Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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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 ended December 31, 2019, which were included in our Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020. 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 a novel coronavirus (“COVID-19”) and developments surrounding the global pandemic have had, and we expect will continue to have, a significant impact on our business, results of operations and financial condition.
As of March 17, 2020, all of our domestic properties were temporarily closed to the public and have remained closed pursuant to state and local government requirements as a result of the unprecedented public health crisis from the COVID-19 pandemic. As a result, our domestic properties are effectively generating no revenue. We have also seen high levels of room and convention cancellations through the third quarter of 2020 with some tentative re-bookings in the fourth quarter and into 2021. There have not been meaningful cancellations for 2021 related to the COVID-19 pandemic. While we are working closely with government officials on plans to re-open our properties when the government restrictions are lifted, we cannot predict the duration of the shutdowns or any limitations the government or we may impose on our operations when we are able to re-open, which may include, among others, restrictions on the number of seats per table game, slot machine spacing, temperature checks, mask protection as well as other measures at our restaurants and entertainment venues to enforce social distancing measures. In addition, when we are able to re-open, we expect to see weakened demand at our properties in light of continued domestic and international travel restrictions or warnings, consumer fears and reduced consumer discretionary spending and general economic uncertainty. In light of the foregoing, we are unable to determine when our properties will return to pre-pandemic demand or pricing. We expect that our regional properties may open first, with phased re-openings of our Las Vegas strip properties in order to effectively manage resources in light of demand needs and continued compliance with any government-imposed restrictions on our operations or policies we choose to implement as necessary to mitigate the impact of COVID-19.
While our domestic properties are closed, we still face significant fixed and variable costs. We have engaged in aggressive efforts to reduce expenses during this time, including:
• reducing or deferring at least 50% of planned domestic capital expenditures in 2020;
• reducing employee costs, including through hiring freezes, headcount reductions and substantial furloughs of employees and cancellation of merit pay increases;
• initiating a program where certain senior executives and directors voluntarily elected to receive all or a portion of their remaining base salary during 2020 in the form of restricted stock units in lieu of cash; and
• starting with our dividend for the second quarter of 2020, our Board approved a nominal annual dividend of $0.01 per share.
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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on a preliminary analysis of the CARES Act, the benefits we expect to recognize include:
• refund of federal income taxes due to a five-year carryback of net operating loss incurred in 2020 when our 2020 tax return is filed;
• relaxation of interest expense deduction limitation for income tax purposes;
• reduction of employer Federal Insurance Contributions Act (“FICA”) taxes equal to 50 percent of wages paid and health care coverage provided to furloughed employees during 2020; and
• deferral of all employer FICA taxes for the remainder of 2020, 50 percent payable by December 2021 and the remainder payable by December 2022.
We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify, including those described above. We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. If the U.S. government or any other governmental authority agrees to provide such aid under the CARES Act or any other crisis relief assistance it may impose certain requirements on the recipients of the aid, including restrictions on executive officer compensation, dividends, prepayment of debt, limitations on debt and other similar restrictions that will apply for a period of time after the aid is repaid or redeemed in full.
In January 2020, China implemented a temporary suspension of its visa scheme that permits mainland Chinese to travel to Macau, and on February 4, 2020, the Hong Kong government temporarily suspended all ferry services from Hong Kong to Macau, until further notice. The government of Macau also asked that all gaming operators in Macau suspend casino operations for a 15-day period that commenced on February 5, 2020. As a result, MGM China suspended all operations at MGM Macau and MGM Cotai, other than operations that were necessary to provide sufficient non-gaming facilities to serve any remaining hotel guests in that period. While the properties have since re-opened, several travel and entry restrictions in Macau, Hong Kong, and certain cities and regions in mainland China remain in place (including the temporary suspension of the visa scheme, the temporary suspension of ferry services and other modes of transportation, and bans on entry or enhanced quarantine requirements), significantly impacting visitation to our Macau properties, which continues to have a material impact on MGM China’s results of operations. Due to the continued impact of the outbreak of COVID-19, MGM China entered into a further amendment to its credit agreement, as further discussed in Note 4.
Other Developments
On February 14, 2020, we completed the MGP BREIT Venture Transaction pursuant to which the real estate assets of MGM Grand Las Vegas and Mandalay Bay (including Mandalay Place) were contributed to MGP BREIT Venture, owned 50.1% by the Operating Partnership and 49.9% by a subsidiary of BREIT. In exchange for the contribution of the real estate assets, MGM and MGP received total consideration of $4.6 billion, which was comprised of $2.5 billion of cash, $1.3 billion of the Operating Partnership’s secured indebtedness assumed by MGP BREIT Venture, and the Operating Partnership’s 50.1% equity interest in the MGP BREIT Venture. In addition, the Operating Partnership issued approximately 3 million Operating Partnership units to us representing 5% of the equity value of MGP BREIT Venture. In connection with the transactions, we provided a shortfall guaranty of the principal amount of indebtedness of the MGP BREIT Venture (and any interest accrued and unpaid thereon). On the closing date, BREIT also purchased approximately 5 million MGP Class A shares for $150 million.
In connection with the transactions, MGP BREIT Venture entered into a lease with us for the real estate assets of Mandalay Bay and MGM Grand Las Vegas. The lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $292 million, escalating annually at a rate of 2% per annum for the first fifteen years and thereafter equal to the greater of 2% and the CPI increase during the prior year subject to a cap of 3%. In addition, the lease requires us to spend 3.5% of net revenues over a rolling five-year period at the properties on capital expenditures and for us to comply with certain financial covenants, which, if not met, will require us to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period.
In connection with the MGP BREIT Venture Transaction, the existing master lease with MGP was modified to remove the Mandalay Bay property and the annual rent under the MGP master lease was reduced by $133 million.
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Also, on January 14, 2020, we, the Operating Partnership, and MGP entered into an agreement for the Operating Partnership to waive its right to issue MGP Class A shares, in lieu of cash, to us in connection with us exercising our right to require the Operating Partnership to redeem the Operating Partnership units we hold, at a price per unit equal to a 3% discount to the ten day average closing price prior to the date of the notice of redemption. The waiver was effective upon closing of the transaction on February 14, 2020 and terminates on the earlier of February 14, 2022 or us receiving cash proceeds of $1.4 billion as consideration for the redemption of our Operating Partnership units.
Key performance indicators related to gaming and hotel revenue are:
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•
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Gaming revenue indicators: table games drop and slots handle (volume indicators); “win” or “hold” percentage, which is not fully controllable by us. Our normal table games hold percentage at our Las Vegas Strip Resorts is in the range of 25.0% to 35.0% of table games drop for Baccarat and 19.0% to 23.0% for non-Baccarat; and
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•
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Hotel revenue indicators – hotel occupancy (a 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 a disproportionate 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 first quarter of 2020 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 MGM China are:
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•
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Gaming revenue indicators - MGM China utilizes “turnover,” which is the sum of nonnegotiable chip wagers won by MGM China calculated as nonnegotiable chips purchased plus nonnegotiable chips exchanged less nonnegotiable chips returned. Turnover provides a basis for measuring VIP casino win percentage. Win for VIP gaming operations at MGM China is typically in the range of 2.6% to 3.3% of turnover.
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Results of Operations
Summary Financial Results
The following table summarizes our consolidated financial results for the three months ended March 31, 2020 and 2019:
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Three Months Ended
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March 31,
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2020
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2019
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(In thousands)
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Net revenues
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$
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2,252,817
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|
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$
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3,176,911
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Operating income
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1,250,845
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370,260
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Net income
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674,519
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66,157
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Net income attributable to MGM Resorts International
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806,869
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31,297
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Summary Operating Results
Consolidated net revenues decreased 29% for the quarter ended March 31, 2020 compared to the prior year quarter due primarily to the temporary suspension of our domestic and Macau casino operations and continued travel restrictions, discussed above, which resulted in a 63% decrease in net revenues at MGM China, a 21% decrease in net revenues at our Las Vegas Strip Resorts, and a 10% decrease in net revenues at our Regional Operations. In addition, the prior year quarter included $59 million in net revenues from Circus Circus Las Vegas, which was sold in December 2019.
Consolidated operating income increased $881 million to $1.3 billion for the quarter ended March 31, 2020 compared to the prior year quarter. The current quarter included a $1.5 billion gain related to the MGM Grand Las Vegas and Mandalay Bay real estate transaction, which was partially offset by the decrease in net revenues discussed above, a $49 million increase in general and administrative expense, a $14 million increase in corporate expense, and a $46 million increase in property transactions, net. Corporate expense, including share-based compensation for corporate employees, included $44 million in CEO transition expense and $4 million in corporate initiatives costs in the current year quarter. 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
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compensation awards. The prior year quarter included $20 million in Empire City acquisition costs, primarily related to transfer taxes and advisory fees, $12 million in costs incurred to implement the MGM 2020 Plan, of which $4 million is included in the restructuring costs discussed below, and $3 million in finance modernization initiative costs. Property transactions, net increased in the current quarter compared to the prior year quarter due primarily to a $38 million other-than-temporary impairment charge on an equity method investment. General and administrative expense increased in the current quarter compared to the prior year quarter due primarily to rent expense associated with the Bellagio BREIT Venture and MGP BREIT Venture leases, partially offset by $41 million in restructuring costs incurred in the prior year quarter related to severance, accelerated stock compensation expense and consulting fees directly related to the operating model component of the MGM 2020 Plan.
Net Revenues by Segment
The following table presents a detail by segment of net revenues:
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Three Months Ended
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March 31,
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2020
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2019
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(In thousands)
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Las Vegas Strip Resorts
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|
|
|
|
|
|
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Table games win
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$
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195,547
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|
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$
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223,024
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Slots win
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230,376
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278,586
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Other
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14,517
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19,165
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Less: Incentives
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(165,767
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)
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(196,071
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)
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Casino revenue
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274,673
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324,704
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Rooms
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362,864
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468,852
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Food and beverage
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288,763
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365,522
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Entertainment, retail and other
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207,506
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269,110
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Non-casino revenue
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859,133
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1,103,484
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1,133,806
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|
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1,428,188
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Regional Operations
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|
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Table games win
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164,198
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198,075
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Slots win
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494,255
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520,319
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Other
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81,853
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66,611
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Less: Incentives
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(203,676
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)
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(210,849
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)
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Casino revenue
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536,630
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574,156
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Rooms
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55,879
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71,798
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Food and beverage
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95,092
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117,879
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Entertainment, retail and other
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38,059
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40,112
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Non-casino revenue
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189,030
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229,789
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725,660
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803,945
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MGM China
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|
|
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VIP table games win
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108,543
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342,407
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Main floor table games win
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187,610
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444,602
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Slots win
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28,918
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|
|
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68,444
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Less: Commissions and incentives
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(84,657
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)
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|
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(191,888
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)
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Casino revenue
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240,414
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|
|
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663,565
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Rooms
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15,209
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|
|
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33,564
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Food and beverage
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12,780
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|
|
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30,713
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Entertainment, retail and other
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3,484
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6,362
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Non-casino revenue
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31,473
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70,639
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271,887
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|
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734,204
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Reportable segment net revenues
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2,131,353
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|
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2,966,337
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Corporate and other
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121,464
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210,574
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|
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$
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2,252,817
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$
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3,176,911
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Las Vegas Strip Resorts
Las Vegas Strip Resorts casino revenue decreased 15% for the quarter ended March 31, 2020 compared to the prior year quarter due primarily to the temporary closure of our properties, discussed above, which resulted in decreases in table games win and slots win of 12% and 17%, respectively. In addition, the prior year quarter included casino revenue from Circus Circus Las Vegas. Excluding Circus Circus Las Vegas, casino revenue decreased 12% compared to the prior year quarter.
The following table shows key gaming statistics for our Las Vegas Strip Resorts:
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Three Months Ended
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March 31,
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2020
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2019
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(Dollars in millions)
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Table Games Drop
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$841
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$968
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Table Games Win %
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23.2%
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23.0%
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Slots Handle
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$2,457
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$3,051
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Slots Hold %
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9.4%
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9.1%
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Las Vegas Strip Resorts rooms revenue decreased 23% for the quarter ended March 31, 2020 compared to the prior year quarter primarily due to the decrease in available rooms related to the temporary closure of our properties, as discussed above. The prior year quarter included rooms revenue from Circus Circus Las Vegas. Excluding Circus Circus Las Vegas, rooms revenue decreased 18% compared to the prior year quarter.
The following table shows key hotel statistics for our Las Vegas Strip Resorts:
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Three Months Ended
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March 31,
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2020
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2019
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Occupancy
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88%
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90%
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Average Daily Rate (ADR)(1)
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$183
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$173
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Revenue per Available Room (REVPAR)(1)
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$160
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$155
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(1)
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For the three months ended March 31, 2020, ADR and REVPAR include rooms in service at our Las Vegas Strip Resorts through March 16, 2020.
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Las Vegas Strip Resorts food and beverage revenue and entertainment, retail and other revenue decreased 21% and 23% for the quarter ended March 31, 2020 compared to the prior year quarter, respectively, primarily due to the temporary closure of our properties, as discussed above. The prior year quarter included food and beverage revenue and entertainment, retail and other revenue from Circus Circus Las Vegas. Excluding Circus Circus Las Vegas, each of food and beverage revenue and entertainment, retail and other revenue decreased 19% compared to the prior year quarter.
Regional Operations
Regional Operations casino revenue decreased 7% for the quarter ended March 31, 2020 compared to the prior year quarter due primarily to the temporary closure of our properties, as discussed above, which resulted in decreases in table games win and slots win of 17% and 5%, respectively. The current year quarter included casino revenue from MGM Northfield Park’s operations, which were acquired from MGP on April 1, 2019, for which casino revenues would have decreased by 15% if not included.
The following table shows key gaming statistics for our Regional Operations:
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Three Months Ended
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March 31,
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2020
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2019
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(Dollars in millions)
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Table Games Drop
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$844
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$1,013
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Table Games Win %
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19.4%
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19.5%
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Slots Handle
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$5,170
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$5,627
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Slots Hold %
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9.6%
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9.2%
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Regional Operations rooms revenue decreased 22% for the quarter ended March 31, 2020 compared to the prior year quarter primarily due to the decrease in available rooms related to the temporary closure of our properties, as discussed above.
Regional Operations food and beverage revenue and entertainment, retail and other revenue decreased 19% and 5% for the quarter ended March 31, 2020, compared to the prior year quarter, respectively, primarily due to the temporary closure of our properties, as discussed above. The current year quarter included food and beverage revenue and entertainment, retail and other revenue from MGM Northfield Park, for which food and beverage revenue and entertainment, retail and other revenue would have decreased by 24% and 14%, respectively, if not included.
MGM China
The following table shows key gaming statistics for MGM China:
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Three Months Ended
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March 31,
|
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2020
|
|
2019
|
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(Dollars in millions)
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VIP Table Games Turnover
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$3,425
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$10,011
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VIP Table Games Win %
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3.2%
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3.4%
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Main Floor Table Games Drop
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$777
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$1,993
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Main Floor Table Games Win %
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24.1%
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22.3%
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MGM China net revenues decreased 63% for the quarter ended March 31, 2020 compared to the prior year quarter primarily due to the suspension of operations for a 15-day period in February and ongoing travel and entry restrictions in Macau, as discussed above, as well as restrictions on the number of table games allowed to operate and restrictions on the number of seats available at each table. VIP table games win decreased 68% and main floor table games win decreased 58% compared to the prior year quarter.
Corporate and other
Corporate and other revenue includes revenues from other corporate operations, management services and reimbursed costs revenue primarily related to our CityCenter management agreement. Corporate and other revenue decreased $89 million which primarily reflects that the prior year quarter included $68 million in net revenues from MGP’s Northfield casino, which represents revenues prior to our acquisition of MGM Northfield Park’s operations from MGP on April 1, 2019. Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by us in connection with the provision of management services and was $98 million and $112 million for the quarter ended March 31, 2020 and 2019, respectively. See below for additional discussion of our share of operating results from unconsolidated affiliates.
Adjusted EBITDAR
The following table presents a detail of Adjusted EBITDAR. Management uses Adjusted Property EBITDAR as the primary profit measure for its reportable segments. See “Non-GAAP Measures” for additional information.
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Three Months Ended
|
|
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March 31,
|
|
|
2020
|
|
|
2019
|
|
|
(In thousands)
|
|
Las Vegas Strip Resorts
|
$
|
267,599
|
|
|
$
|
403,651
|
|
Regional Operations
|
|
151,720
|
|
|
|
211,797
|
|
MGM China
|
|
(21,990
|
)
|
|
|
192,811
|
|
Reportable segment Adjusted Property EBITDAR
|
|
397,329
|
|
|
|
808,259
|
|
Corporate and other
|
|
(102,237
|
)
|
|
|
(60,531
|
)
|
Adjusted EBITDAR
|
$
|
295,092
|
|
|
$
|
747,728
|
|
Las Vegas Strip Resorts
Adjusted Property EBITDAR at our Las Vegas Strip Resorts decreased 34% and Adjusted Property EBITDAR margin decreased 466 basis points to 23.6% for the quarter ended March 31, 2020 compared to the prior year quarter primarily as a result of the decrease in revenues resulting from the temporary closure of our properties, as discussed above.
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Regional Operations
Adjusted Property EBITDAR at our Regional Operations decreased 28% and Adjusted Property EBITDAR margin decreased by 544 basis points to 20.9% for the quarter ended March 31, 2020 compared to 26.3% in the prior year quarter, primarily as a result of the decrease in revenues resulting from the temporary closure of our properties, as discussed above, partially offset by the inclusion of MGM Northfield Park’s operating results in the current year quarter.
MGM China
MGM China’s Adjusted Property EBTIDAR loss was $22 million for the quarter ended March 31, 2020 compared to Adjusted Property EBITDAR of $193 million in the prior year quarter due primarily to the decrease in revenues resulting from the temporary suspension of casino operations for a 15-day period in February and ongoing travel and entry restrictions in Macau, as well as restrictions on the number of table games allowed to operate and restrictions on the number of seats available at each table, as discussed above. The current quarter included $5 million of license fee expense compared to $13 million in the prior year quarter.
Corporate and other
Adjusted EBITDAR related to corporate and other for the quarter ended March 31, 2020 decreased $42 million compared to the prior year quarter due primarily to a decrease in operating results at our unconsolidated affiliates in the current quarter and the inclusion of $23 million of Adjusted Property EBITDAR related to MGM Northfield Park’s operating results, prior to our acquisition of the operations from MGP on April 1, 2019, in the prior year quarter.
Operating Results – Income from Unconsolidated Affiliates
The following table summarizes information related to our income from unconsolidated affiliates:
|
Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
|
2019
|
|
|
(In thousands)
|
|
CityCenter
|
$
|
20,666
|
|
|
$
|
34,849
|
|
MGP BREIT Venture
|
|
19,950
|
|
|
|
—
|
|
Other
|
|
(4,868
|
)
|
|
|
3,900
|
|
|
$
|
35,748
|
|
|
$
|
38,749
|
|
As of March 17, 2020, CityCenter temporary closed to the public as a result of the unprecedented public health crisis from the COVID-19 pandemic described above. Our share of CityCenter’s operating income, including certain basis difference adjustments, for the quarter ended March 31, 2020 was $21 million compared to $35 million in the prior year quarter due primarily to a decrease in casino and non-casino revenues as a result of such closure. CityCenter’s casino revenues decreased 35% for the quarter ended March 31, 2020 compared to the prior year quarter, and non-casino revenues decreased 18% for the quarter ended March 31, 2020 compared to the prior year quarter due to the closure.
Our share of MGP BREIT Venture’s operating income was $20 million for the quarter ended March 31, 2020 as the Operating Partnership owned its 50.1% interest in the venture beginning February 14, 2020.
Non-operating Results
Interest Expense
Gross interest expense for the quarter ended March 31, 2020 decreased $62 million compared to the prior year quarter due to the decrease in average debt outstanding under our senior credit facilities and senior notes due to early retirement of debt discussed below, as well as due to a decrease in the weighted average interest rate related to our senior credit facility and 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.
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Other, net
Other expenses for the quarter ended March 31, 2020 increased $126 million compared to the prior year quarter, primarily due to 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 the Operating Partnership’s repayment of its term loan A facility and its term loan B facility, partially offset by an $8 million remeasurement gain on MGM China’s U.S. dollar-denominated senior notes. Refer to Note 4 for further discussion of our long-term debt.
Income Taxes
Our effective tax rate for the three months ended March 31, 2020 was 28.0% compared to 51.9% in the prior year quarter. The effective tax rate for the three months ended March 31, 2020 was driven primarily by tax expense recorded on the MGP BREIT Venture Transaction and adjustments to valuation allowances for Macau deferred tax assets and foreign tax credits. The prior year quarter was unfavorably impacted by the remeasurement of Macau deferred taxes due to the extension of the subconcession agreement in Macau, the recording of deferred state taxes resulting from the Empire City Acquisition and adjustments to our foreign tax credit valuation allowance.
The annual effective tax rate calculation for all periods is impacted by assumptions made regarding projected foreign tax credit usage and valuation allowance. See Note 5 in the accompanying consolidated financial statements for further discussion.
Non-GAAP Measures
“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, restructuring costs (which represents costs related to severance, accelerated stock compensation expense, and consulting fees directly related to the operating model component of the MGM 2020 Plan), rent expense associated with triple net operating and ground leases, income from unconsolidated affiliates related to investments in REITs, and property transactions, net. We utilize “Adjusted Property EBITDAR” as the primary profit measures for our reportable segments and underlying operating segments. Adjusted Property EBITDAR is a measure defined as Adjusted EBITDAR before corporate expense and stock compensation expense, which are not allocated to each operating segment, and before 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.
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 these measures are 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, Adjusted Property EBITDAR, and Adjusted Property EBITDAR margin 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 compared to other periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods being presented. 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. In addition, management changed its non-GAAP measures as a result of the Bellagio real estate transaction in the fourth quarter of 2019, including recasting prior periods, to exclude rent expense associated with triple net operating leases and ground leases. We believe excluding rent expense associated with triple net operating leases and ground leases provides useful information to analysts, lenders, financial institutions, and investors when valuing us, as well as comparing our results to other gaming companies, without regard to differences in capital structure and leasing arrangements since the operations of other gaming companies may or may not include triple net operating leases or ground leases. However, as discussed herein, Adjusted EBITDAR and Adjusted Property EBITDAR should not be viewed as measures of overall operating performance, considered in isolation, or as an alternative to net income, because these measures are 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.
29
Adjusted EBITDAR, Adjusted Property EBITDAR and Adjusted Property EBITDAR margin should not be construed as alternatives to operating income or net income, as indicators of our performance; or as alternatives to cash flows from operating activities, as measures of liquidity; or as any other measure determined in accordance with generally accepted accounting principles. 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, Adjusted Property EBITDAR or Adjusted Property EBITDAR margin. Also, other companies in the gaming and hospitality industries that report Adjusted EBITDAR, Adjusted Property EBITDAR or Adjusted Property EBITDAR margin information may calculate Adjusted EBITDAR, Adjusted Property EBITDAR or Adjusted Property EBITDAR margin in a different manner and such differences may be material.
The following table presents a reconciliation of net income attributable to MGM Resorts International to Adjusted EBITDAR:
|
Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
|
2019
|
|
|
(In thousands)
|
|
Net income attributable to MGM Resorts International
|
$
|
806,869
|
|
|
$
|
31,297
|
|
Plus: Net income (loss) attributable to noncontrolling interests
|
|
(132,350
|
)
|
|
|
34,860
|
|
Net income
|
|
674,519
|
|
|
|
66,157
|
|
Provision for income taxes
|
|
262,304
|
|
|
|
71,511
|
|
Income before income taxes
|
|
936,823
|
|
|
|
137,668
|
|
Non-operating (income) expense
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized
|
|
157,137
|
|
|
|
216,120
|
|
Non-operating items from unconsolidated affiliates
|
|
32,621
|
|
|
|
18,165
|
|
Other, net
|
|
124,264
|
|
|
|
(1,693
|
)
|
|
|
314,022
|
|
|
|
232,592
|
|
Operating income
|
|
1,250,845
|
|
|
|
370,260
|
|
Preopening and start-up expenses
|
|
122
|
|
|
|
3,287
|
|
Property transactions, net
|
|
54,975
|
|
|
|
8,776
|
|
Gain on REIT transactions, net
|
|
(1,491,945
|
)
|
|
|
—
|
|
Depreciation and amortization
|
|
318,290
|
|
|
|
316,414
|
|
CEO transition expense
|
|
44,401
|
|
|
|
—
|
|
Restructuring
|
|
—
|
|
|
|
41,098
|
|
Triple net operating lease and ground lease rent expense
|
|
141,918
|
|
|
|
7,893
|
|
Income from unconsolidated affiliates related to investments in REITs
|
|
(23,514
|
)
|
|
|
—
|
|
Adjusted EBITDAR
|
$
|
295,092
|
|
|
$
|
747,728
|
|
Guarantor Financial Information
As of March 31, 2020, 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, the Operating Partnership, MGM Grand Detroit, MGM National Harbor, MGM Springfield, and each of their respective subsidiaries. Our subsidiaries, including MGM 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 guaranty 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 worthless.
30
The summarized financial information of us and our guarantor subsidiaries, on a combined basis, is presented below. Certain of our guarantor subsidiaries collectively own Operating 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.
|
March 31,
|
|
|
December 31,
|
|
|
2020
|
|
|
2019
|
|
Balance Sheet
|
(In thousand)
|
|
Current assets
|
$
|
5,221,297
|
|
|
$
|
3,013,995
|
|
Investment in the MGP Operating Partnership
|
|
2,663,869
|
|
|
|
2,738,897
|
|
Intercompany accounts due from non-guarantor subsidiaries
|
|
41,369
|
|
|
|
40,368
|
|
MGP master lease right-of-use asset, net
|
|
6,793,873
|
|
|
|
8,479,721
|
|
Other long-term assets
|
|
12,750,706
|
|
|
|
9,477,605
|
|
MGP master lease operating lease liabilities – current
|
|
138,241
|
|
|
|
165,656
|
|
Other current liabilities
|
|
1,872,315
|
|
|
|
2,278,445
|
|
MGP master lease operating lease liabilities – noncurrent
|
|
7,296,451
|
|
|
|
8,960,267
|
|
Other long-term liabilities
|
|
16,048,379
|
|
|
|
10,858,422
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
Income Statement
|
(In thousand)
|
|
Net revenues
|
$
|
1,633,530
|
|
MGP master lease rent expense
|
|
(159,183
|
)
|
Operating income (loss)
|
|
1,454,489
|
|
Income (loss) from continuing operations
|
|
1,266,953
|
|
Net income (loss)
|
|
1,026,103
|
|
Net income (loss) attributable to MGM Resorts International
|
|
1,026,103
|
|
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 used in operating activities was $423 million in the three months ended March 31, 2020 compared to cash provided by operating activities of $400 million in the three months ended March 31, 2019. Operating cash flows were significantly negatively impacted by the temporary suspension of our domestic and Macau operations and continued travel restrictions resulting from the COVID-19 pandemic discussed above. In addition to the decrease in our operating results across all properties, the current year period was negatively affected by a change in working capital primarily related to gaming and non-gaming deposits, gaming taxes and other gaming liabilities, and payroll related liabilities, partially offset by a decrease in cash paid for interest, as discussed in “Non-operating Results”.
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 provided by investing activities was $2.4 billion in the three months ended March 31, 2020 compared to cash used in investing activities of $727 million in the three months ended March 31, 2019. The change was due primarily to $2.5 billion in net cash proceeds from the sale of the real estate of Mandalay Bay and MGM Grand Las Vegas in the current year quarter compared to an outflow of $536 million for the Empire City acquisition in the prior year quarter, and a decrease of $110 million in capital expenditures, partially offset by a $31 million decrease in distributions from unconsolidated affiliates. In the prior year quarter distributions from unconsolidated affiliates related to our share of a $64 million dividend paid by CityCenter in 2019. The decrease in capital expenditures primarily reflects our efforts to reduce or defer planned domestic capital expenditures as we mitigate the impact of the COVID-19 pandemic on our operations and the substantial completion of our MGM Springfield development project, the
31
rebranding at Park MGM, and the expansion of the convention center at MGM Grand Las Vegas in the prior year, as discussed in further detail below.
Capital Expenditures
We made capital expenditures of $73 million in the three months ended March 31, 2020, of which $42 million related to MGM China. Capital expenditures at MGM China included $39 million related to projects at MGM Cotai and $3 million related to projects at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $31 million included expenditures relating to information technology, and various room, restaurant, and entertainment venue remodels.
We made capital expenditures of $183 million in the three months ended March 31, 2019, of which $44 million related to MGM China. Capital expenditures at MGM China included $32 million related to projects at MGM Cotai and $12 million related to projects at MGM Macau. Capital expenditures at our Las Vegas Strip Resorts, Regional Operations and corporate entities of $140 million included $24 million related to the construction of MGM Springfield, $22 million related to the Park MGM rebranding project, as well as expenditures relating to information technology, the expansion of the convention center at MGM Grand Las Vegas and various room, restaurant, and entertainment venue remodels.
Financing activities. Cash provided by financing activities increased to $1.7 billion in the three months ended March 31, 2020 from $25 million in the three months ended March 31, 2019. In the three months ended March 31, 2020 we had net proceeds from the incurrence of bridge loan facility of $1.3 billion, net proceeds of $525 million from MGP’s Class A share issuances, net debt borrowed of $443 million as further discussed below, and we repurchased $354 million of our common stock. In comparison in the prior year quarter we repaid net debt of $390 million and had net proceeds from MGP’s issuance of Class A shares in January 2019 of $548 million.
Borrowings and Repayments of Long-term Debt
During the three months ended March 31, 2020, we borrowed net debt of $443 million which consisted of $1.5 billion of borrowings on our senior credit facility, $1.35 billion of borrowings on the Operating Partnership's senior credit facility, and $158 million of net borrowings on MGM China’s revolving facility, partially offset by the repayment of $399 million of the Operating Partnership’s term loan A facility and $1.3 billion of the Operating Partnership’s term loan B facility, and the purchase of $750 million in aggregate amount of our senior notes through our cash tender offers.
In February 2020, in connection with the MGP BREIT Venture Transaction, we used proceeds from the transaction to repay the $1.5 billion outstanding on our existing revolving facility in full and entered into an unsecured credit agreement, comprised of a $1.5 billion unsecured revolving facility that matures on February 2025.
In February 2020, as a result of the MGP BREIT Venture Transaction, the Operating Partnership repaid its $1.3 billion outstanding term loan B facility in full with the proceeds of a bridge facility, which was then assumed by the MGP BREIT Venture. Additionally, the Operating Partnership used the proceeds from the settlement of the forward equity issuances to pay off all $399 million outstanding on the term loan A facility in full.
In March 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.
During the three months ended March 31, 2019, we repaid net debt of $390 million which primarily consisted of the repayment of our $850 million 8.625% notes due 2019, the Operating Partnership’s issuance of $750 million 5.75% senior notes due 2027, $320 million of net borrowings on our senior credit facility, $140 million of net repayments on our MGM China credit facility, and $470 million of net repayments on the Operating Partnership’s senior credit facility. The proceeds of the Operating Partnership’s $750 million notes issuance along with the proceeds from MGP’s Class A share issuance, discussed above, were primarily used to finance MGP’s acquisition of the real property associated with Empire City, finance the Park MGM Lease Transaction, and repay amounts drawn under the Operating Partnership’s revolving credit facility. The draws under our senior credit facility were primarily used to repay our senior notes due 2019, partially finance our acquisition of Empire City and pay dividends. Additionally, we paid $10 million of debt issuance costs related to the issuance of the Operating Partnership’s senior notes.
32
Dividends, Distributions to Noncontrolling Interest Owners and Share Repurchases
During the three months ended March 31, 2020, we repurchased and retired $354 million of our common stock pursuant to our current $2.0 billion stock repurchase plan. We did not repurchase any shares during the three months ended March 31, 2019. The remaining availability under our $2.0 billion stock repurchase program was approximately $4 million as of March 31, 2020, and the remaining availability under the $3.0 billion stock repurchase program was $3.0 billion as of March 31, 2020.
During the three months ended March 31, 2020, we paid a dividend of $0.15 per share, totaling $74 million, compared to a dividend of $0.13 per share, totaling $70 million, paid in the three months ended March 31, 2019.
The Operating Partnership paid the following distributions to its partnership unit holders during the three months ended March 31, 2020 and 2019:
|
•
|
$147 million of distributions paid in January 2020, of which we received $94 million and MGP received $53 million, which MGP concurrently paid as a dividend to its Class A shareholders; and
|
|
•
|
$119 million of distributions paid in January 2019, of which we received $87 million and MGP received $32 million, which MGP concurrently paid as a dividend to its Class A shareholders.
|
Other Factors Affecting Liquidity
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 borrowings under our senior secured 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 senior secured credit facility and Delaware law, as applicable. We have significant outstanding debt, interest payments, and contractual obligations in addition to planned capital expenditures.
We held cash and cash equivalents of $6.0 billion at March 31, 2020, of which MGM China held $381 million and the Operating Partnership held $1.8 billion. At March 31, 2020, we had $11.8 billion in principal amount of indebtedness, including $1.5 billion outstanding under our senior secured credit facility, $1.35 billion outstanding under the Operating Partnership credit facility, and $826 million outstanding under the $1.25 billion MGM China revolving credit facility.
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, results of operations and financial condition. As of March 17, 2020, all of our domestic properties were temporarily closed to the public and have remained closed pursuant to state and local government requirements as a result of the unprecedented public health crisis from the COVID-19 pandemic. As a result, our properties are effectively generating no revenue. While our properties are closed, we still face significant fixed and variable costs. We have engaged in aggressive efforts to reduce expenses during this time.
As of March 31, 2020, we are required to make annual rent payments of $813 million under the master lease with MGP, or $429 million net of expected distributions of $384 million from MGP based on MGP’s current annualized dividend rate of $1.90 per share and our 60.6% economic ownership, annual rent payments of $245 million under the lease with Bellagio BREIT Venture, and annual rent payments of $292 million under the lease with MGP BREIT Venture, which leases are also subject to annual escalators. On April 1, 2020, the annual rent payments under the master lease with MGP increased to $828 million, or $444 million net of expected distributions, as a result of the 2% fixed rent escalator in connection with the beginning of the fifth lease year. We, excluding MGM China and MGP, have no debt maturing prior to 2022 and currently estimate that while all of our domestic properties are closed, our cash outflows inclusive of net rent, interest, corporate and operating expenses and expected capital expenditures, are approximately $270 million per month. Our Macau properties are currently incurring cash operating expenses, exclusive of rent, interest, variable gaming taxes, corporate expense and expected capital expenditures, of approximately $1.5 million per day, which is significantly in excess of amounts being earned at those properties. MGM China is evaluating its capital spend projects and expects to make capital investments of $75 million to $100 million during the remainder of the year. These estimates are based on current expectations and assumptions, and our actual level of cash outflows (and the actual level of MGM China expenses) could be impacted by unanticipated developments or by events beyond our or MGM China’s control. In addition to our cash and cash equivalent balance, we have significant real estate assets and other holdings. We own MGM Springfield and a 50% interest in CityCenter in Las Vegas, an approximate 56% interest in MGM China, and a 60.6% economic interest in MGP. We have also entered into an agreement with MGP to receive cash for up to $1.4 billion of our existing operating partnership units, which we have not exercised.
33
The COVID-19 pandemic has caused, and is continuing to cause, significant disruption in the financial markets both globally and in the United States, and will continue to impact, possibly materially, our business, financial condition and results of operations. We cannot predict the degree, or duration, to which our operations will be affected by the COVID-19 outbreak, and the effects could be material. While we believe our strong liquidity position, valuable unencumbered assets and aggressive cost reduction initiatives will enable us to fund our current obligations for the foreseeable future, COVID-19 has resulted in significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future. We continue to monitor the rapidly 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 when and how we are able to re-open our properties. Because the situation is ongoing, and because the duration and severity remain unclear, it is difficult to forecast any impacts on our future results. However, we currently expect the COVID-19 outbreak to impact our operations for the quarter ending June 30, 2020 more significantly than it has impacted the quarter ended March 31, 2020, primarily as a result of the continued closure of our domestic properties for all, or a significant portion, of the second quarter.
Due to the continued impact of the outbreak of COVID-19, MGM China entered into a further amendment to its credit agreement, effective April 9, 2020 that provided for a waiver of its maximum leverage ratio extending through the second quarter of 2021, and a waiver of its minimum interest coverage ratio beginning in the second quarter of 2020 through the second quarter of 2021.
In April 2020, we amended our credit facility to provide us with certain relief from the effects of the COVID-19 pandemic. The amendment provides us a waiver of the financial maintenance covenants for the period beginning with the quarter ending June 30, 2020 through the earlier of (x) the date we deliver to the administrative agent a compliance certificate with respect to the quarter ending June 30, 2021 and (y) the date we deliver to the administrative agent an irrevocable notice terminating the covenant relief period (such period, the “covenant relief period”). In connection with the amendment, we pledged the Operating Partnership units held by loan parties under the credit agreement to the lenders as collateral. We also agreed to certain limitations including, among other things, further restricting our ability to incur debt and liens, make restricted payments, make investments and prepay subordinated debt. In addition, in connection with the amendment, we agreed to a liquidity test that requires our borrower group (as defined in the credit agreement) to maintain a minimum liquidity level of not less than $600 million (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, in April 2020, we commenced an offering for $750 million in aggregate principal amount of 6.750% senior notes due 2025, which is scheduled to close on May 4, 2020, subject to customary closing conditions. We intend to use the net proceeds from the offering of the notes, for general corporate purposes, including, without limitation, further increasing our liquidity position.
In March 2020, MGM China’s Board of Directors recommended a final dividend for 2019 of $41 million, to be paid in 2020 if approved at the upcoming annual shareholders meeting on May 28, 2020, of which we would receive $23 million and noncontrolling interests would receive $18 million.
In April 2020, the Operating Partnership paid $158 million of distributions to its partnership unit holders, of which we received $96 million and MGP received $62 million, which MGP concurrently paid as a dividend to its Class A shareholders.
In April 2020, CityCenter paid a $101 million dividend, of which we received our 50% share, or approximately $51 million.
On April 30, 2020, our Board of Directors approved a quarterly dividend of $0.0025 per share. The dividend will be payable on June 15, 2020 to holders of record on June 10, 2020. 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.
Critical Accounting Policies and Estimates
A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the fiscal year ended December 31, 2019. There have been no significant changes in our critical accounting policies and estimates since year end.
As discussed elsewhere, in response to the outbreak of COVID-19 and the corresponding actions taken to mitigate the spread of the virus, we temporarily suspended operations at our domestic properties. Although our casinos in Macau have re-opened, such properties have experienced significant declines in results given the continued impact of restrictions on travel and operations. As a result, we considered whether circumstances triggered a quantitative review of our goodwill and indefinite-lived intangible assets. We considered the results of our 2019 impairment analysis in which we concluded, for those tested qualitatively, that it was more likely than not that the fair values of our reporting units and indefinite-lived intangibles exceeded their carrying values by a substantial margin and, for those tested quantitatively, that the fair value exceeded carrying value by a substantial margin. We also considered our current market capitalization which indicates a decline in fair values, however, the carrying values of our reporting units continue to be less than the corresponding implied fair values. As of March 31, 2020, we continue to conclude that it is more-likely-than-not that the fair values continue to exceed carrying values and, accordingly, an interim quantitative impairment review of our goodwill and indefinite-lived intangible assets was not triggered.
34
However, management makes significant judgments and estimates as part of these analyses. If our properties stay closed for longer than management’s expectations or operations do not ramp upon re-opening, it could cause carrying values of the intangibles to exceed their fair values in future periods, potentially resulting in an impairment charge. In addition, the determination of multiples, capitalization rates and the discount rates used in the impairment tests are highly judgmental and dependent in large part on expectations of future market conditions.
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 the Operating 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.
As of March 31, 2020, variable rate borrowings represented approximately 20% of our total borrowings after giving effect to the currently effective interest rate swap agreements on which the Operating Partnership pays a weighted average of 1.821% on a total notional amount of $1.9 billion. Additionally, the Operating 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 the Operating Partnership interest rate swaps discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Debt maturing in
|
|
|
March 31,
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
|
Total
|
|
|
2020
|
|
|
(In millions)
|
|
Fixed-rate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
$
|
1,250
|
|
|
$
|
1,800
|
|
|
$
|
4,100
|
|
|
$
|
8,150
|
|
|
$
|
7,474
|
|
Average interest rate
|
N/A
|
|
|
N/A
|
|
|
|
7.8
|
%
|
|
|
6.0
|
%
|
|
|
5.5
|
%
|
|
|
5.4
|
%
|
|
|
5.8
|
%
|
|
|
|
|
Variable rate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,350
|
|
|
$
|
826
|
|
|
$
|
1,489
|
|
|
$
|
3,665
|
|
|
$
|
3,665
|
|
Average interest rate
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
3.2
|
%
|
|
|
4.1
|
%
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
|
|
|
|
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 to MGM China and to our operations at MGM Macau and MGM Cotai. While recent fluctuations in exchange rates have not been significant, potential changes in policy by governments or fluctuations in the economies of the United States, China, Macau or Hong Kong could cause variability in these exchange rates. We cannot assure you that the Hong Kong dollar will continue to be pegged to the U.S. dollar or the current peg rate for the Hong Kong dollar will remain at the same level. The possible changes to the peg of the Hong Kong dollar may result in severe fluctuations in the exchange rate thereof. For U.S. dollar denominated debt incurred by MGM China, fluctuations in the exchange rates of the Hong Kong dollar in relation to the U.S. dollar could have adverse effects on our financial position and results of operations. As of March 31, 2020, a 1% weakening of the Hong Kong dollar (the functional currency of MGM China) to the U.S. dollar would result in a foreign currency transaction loss of $15 million.
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-Q contains “forward-looking statements” within the meaning of the U.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 estimated monthly cash outflows while our domestic properties remain closed as a result of the COVID-19 pandemic, execution of the MGM 2020 Plan and our asset light strategy, our ability to generate significant cash flow and execute on ongoing and future projects, including the development of an integrated resort in Japan, amounts we will spend in capital expenditures and investments, our expectations with respect to future share purchases and cash dividends on our common stock, dividends and distributions we will receive from MGM China, the Operating Partnership or CityCenter, and amounts projected to be realized as deferred tax assets. The foregoing is not a complete list of all forward-looking statements we make.
35
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 materially impacted our business, financial results and liquidity, and such impact could worsen and last for an unknown period of time;
|
|
•
|
all of our domestic properties are currently closed, and we are unable to predict when all, or any of, such properties will re-open to the public, or the period of time required for the ramp-up of operations upon re-opening;
|
|
•
|
we have undertaken aggressive actions to reduce costs and improve efficiencies 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;
|
|
•
|
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;
|
|
•
|
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 MGP BREIT Venture could adversely affect our development options and financial results and impact our ability to satisfy our obligations;
|
|
•
|
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 MGM 2020 Plan or our asset light strategy;
|
|
•
|
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 $25 million, must be approved in accordance with certain specified procedures;
|
36
|
•
|
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 Macau government to terminate MGM Grand Paradise’s subconcession under certain circumstances without compensating MGM Grand Paradise, exercise its redemption right with respect to the subconcession, or refuse to grant MGM Grand Paradise an extension of the subconcession in 2022;
|
|
•
|
the dependence of MGM Grand Paradise upon gaming promoters for a significant portion of gaming revenues in Macau;
|
|
•
|
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, 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 United States and 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.
|
37
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.