billion in the prior year quarter. The increase was primarily driven by an increase in net revenues discussed above. In addition, income from unconsolidated affiliates in the current year quarter included a$50 million gain related toCityCenter's sale of the Harmon land. Property transactions, net in the current year quarter included a gain of$29 million related to a reduction in the estimate of contingent consideration related to the Empire City acquisition. Property transactions, net in the prior year quarter included a$26 million other-than-temporary non-cash impairment charge on an equity method investment. Corporate expense decreased$46 million compared to the prior year quarter. The current year quarter included$6 million of transaction costs, while the prior year quarter included$49 million ofOctober 1 litigation settlement expense,$5 million of restructuring costs, and$9 million of corporate initiatives costs. General and administrative expense increased$117 million in the current year quarter compared to the prior year quarter primarily due to the prior year quarter reflecting the temporary property closures due to the pandemic, partially offset by realized benefits from our cost savings initiatives at our domestic properties. Consolidated net revenues were$3.9 billion for the six months endedJune 30, 2021 compared to$2.5 billion in the prior year period, an increase of 54%. While the prior year was negatively affected by temporary property closures for a portion of the year due to the pandemic, the current year period benefited from the easing of operational and capacity restrictions and an increase in travel primarily within the current year quarter. Additionally, atMGM China , the prior year period was negatively affected by both property closures in the first quarter and more significantly impacted by travel and entry restrictions inMacau than in the current year period. As a result, net revenues at ourLas Vegas Strip Resorts increased 21%, Regional Operations increased 92%, andMGM China increased 99%. Consolidated operating income was$17 million for the six months endedJune 30, 2021 compared to$216 million in the prior year period, a decrease of 92%, primarily due to the prior year period benefiting from a$1.5 billion gain related to theMGM Grand Las Vegas andMandalay Bay real estate transaction inFebruary 2020 , partially offset by a current year period increase in net revenues discussed above. In addition, corporate expense decreased$111 million compared to the prior year period. Corporate expense in the current year period included$8 million of transaction costs, while the prior year period included$49 million ofOctober 1 litigation settlement expense,$44 million of CEO transition expense,$5 million of restructuring costs, and$13 million of corporate initiatives costs. Included in the CEO transition expense is$20 million of stock compensation expense, of which approximately$13 million related to the modification and accelerated vesting of outstanding stock compensation awards. Property transactions, net in the current year period included a gain of$29 million related to a reduction in the estimate of contingent consideration related to the Empire City acquisition. Property transactions, net in the prior year quarter included a$64 million other-than-temporary non-cash impairment charge on an equity method investment. Depreciation expense decreased$43 million compared to the prior year period due primarily to the sale of theMGM Grand Las Vegas andMandalay Bay real estate assets. General and administrative expense increased$89 million in the current year period compared to the prior year period due primarily to the prior year period reflecting the temporary property closures and a full period of rent expense for theMGM Grand Las Vegas andMandalay Bay lease in the current year, partially offset by a decrease in payroll expense due to realized benefits from our cost savings initiatives at our domestic properties. 25 --------------------------------------------------------------------------------
Net Revenues by Segment
The following table presents a detail by segment of net revenues:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Las Vegas Strip Resorts
Casino revenue $ 353,473 $ 63,028 $ 585,567 $ 337,701
Rooms 298,714 26,105 443,043 388,969
Food and beverage 215,631 21,026 306,050 309,789Entertainment, retail and other 136,750 40,652 214,872
248,158
1,004,568 150,811 1,549,532 1,284,617
Regional Operations
Casino revenue 707,864 77,177 1,304,519 613,807
Rooms 48,924 4,181 89,503 60,060
Food and beverage 69,149 4,314 119,513 99,406Entertainment, retail and other 30,345 3,592 54,098
41,651
856,282 89,264 1,567,633 814,924
MGM China
Casino revenue 270,935 23,284 532,539 263,698
Rooms 17,389 1,335 30,902 16,544
Food and beverage 17,886 4,431 34,515 17,211
Entertainment, retail and other 4,421 4,148 9,029 7,632
310,631 33,198 606,985 305,085
Reportable segment net revenues 2,171,481 273,273 3,724,150
2,404,626
Corporate and other 96,481 16,536 191,559 138,000
$ 2,267,962 $ 289,809 $ 3,915,709 $ 2,542,626
Las Vegas Strip Resorts
Las Vegas Strip Resorts casino revenue was $353 million for the quarter ended
June 30, 2021 compared to $63 million in the prior year quarter, an increase of
461%, and casino revenue was $586 million for the six months ended June 30, 2021
compared to $338 million in the prior year period, an increase of 73% due
primarily to the temporary property closures for a portion of the prior year
period and easing of capacity restrictions and an increase in travel primarily
in the current year quarter.
The following table shows key gaming statistics for our Las Vegas Strip Resorts :
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Dollars in millions)
Table Games Drop $777 $149 $1,306 $991
Table Games Win $173 $48 $300 $244
Table Games Win % 22.3% 32.5% 23.0% 24.6%
Slots Handle $3,641 $524 $5,941 $2,980
Slots Win $351 $49 $563 $279
Slots Win % 9.6% 9.3% 9.5% 9.4%
Las Vegas Strip Resorts rooms revenue was $299 million for the quarter ended
June 30, 2021 compared to $26 million in the prior year quarter, an increase of
1,044%, and rooms revenue was $443 million for the six months ended June 30,
2021 compared to $389 million in the prior year period, an increase of 14%, due
to the temporary property closures for a portion of the prior year period and
easing of operational and capacity restrictions and an increase in travel
primarily in the current year quarter.
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The following table shows key hotel statistics for our Las Vegas Strip Resorts :
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Occupancy(1) 77% 43% 62% 81%
Average daily rate (ADR) $149 $154 $142 $181
Revenue per available room (REVPAR)(1)
$146
(1) Rooms that were out of service, including full and midweek closures, during
the six months ended
2020 due to the COVID-19 pandemic were excluded from the available room
count when calculating hotel occupancy and REVPAR.
Las Vegas Strip Resorts food and beverage revenue was$306 million for the six months endedJune 30, 2021 compared to$310 million in the prior year period, a decrease of 1%. The prior year period was negatively affected by temporary property closures for a portion of the prior year period however not all outlets were fully reopened during the current year period and the properties did not benefit from the easing of operational and capacity restrictions and an increase in travel primarily until the latter part of the current year period.Las Vegas Strip Resorts entertainment, retail and other revenue was$137 million for the quarter endedJune 30, 2021 compared to$41 million in the prior year quarter, an increase of 236% due primarily to the temporary property closures in the prior year quarter.Las Vegas Strip Resorts entertainment, retail and other revenue was$215 million for the six months endedJune 30, 2021 compared to$248 million in the prior year period, a decrease of 13% due primarily to the impact of COVID-19. The prior year period was negatively affected by temporary property closures for a portion of the period, however, venue re-openings and events did not primarily occur until the latter part of the current year period. Regional Operations Regional Operations casino revenue was$708 million for the quarter endedJune 30, 2021 compared to$77 million in the prior year quarter, an increase of 817%, and casino revenue was$1.3 billion for the six months endedJune 30, 2021 compared to$614 million in the prior year period, an increase of 113%, due primarily to the temporary property closures in the prior year periods and easing of operational and capacity restrictions and an increase in travel primarily in the current year quarter. The following table shows key gaming statistics for our Regional Operations: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (Dollars in millions) Table Games Drop$972 $58 $1,791 $903 Table Games Win$203 $13 $376 $177 Table Games Win % 20.9% 21.9% 21.0% 19.6% Slots Handle$6,514 $485 $11,897 $5,656 Slots Win$622 $48 $1,149 $543 Slots Win% 9.6% 10.0% 9.7% 9.6% Regional Operations rooms revenue was$49 million for the quarter endedJune 30, 2021 compared to$4 million in the prior year quarter, an increase of 1,070%, and rooms revenue was$90 million for the six months endedJune 30, 2021 compared to$60 million in the prior year period, an increase of 49%, due primarily to the temporary property closures in the prior year periods and easing of operational and capacity restrictions and an increase in travel primarily in the current year quarter. Regional Operations food and beverage revenue was$69 million for the quarter endedJune 30, 2021 compared to$4 million in the prior year quarter, an increase of 1,503%, and food and beverage revenue was$120 million for the six months endedJune 30, 2021 compared to$99 million in the prior year period, an increase of 20%, due primarily to the temporary property closures in the prior year periods and easing of capacity restrictions primarily in the current year quarter. 27
-------------------------------------------------------------------------------- Regional Operations entertainment, retail and other revenue was$30 million for the quarter endedJune 30, 2021 compared to$4 million in the prior year quarter, an increase of 745%, and entertainment, retail and other revenue was$54 million for the six months endedJune 30, 2021 compared to$42 million in the prior year period, an increase of 30%, due primarily to temporary property closures in the prior year periods and easing of capacity restrictions primarily in the current year quarter.MGM China
The following table shows key gaming statistics for
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Dollars in millions)
VIP Table Games Turnover
$71 $12 $149 $120 VIP Table Games Win % 2.7% 2.6% 3.0% 3.1%
Main Floor Table Games Drop
MGM China net revenues were$311 million for the quarter endedJune 30, 2021 compared to$33 million in the prior year quarter, an increase of 836%, and net revenues were$607 million for the six months endedJune 30, 2021 compared to$305 million in the prior year period, an increase of 99%. The prior year was negatively affected by both property closures inFebruary 2020 and was more significantly impacted by travel and entry restrictions inMacau than in the current year period. Corporate and other Corporate and other revenue includes revenues from other corporate operations, management services and reimbursed costs revenue primarily related to ourCityCenter management agreement. Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by us in connection with the provision of management services and was$75 million and$16 million for the three months endedJune 30, 2021 and 2020, respectively, and$133 million and$114 million for the six months endedJune 30, 2020 , respectively, which increased for the respective comparative periods due primarily to the property closures and other operational restrictions related to the pandemic in the prior year periods. See below for additional discussion of our share of operating results from unconsolidated affiliates.
Adjusted Property EBITDAR and Adjusted EBITDAR
The following table presents Adjusted Property EBITDAR and Adjusted EBITDAR.
Adjusted Property EBITDAR is our reportable segment GAAP measure, which we
utilize as the primary profit measure for our reportable segments. See Note 10 -
Segment Information in the accompanying consolidated financial statements and
"Reportable Segment GAAP measure" below for additional information. Adjusted
EBITDAR is a non-GAAP measure, discussed within "Non-GAAP measure" below.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Las Vegas Strip Resorts $ 396,805 $ (104,447 ) $ 504,924 $ 163,152
Regional Operations 318,348 (112,085 ) 560,330 39,635
MGM China 8,581 (116,288 ) 13,356 (138,278 )
Corporate and other (106,977 ) (159,342 ) (243,968 ) (261,579 )
Adjusted EBITDAR $ 616,757 $ 834,642
Las Vegas Strip Resorts Las Vegas Strip Resorts Adjusted Property EBITDAR was
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Adjusted Property EBITDAR of $505 million for the six months ended June 30, 2021
compared to $163 million in the prior year period, an increase of 209%. Adjusted
Property EBITDAR margin increased to 32.6% for the six months ended June 30,
2021 compared to 12.7% in the prior year period as the current year period
benefited from the increase in revenues, discussed above, as well as realized
benefits from our cost savings initiatives.
Regional Operations
Regional Operations Adjusted Property EBITDAR was $318 million for the quarter
ended June 30, 2021 compared to a loss of $112 million in the prior year quarter
due to the increase in revenues, discussed above, as well as realized benefits
from our cost savings initiatives.
Adjusted Property EBITDAR of $560 million for the six months ended June 30, 2021
compared to $40 million in the prior year period, an increase of 1,314%.
Regional Operations Adjusted Property EBITDAR margin increased to 35.7% for the
six months ended June 30, 2021 compared to 4.9% in the prior year period as the
current year benefitted from the increase in revenues, discussed above, as well
as realized benefits from our cost saving initiatives.
MGM China
MGM China's Adjusted Property EBITDAR was $9 million for the three months ended
June 30, 2021 compared to a loss of $116 million in the prior year quarter, as
the prior year quarter was more significantly impacted by travel and entry
restrictions in Macau as well as other operational restrictions related to the
pandemic than in the current quarter. License fee expense was $5 million in the
current quarter and $1 million in the prior year quarter.
Adjusted Property EBITDAR of $13 million for the six months ended June 30, 2021
compared to a loss of $138 million in the prior year period. The increase was
due primarily to the temporary property closures in the prior year period as
well as being more significantly impacted by travel and entry restrictions in
Macau and other operational restrictions related to the pandemic than in the
current period. License fee expense was $11 million for the six months ended
June 30, 2021 and $5 million in the prior year period.
Income (loss) from Unconsolidated Affiliates
The following table summarizes information related to our share of operating income (loss) from unconsolidated affiliates:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
CityCenter $ 90,212 $ (39,113 ) $ 87,380 $ (18,447 )
MGP BREIT Venture 38,954 38,861 77,917 58,811
BetMGM (45,979 ) (5,241 ) (105,215 ) (15,918 )
Other 151 (2,860 ) (2,323 ) 2,949
$ 83,338 $ (8,353 ) $ 57,759 $ 27,395
In June, 2021, CityCenter closed the sale of its Harmon land for $80 million on
which it recorded a $30 million gain. We recorded a $50 million gain, which
included $15 million of our 50% share of the gain recorded by CityCenter and $35
million representing the reversal of certain basis differences.
Our share of CityCenter's operating income, including certain basis difference
adjustments, was $90 million for the three months ended June 30, 2021 and
CityCenter's operating loss was $39 million for the three months ended June 30,
2020 due primarily to the gain related to the sale of its Harmon land in the
current quarter, discussed above, and the temporary property closures in the
prior year quarter.
Our share of CityCenter's operating income, including certain basis difference
adjustments, was $87 million for the six months ended June 30, 2021 and
CityCenter's operating loss was $18 million for the six months ended June 30,
2020 , due primarily to the gain related to on the sale of its Harmon land in the
current year period, discussed above, and the temporary property closures in the
prior year period.
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Non-operating Results Interest Expense Gross interest expense was$203 million and$157 million for the three months endedJune 30, 2021 and 2020, respectively, and$399 million and$315 million for the six months endedJune 30, 2021 and 2020, respectively. The increase in gross interest expense when compared to the respective prior year periods is due primarily to the increase in average debt outstanding related to senior notes due to the issuances by us, theOperating Partnership , andMGM China in 2020 and 2021, partially offset by a decrease in the weighted average interest rate of the senior notes. See Note 4 to the accompanying consolidated financial statements for additional discussion on long-term debt and see "Liquidity and Capital Resources" for additional discussion on issuances and repayments of long-term debt and other sources and uses of cash. Other, net Other income, net was$87 million and$8 million for the three months endedJune 30, 2021 and 2020, respectively. The current quarter included an$86 million gain on investment which is related primarily to the change in measurement of an equity instrument that previously qualified for the measurement alternative under ASC 321, which was discontinued upon the equity interest having a readily determinable fair value as a result of becoming exchange traded, a$6 million loss on theOperating Partnership's unhedged interest rate swaps,$5 million of foreign currency remeasurement gains primarily related toMGM China's U.S. dollar-denominated senior notes, and$6 million of interest income. Other income, net was$120 million for the six months endedJune 30, 2021 compared to other expense, net of$116 million in the prior year period. The current year period included an$86 million gain on investment, discussed above, a$29 million gain on theOperating Partnership's unhedged interest rate swaps,$1 million of foreign currency remeasurement losses primarily related toMGM China's U.S. dollar-denominated senior notes, and$11 million of interest income. The prior year period included a$109 million loss incurred on the early retirement of debt related to our senior notes and the termination of our revolving facility, as well as an$18 million loss incurred on the early retirement of debt related to theOperating Partnership's repayment of its term loan A facility and its term loan B facility and a$11 million loss on theOperating Partnership's unhedged interest rate swaps, partially offset by an$8 million remeasurement gain onMGM China's U.S. dollar-denominated senior notes, and$21 million of interest income. Refer to Note 4 for further discussion of our long-term debt. Income Taxes Our effective tax rate was a provision of 27.8% on income before income taxes for the three months endedJune 30, 2021 , compared to a benefit of 22.4% on loss before income taxes in the prior year quarter. The differing effective tax rates resulted primarily from changes in the mix ofU.S. and foreign income and losses and the increase in the foreign tax credit valuation allowance recorded in the prior year quarter that reduced the benefit recorded on loss before income taxes in such quarter. Our effective tax rate was a benefit of 19.6% on loss before income taxes for the six months endedJune 30, 2021 , compared to a benefit of 2.9% on loss before income taxes in the prior year period. The effective rate for the prior year period was unfavorably impacted by tax expense recorded on the MGP BREIT Venture transaction and adjustments to valuation allowances forMacau deferred tax assets and foreign tax credits. 30 --------------------------------------------------------------------------------
Reportable segment GAAP measure
"Adjusted Property EBITDAR" is our reportable segment GAAP measure, which we utilize as the primary profit measure for our reportable segments and underlying operating segments. Adjusted Property EBITDAR is a measure defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, gain on REIT transactions, net, restructuring costs (which represents costs related to severance, accelerated stock compensation expense, and consulting fees directly related to the operating model component of theMGM 2020 Plan), rent expense associated with triple-net operating and ground leases, income from unconsolidated affiliates related to investments in real estate ventures, property transactions, net, and also excludes corporate expense and stock compensation expense, which are not allocated to each operating segment, and rent expense related to the master lease with MGP that eliminates in consolidation. We manage capital allocation, tax planning, stock compensation, and financing decisions at the corporate level. "Adjusted Property EBITDAR margin" is Adjusted Property EBITDAR divided by related segment net revenues.
Non-GAAP measure
"Adjusted EBITDAR" is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening and start-up expenses, gain on REIT transactions, net, CEO transition expense,October 1 litigation settlement, restructuring costs (which represents costs related to severance, accelerated stock compensation expense, and consulting fees directly related to the operating model component of theMGM 2020 Plan), gain related toCityCenter's sale of Harmon land recorded within income from unconsolidated affiliates, rent expense associated with triple-net operating and ground leases, income from unconsolidated affiliates related to investments in real estate ventures, and property transactions, net. Adjusted EBITDAR information is a valuation metric, should not be used as an operating metric, and is presented solely as a supplemental disclosure to reported GAAP measures because we believe this measure is widely used by analysts, lenders, financial institutions, and investors as a principal basis for the valuation of gaming companies. We believe that while items excluded from Adjusted EBITDAR may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends. Also, we believe excluded items may not relate specifically to current trends or be indicative of future results. For example, preopening and start-up expenses will be significantly different in periods when we are developing and constructing a major expansion project and will depend on where the current period lies within the development cycle, as well as the size and scope of the project(s). Property transactions, net includes normal recurring disposals, gains and losses on sales of assets related to specific assets within our resorts, but also includes gains or losses on sales of an entire operating resort or a group of resorts and impairment charges on entire asset groups or investments in unconsolidated affiliates, which may not be comparable period over period. However, as discussed herein, Adjusted EBITDAR should not be viewed as a measure of overall operating performance, considered in isolation, or as an alternative to net income, because this measure is not presented on a GAAP basis and exclude certain expenses, including the rent expense associated with our triple-net operating and ground leases, and are provided for the limited purposes discussed herein. 31 -------------------------------------------------------------------------------- Adjusted EBITDAR should not be construed as an alternative to operating income or net income, as an indicator of our performance; or as an alternative to cash flows from operating activities, as a measure of liquidity; or as any other measure determined in accordance with GAAP. We have significant uses of cash flows, including capital expenditures, interest payments, taxes, real estate triple-net lease and ground lease payments, and debt principal repayments, which are not reflected in Adjusted EBITDAR. Also, other companies in the gaming and hospitality industries that report Adjusted EBITDAR information may calculate Adjusted EBITDAR in a different manner and such differences may be material.
The following table presents a reconciliation of net income (loss) attributable
to
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Net income (loss) attributable to MGM
Resorts International $ 104,753 $ (857,257 ) $ (227,076 ) $ (50,388 )
Plus: Net loss attributable to
noncontrolling interests (14,449 ) (79,230 ) (18,558 ) (211,580 )
Net income (loss) 90,304 (936,487 ) (245,634 ) (261,968 )
Provision (benefit) for income taxes 34,826 (270,238 ) (59,872 ) (7,934 )
Income (loss) before income taxes 125,130 (1,206,725 ) (305,506 ) (269,902 )
Non-operating (income) expense
Interest expense, net of amounts capitalized 202,772 156,756 398,067 313,893
Non-operating items from unconsolidated
affiliates 23,216 23,761 44,052 56,382
Other, net (87,358 ) (8,321 ) (119,543 ) 115,943
138,630 172,196 322,576 486,218
Operating income (loss) 263,760 (1,034,529 ) 17,070 216,316
Preopening and start-up expenses 90 (82 ) 95 40
Property transactions, net (28,906 ) 26,349 (2,835 ) 81,324
Gain on REIT transactions, net - - - (1,491,945 )
Depreciation and amortization 283,625 299,206 574,176 617,496
CEO transition expense - - - 44,401
October 1 litigation settlement - 49,000 - 49,000
Restructuring - 19,882 - 19,882
Triple-net operating lease and ground lease
rent expense 189,609 189,567 379,229 331,485
Gain related to sale of Harmon land -
unconsolidated affiliate (49,755 ) - (49,755 ) -
Income from unconsolidated affiliates
related to real estate ventures (41,666 ) (41,555 ) (83,338 ) (65,069 )
Adjusted EBITDAR $ 616,757 $ 834,642 Guarantor Financial Information
As ofJune 30, 2021 , all of our principal debt arrangements are guaranteed by each of our wholly owned material domestic subsidiaries that guarantee our senior credit facility. Our principal debt arrangements are not guaranteed by MGP, theOperating Partnership ,MGM Grand Detroit ,MGM National Harbor , Blue Tarp reDevelopment, LLC (the entity that owns and operatesMGM Springfield ), and each of their respective subsidiaries. Our foreign subsidiaries, includingMGM China and its subsidiaries, are also not guarantors of our principal debt arrangements. In the event that any subsidiary is no longer a guarantor of our credit facility or any of our future capital markets indebtedness, that subsidiary will be released and relieved of its obligations to guarantee our existing senior notes. The indentures governing the senior notes further provide that in the event of a sale of all or substantially all of the assets of, or capital stock in a subsidiary guarantor then such subsidiary guarantor will be released and relieved of any obligations under its subsidiary guarantee. The guarantees provided by the subsidiary guarantors rank senior in right of payment to any future subordinated debt of ours or such subsidiary guarantors, junior to any secured indebtedness to the extent of the value of the assets securing such debt and effectively subordinated to any indebtedness and other obligations of our subsidiaries that do not guarantee the senior notes. In addition, the obligations of each subsidiary guarantor under its guarantee is limited so as not to constitute a fraudulent conveyance under applicable law, which may eliminate the subsidiary guarantor's obligations or reduce such obligations to an amount that effectively makes the subsidiary guarantee lack value. 32
-------------------------------------------------------------------------------- The summarized financial information of us and our guarantor subsidiaries, on a combined basis, is presented below. Certain of our guarantor subsidiaries collectively ownOperating Partnership units and each subsidiary accounts for its respective investment under the equity method within the summarized financial information presented below. These subsidiaries have also accounted for the MGP master lease as an operating lease, recording operating lease liabilities and operating ROU assets with the related rent expense of guarantor subsidiaries reflected within the summarized financial information. June 30, December 31, 2021 2020 Balance Sheet (In thousands) Current assets$ 5,681,035 $ 4,749,542 Investment in the MGP Operating Partnership 2,204,437
1,617,055
Intercompany accounts due from non-guarantor subsidiaries -
16,622
MGP master lease right-of-use asset, net 6,668,629
6,714,101
Other long-term assets 12,359,922
12,318,912
MGP master lease operating lease liabilities - current 155,510
153,415
Other current liabilities 1,368,104
1,123,814
Intercompany accounts due to non-guarantor subsidiaries 50,545
-
MGP master lease operating lease liabilities -
noncurrent 7,134,278 7,191,450
Other long-term liabilities 15,809,364 15,827,794
Six Months Ended
June 30,
2021
Income Statement (In thousands)
Net revenues $ 2,565,707
MGP master lease rent expense (317,024 )
Operating loss (104,384 )
Loss from continuing operations (11,592 )
Net income 43,029
Net income attributable to MGM Resorts International 43,029
Liquidity and Capital Resources
Cash Flows Operating activities. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates. Cash provided by operating activities was$368 million in the six months endedJune 30, 2021 compared to cash used in operating activities of$1.1 billion in the six months endedJune 30, 2020 . The change from the prior year period was due primarily to the increase in revenues discussed within the results of operations section above and additionally due to the prior year period being negatively affected by a change in working capital related to gaming and non-gaming deposits, gaming taxes and other gaming liabilities, and payroll related liabilities as a result of the COVID-19 pandemic. Investing activities. Our investing cash flows can fluctuate significantly from year to year depending on our decisions with respect to strategic capital investments in new or existing resorts, business acquisitions or dispositions, and the timing of maintenance capital expenditures to maintain the quality of our resorts. Capital expenditures related to regular investments in our existing resorts can also vary depending on timing of larger remodel projects related to our public spaces and hotel rooms. Cash used in investing activities was$274 million in the six months endedJune 30, 2021 compared to cash provided by investing activities of$2.3 billion in the six months endedJune 30, 2020 . In the six months endedJune 30, 2021 , we made$183 million in capital expenditures, as further discussed below, and contributed$100 million to our unconsolidated affiliate,BetMGM LLC ("BetMGM"). In comparison, in the prior year we received$2.5 billion in net cash proceeds from the sale of the real estate ofMandalay Bay andMGM Grand Las Vegas , which was partially offset by$140 million in capital expenditures and a$30 million investment made in BetMGM. In the prior year period, distributions from unconsolidated affiliates included$51 million related to our share of a distribution paid byCityCenter . 33 --------------------------------------------------------------------------------
Capital Expenditures We made capital expenditures of$183 million in the six months endedJune 30, 2021 , of which$42 million related toMGM China . Capital expenditures atMGM China included$33 million primarily related to construction of the south tower project atMGM Cotai and$9 million related to projects atMGM Macau . Capital expenditures at ourLas Vegas Strip Resorts , Regional Operations and corporate entities of$141 million primarily relate to expenditures in information technology and room remodels. We made capital expenditures of$140 million in the six months endedJune 30, 2020 , of which$67 million related toMGM China . Capital expenditures atMGM China included$60 million related to construction close-out and projects atMGM Cotai and$8 million related to projects atMGM Macau . Capital expenditures at ourLas Vegas Strip Resorts , Regional Operations and corporate entities of$73 million included expenditures relating to information technology, health and safety initiatives, and various room, restaurant, and entertainment venue remodels. Financing activities. Cash provided by financing activities was$430 million in the six months endedJune 30, 2021 compared to$1.2 billion in the six months endedJune 30, 2020 . In the six months endedJune 30, 2021 , we had net borrowings of debt of$198 million , as further discussed below, received net proceeds of$793 million from the issuance of MGP's Class A shares, distributed$156 million to noncontrolling interest owners, and we repurchased$340 million of our common stock. In comparison, in the prior year period, we had net proceeds from the incurrence of a bridge loan facility of$1.3 billion in connection with theMandalay Bay and MGM Grand real estate transaction, net proceeds of$525 million from MGP's Class A share issuances, net debt borrowings of$62 million as further discussed below, repurchased$354 million of our common stock, distributed$155 million to noncontrolling interest owners, and paid$75 million in dividends to our shareholders.
Borrowings and Repayments of Long-term Debt
During the six months endedJune 30, 2021 , we had net borrowings of debt of$198 million which consisted ofMGM China's March 2021 issuance of$750 million in aggregate principal amount of 4.75% senior notes due 2027 at an issue price of 99.97%, offset by$542 million of net repayments onMGM China's first revolving credit facility and theOperating Partnership's repayment of$10 million on its revolving credit facility. The net proceeds fromMGM China's 4.75% senior notes due 2027 issuance were used to partially repay amounts outstanding under theMGM China first revolving credit facility and for general corporate purposes. During the six months endedJune 30, 2020 , we had net proceeds from the incurrence of the bridge loan facility in connection with the MGP BREIT Venture Transaction of$1.3 billion and net debt borrowings of$62 million , which consisted of our net borrowings of$550 million on our senior credit facility, our issuance of$750 million of 6.75% senior notes, theOperating Partnership's issuance of$800 million of 4.625% senior notes, andMGM China's issuance of$500 million of 5.25% senior notes, partially offset by the tender of$750 million of our senior notes and corresponding$97 million of tender offer costs, the net repayment of$184 million onMGM China's credit facility, and the net repayment of$1.5 billion on theOperating Partnership's senior credit facility using the proceeds from the$1.3 billion bridge loan facility, which was then assumed by the MGP BREIT Venture, the proceeds from MGP's settlement of forward equity agreements, and the proceeds from theOperating Partnership's issuance of$800 million of 4.625% senior notes. InMarch 2020 , with certain of the proceeds from the MGP BREIT Venture transaction, we completed cash tender offers for an aggregate amount of$750 million of our senior notes, comprised of$325 million principal amount of our outstanding 5.75% senior notes due 2025,$100 million principal amount of our outstanding 4.625% senior notes due 2026, and$325 million principal amount of our outstanding 5.5% senior notes due 2027.
In
In
InJune 2020 ,MGM China issued$500 million in aggregate principal amount of 5.25% senior notes due 2025. The proceeds were used to partially repay amounts outstanding under theMGM China credit facility and general corporate purposes. 34
--------------------------------------------------------------------------------
Dividends, Distributions to Noncontrolling Interest Owners and Share Repurchases
During the six months endedJune 30, 2021 , we repurchased and retired$340 million of our common stock pursuant to ourMay 2018 $2.0 billion andFebruary 2020 $3.0 billion stock repurchase plans. As a result of those repurchases, we completed ourMay 2018 $2.0 billion stock repurchase program, and the remaining availability under theFebruary 2020 $3.0 billion stock repurchase program was$2.7 billion as ofJune 30, 2021 . During the six months endedJune 30, 2020 , we repurchased and retired$354 million of our common stock pursuant to ourMay 2018 $2.0 billion stock repurchase plan. InMarch 2021 andJune 2021 , we paid dividends of$0.0025 per share, totaling$2 million , paid during the six months endedJune 30, 2021 . InMarch 2020 , we paid a dividend of$0.15 per share, and inJune 2020 we paid a dividend of$0.0025 per share, totaling$75 million paid during the six months endedJune 30, 2020 .
• $268 million of distributions paid in 2021, of which we received $128
million and MGP received $140 million , which MGP concurrently paid as a
dividend to its Class A shareholders; and
•
million and MGP received
dividend to its Class A shareholders.
Other Factors Affecting Liquidity and Anticipated Uses of Cash
We require a certain amount of cash on hand to operate our resorts. In addition to required cash on hand for operations, we utilize corporate cash management procedures to minimize the amount of cash held on hand or in banks. Funds are swept from the accounts at most of our domestic resorts daily into central bank accounts, and excess funds are invested overnight or are used to repay amounts drawn under our revolving credit facility. In addition, from time to time we may use excess funds to repurchase our outstanding debt and equity securities subject to limitations in our revolving credit facility andDelaware law, as applicable. We have significant outstanding debt, interest payments, rent payments, and contractual obligations in addition to planned capital expenditures. As previously discussed, the spread of COVID-19 and developments surrounding the global pandemic have had, and we expect will continue to have, a significant impact on our business, financial condition, results of operations, and cash flows. During this time, we have remained committed to managing our expenses to strengthen our liquidity position. As ofJune 30, 2021 , we had cash and cash equivalents of$5.6 billion , of whichMGM China held$331 million and theOperating Partnership held$298 million . In addition to our cash and cash equivalent balance, we currently have significant real estate assets and other holdings: we ownMGM Springfield , (refer to Note 1 for discussion on our agreement entered into inMay 2021 to sell the real estate assets ofMGM Springfield to MGP), a 50% interest inCityCenter inLas Vegas (refer to Note 1 for discussion on our agreement entered into inJune 2021 to acquire the 50% equity interest inCityCenter as well as the agreement to sell and lease back the real estate assets of Aria and Vdara), a 41.6% economic interest in MGP (refer to Note 1 for discussion on our agreement entered into inAugust 2021 regarding the VICI Transaction), and an approximate 56% interest inMGM China . AtJune 30, 2021 , we had$12.7 billion in principal amount of indebtedness, including$227 million outstanding under the$1.25 billion MGM China first revolving credit facility. No amounts were drawn on our$1.5 billion revolving credit facility, the$1.35 billion Operating Partnership revolving credit facility, or the$400 million MGM China second revolving credit facility. We have no debt maturing prior to 2022. Subsequent to the quarter endedJune 30, 2021 , we repurchased approximately 7 million shares of our common stock at an average price of$38.72 per share for an aggregate amount of$275 million . Repurchased shares will be retired. We have planned capital expenditures expected over the remainder of the year of approximately$285 million to$295 million domestically, as well as an additional$30 million to$40 million relating toCityCenter capital expenditures that are expected to occur in the fourth quarter of 2021, assuming the transaction closes in the third quarter of 2021. Additionally, we have planned capital expenditures over the remainder of the year of approximately$50 million to$60 million atMGM China . As ofJune 30, 2021 , our expected cash interest payments over the next twelve months are approximately$340 million to$345 million , excluding MGP andMGM China , and approximately$735 million to$745 million on a consolidated basis. We are also currently required to make annual rent payments of$843 million under the master lease with MGP, annual rent payments of$250 million under the lease with Bellagio BREIT Venture, and annual rent payments of$298 million under the lease with MGP BREIT Venture, which leases are also subject to annual escalators. 35 -------------------------------------------------------------------------------- InFebruary 2021 , we amended our credit facility to extend the covenant relief period provided under the previous amendment related to our financial maintenance covenants through the earlier of (x) the day immediately following the date we deliver to the administrative agent a compliance certificate with respect to the quarter endingJune 30, 2022 and (y) the date we deliver to the administrative agent an irrevocable notice terminating the covenant relief period, and to adjust the required leverage and interest coverage levels for the covenant when it is reimposed at the end of the waiver period. In addition, in connection with theFebruary 2021 amendment, we agreed to an increase of the liquidity test such that our borrower group (as defined in the credit agreement) is required to maintain a minimum liquidity level of not less than$1.0 billion (including unrestricted cash, cash equivalents and availability under the revolving credit facility), tested at the end of each month during the covenant relief period. Additionally, due to the continued impact of the COVID-19 pandemic, inFebruary 2021 ,MGM China further amended each of its first revolving credit facility and its second revolving credit facility to provide for waivers of the maximum leverage ratio and minimum interest coverage ratio through the fourth quarter of 2022. InJuly 2021 , theOperating Partnership paid$138 million of distributions to its partnership unit holders, of which we received$57 million and MGP received$81 million , which MGP concurrently paid as a dividend to its Class A shareholders. OnAugust 4, 2021 , our Board of Directors approved a quarterly dividend of$0.0025 per share. The dividend will be payable onSeptember 15, 2021 to holders of record onSeptember 10, 2021 . Future determinations regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our results of operations, financial condition, and other factors that our Board of Directors may deem relevant. As previously discussed, the COVID-19 pandemic has caused, and is continuing to cause, significant economic disruption both globally and inthe United States , and continues to impact our business, financial condition and results of operations. As widespread vaccine distribution continues and operational restrictions have eased, we have seen economic recovery in some of the market segments in which we operate, as shown in our summary operating results. However, some areas continue to experience renewed outbreaks and surges in infection rates. As a result, our business segments continue to face many uncertainties and our operations remain vulnerable to reversal of these trends or other continuing negative effects caused by the pandemic. We cannot predict the degree, or duration, to which our operations will be affected by the COVID-19 pandemic, and the effects could be material. We continue to monitor the evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to further adjust our operating plan, including the implementation or extension of new or existing restrictions, which may include the reinstatement of stay-at-home orders in the jurisdictions in which we operate or additional restrictions on travel and/or our business operations. Because the situation is ongoing, and because the duration and severity remain unclear, it is difficult to forecast any impacts on our future results.
Critical Accounting Policies and Estimates
A complete discussion of our critical accounting policies and estimates is
included in our Form 10-K for the fiscal year ended
Market Risk In addition to the inherent risks associated with our normal operations, we are also exposed to additional market risks. Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. Our primary exposure to market risk is interest rate risk associated with our variable rate long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate borrowings and short-term borrowings under our bank credit facilities and by utilizing interest rate swap agreements that provide for a fixed interest payment on theOperating Partnership's credit facility. A change in interest rates generally does not have an impact upon our future earnings and cash flow for fixed-rate debt instruments. As fixed-rate debt matures, however, and if additional debt is acquired to fund the debt repayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the debt matures. We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. 36 -------------------------------------------------------------------------------- As ofJune 30, 2021 , variable rate borrowings represented approximately 2% of our total borrowings after giving effect on theOperating Partnership's borrowings for the currently effective interest rate swap agreements on which theOperating Partnership pays a weighted average of 1.783% on a total notional amount of$700 million . Additionally, theOperating Partnership has$900 million of notional amount of forward starting swaps that are not currently effective. The following table provides additional information about our gross long-term debt subject to changes in interest rates excluding the effect of theOperating Partnership interest rate swaps discussed above: Fair Value Debt maturing in June 30, 2021 2022 2023 2024 2025 Thereafter Total 2021 (In millions) Fixed-rate $ -$ 1,000 $ 1,250 $ 1,800 $ 2,725 $ 5,675 $ 12,450 $ 13,207 Average interest rate N/A 7.8 % 6.0 % 5.5 % 5.6 % 5.0 % 5.5 % Variable rate $ - $ - $ -$ 227 $ - $ -$ 227 $ 227 Average interest rate N/A N/A N/A 2.8 % N/A N/A 2.8 % In addition to the risk associated with our variable interest rate debt, we are also exposed to risks related to changes in foreign currency exchange rates, mainly related toMGM China and to our operations atMGM Macau andMGM Cotai . While recent fluctuations in exchange rates have not been significant, potential changes in policy by governments or fluctuations in the economies ofthe United States ,China ,Macau orHong Kong could cause variability in these exchange rates. We cannot assure you that theHong Kong dollar will continue to be pegged to theU.S. dollar or the current peg rate for theHong Kong dollar will remain at the same level. The possible changes to the peg of theHong Kong dollar may result in severe fluctuations in the exchange rate thereof. ForU.S. dollar denominated debt incurred byMGM China , fluctuations in the exchange rates of theHong Kong dollar in relation to theU.S. dollar could have adverse effects on our financial position and results of operations. As ofJune 30, 2021 , a 1% weakening of theHong Kong dollar (the functional currency ofMGM China ) to theU.S. dollar would result in a foreign currency transaction loss of$28 million .
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-Q contains "forward-looking statements" within the meaning of theU.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "will," "may" and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements we make regarding the impact of COVID-19 on our business, our ability to reduce expenses and otherwise maintain our liquidity position during the pandemic, our ability to generate significant cash flow, execute on ongoing and future strategic initiatives, including the development of an integrated resort inJapan and investments we make in online sports betting and iGaming, the closing of the VICI Transaction, theCityCenter transaction and theMGM Springfield transaction, amounts we will spend on capital expenditures and investments, our expectations with respect to future share repurchases and cash dividends on our common stock, dividends and distributions we will receive fromMGM China , theOperating Partnership orCityCenter , our ability to achieve the benefits of our cost savings initiatives, and amounts projected to be realized as deferred tax assets. The foregoing is not a complete list of all forward-looking statements we make. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market, and regulatory conditions and the following:
• the global COVID-19 pandemic has continued to materially impact our
business, financial results and liquidity, and such impact could worsen and
last for an unknown period of time;
• although all of our properties are open to the public, we are unable to
predict the length of time it will take for our properties to fully return
to normal operations or if such properties will be required to close again
or be subject to operating and other restrictions due to the COVID-19
pandemic, including due to the spread of COVID-19 variants;
• we have undertaken aggressive actions to reduce costs and improveefficiencies to mitigate losses as a result of the COVID-19 pandemic, which
could negatively impact guest loyalty and our ability to attract and retain
employees;
37
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• the VICI Transaction, the
transaction each remain subject to the satisfaction of certain closing
conditions, including the receipt of certain regulatory approvals, and any
anticipated benefits from such transactions may take longer to realize than
expected or may not be realized at all;
• potential litigation instituted against us, our transaction counterparties,
or our respective directors challenging the VICI Transaction may prevent
such transaction from becoming effective within the expected timeframe or
at all;
• our substantial indebtedness and significant financial commitments,
including the fixed component of our rent payments to MGP, rent payments to
the Bellagio BREIT Venture and to the MGP BREIT Venture, and guarantees we
provide of the indebtedness of the Bellagio BREIT Venture and the MGP BREIT
Venture could adversely affect our development options and financial
results and impact our ability to satisfy our obligations;
• current and future economic, capital and credit market conditions could
adversely affect our ability to service our substantial indebtedness and
significant financial commitments, including the fixed components of our
rent payments, and to make planned expenditures;
• restrictions and limitations in the agreements governing our senior credit
facility and other senior indebtedness could significantly affect our
ability to operate our business, as well as significantly affect our
liquidity;
• the fact that we are required to pay a significant portion of our cash
flows as rent, which could adversely affect our ability to fund our
operations and growth, service our indebtedness and limit our ability to
react to competitive and economic changes;
• significant competition we face with respect to destination travel
locations generally and with respect to our peers in the industries in
which we compete;
• the fact that our businesses are subject to extensive regulation and the
cost of compliance or failure to comply with such regulations could
adversely affect our business;
• the impact on our business of economic and market conditions in the
jurisdictions in which we operate and in the locations in which our
customers reside;
• the possibility that we may not realize all of the anticipated benefits of
our cost savings initiatives, including our MGM 2020 Plan, or our asset
light strategy;
• the fact that our ability to pay ongoing regular dividends is subject to
the discretion of our board of directors and certain other limitations;
• nearly all of our domestic gaming facilities are leased and could
experience risks associated with leased property, including risks relating
to lease termination, lease extensions, charges and our relationship with
the lessor, which could have a material adverse effect on our business,
financial position or results of operations;
• financial, operational, regulatory or other potential challenges that may
arise with respect to MGP, as the lessor for a significant portion of our
properties, may adversely impair our operations;
• the fact that MGP has adopted a policy under which certain transactions
with us, including transactions involving consideration in excess of
million, must be approved in accordance with certain specified procedures;
• restrictions on our ability to have any interest or involvement in gaming
businesses in China , Macau , Hong Kong and Taiwan , other than through MGM
China ;
• the ability of the
subconcession under certain circumstances without compensating MGM Grand
Paradise, exercise its redemption right with respect to the subconcession,
or refuse to grant
2022;
• the dependence of MGM Grand Paradise upon gaming promoters for a
significant portion of gaming revenues in Macau ;
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• changes to fiscal and tax policies;
• our ability to recognize our foreign tax credit deferred tax asset and the
variability of the valuation allowance we may apply against such deferred
tax asset;
• extreme weather conditions or climate change may cause property damage or
interrupt business;
• the concentration of a significant number of our major gaming resorts on
the Las Vegas Strip;
• the fact that we extend credit to a large portion of our customers and we
may not be able to collect such gaming receivables;
• the potential occurrence of impairments to goodwill, indefinite-lived
intangible assets or long-lived assets which could negatively affect future
profits;
• the susceptibility of leisure and business travel, especially travel by
air, to global geopolitical events, such as terrorist attacks, other acts
of violence, acts of war or hostility or outbreaks of infectious disease
(including the COVID-19 pandemic);
• the fact that co-investing in properties, including our investment in
CityCenter and BetMGM, decreases our ability to manage risk;
• the fact that future construction, development, or expansion projects will
be subject to significant development and construction risks;
• the fact that our insurance coverage may not be adequate to cover all
possible losses that our properties could suffer, our insurance costs may
increase and we may not be able to obtain similar insurance coverage in the
future;
• the fact that a failure to protect our trademarks could have a negative
impact on the value of our brand names and adversely affect our business;
• the risks associated with doing business outside of
the impact of any potential violations of the Foreign Corrupt Practices Act
or other similar anti-corruption laws;
• risks related to pending claims that have been, or future claims that may
be brought against us;
• the fact that a significant portion of our labor force is covered by
collective bargaining agreements;
• the sensitivity of our business to energy prices and a rise in energy
prices could harm our operating results;
• the potential that failure to maintain the integrity of our computer
systems and internal customer information could result in damage to our
reputation and/or subject us to fines, payment of damages, lawsuits or
other restrictions on our use or transfer of data;
• the potential reputational harm as a result of increased scrutiny related
to our corporate social responsibility efforts;
• the potential failure of future efforts to expand through investments in
other businesses and properties or through alliances or acquisitions, or to
divest some of our properties and other assets;
• increases in gaming taxes and fees in the jurisdictions in which we
operate; and
• the potential for conflicts of interest to arise because certain of our
directors and officers are also directors of MGM China .
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Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. If we update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.
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