UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): April 1, 2019
MGM Growth Properties LLC
MGM Growth Properties Operating Partnership LP
(Exact name of registrant as specified in its charter)
DELAWARE (MGM Growth Properties LLC) |
001-37733 | 47-5513237 | ||
DELAWARE (MGM Growth Properties Operating Partnership LP) |
333-215571 | 81-1162318 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
1980 Festival Plaza Drive, Suite #750, Las Vegas, NV 89135
(Address of principal executive offices Zip Code)
(702) 669-1480
(Registrants telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 | Entry into a Material Definitive Agreement. |
On April 1, 2019, MGP Lessor, LLC (the Landlord), a Delaware limited liability company and a subsidiary of MGM Growth Properties LLC (the Company), entered into a Fifth Amendment (the Amendment) to the Master Lease Agreement, dated as of April 25, 2016 between MGM Lessee, LLC (the Tenant), a Delaware limited liability company and a subsidiary of MGM Resorts International (MGM Resorts) (as amended, the Master Lease) with respect to the acquisition by a subsidiary of MGM Resorts of the subsidiary of the Company that owned the operating assets of the Hard Rock Rocksino Northfield Park. The Amendment provides that, among other things, the Rent (as defined in the Master Lease) under the Master Lease will be increased by $60 million, 90% of which will be allocated to the Base Rent (as defined in the Master Lease) and 10% of which will be allocated to the Percentage Rent (as defined in the Master Lease). This description of the Amendment is qualified in its entirety by reference to the full text of the Amendment attached hereto as Exhibit 10.1.
Item 2.01 | Completion of Acquisition or Disposition of Assets. |
On April 1, 2019, MGM Growth Operating Partnership LP (the Operating Partnership), a subsidiary of the Company, completed the transaction to sell 100% of the equity interest in Northfield Park Associates LLC, the entity that owns the operating assets associated with the Hard Rock Rocksino Northfield Park, to a subsidiary of MGM Resorts, and retained the real estate assets.
MGM Resorts funded its acquisition for the transaction with approximately 9.4 million Operating Partnership units that were ultimately redeemed by the Operating Partnership, representing a purchase price of $275 million, plus working capital and other customary adjustments. The number of Operating Partnership units was calculated based on a volume weighted average price per share of MGPs stock for a twenty-trading-day period one business day prior to the closing date. MGM Resorts holds the Companys Class B share, which represents a majority of the voting power of the Companys Class A shares, and is a non-economic interest in the Company that does not provide its holder any rights to profits or losses or any rights to receive distributions from the Companys operations.
Item 9.01 | Financial Statements and Exhibits. |
(a) | Not applicable. |
(b) | Pro forma financial information. The unaudited pro forma condensed consolidated financial information of the Company giving effect to the disposition is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference. |
(c) | Not applicable. |
(d) | Exhibits: |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MGM Growth Properties LLC | ||||||
Date: April 4, 2019 | By: | /s/ Andrew Hagopian III | ||||
Name: Andrew Hagopian III | ||||||
Title: Secretary | ||||||
MGM Growth Properties Operating Partnership LP | ||||||
Date: April 4, 2019 | By: | /s/ Andrew Hagopian III | ||||
Name: Andrew Hagopian III | ||||||
Title: Secretary |
Exhibit 10.1
FIFTH AMENDMENT TO MASTER LEASE
This FIFTH AMENDMENT TO MASTER LEASE (the Amendment) is entered into as of April 1, 2019 (the Effective Date), by and between MGP Lessor, LLC, a Delaware limited liability company (together with its permitted successors and assigns, Landlord), and MGM Lessee, LLC, a Delaware limited liability company (together with its permitted successors and assigns, Tenant). Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings set forth in the Master Lease (as hereinafter defined).
RECITALS
A. Landlord and Tenant have entered into that certain Master Lease dated as of April 25, 2016 (the Master Lease), as amended by that certain First Amendment to Master Lease dated as of August 1, 2016, as further amended by that certain Second Amendment to Master Lease dated as of October 5, 2017, as further amended by that certain Third Amendment to Master Lease dated as of January 29, 2019 and that certain Fourth Amendment to Master Lease dated as of March 7, 2019.
B. Landlord and Tenant desire to amend the Master Lease by adding the property currently known as Hard Rock Rocksino generally located at 10777 Northfield Road, Northfield, Ohio, 44067 and 10705 Northfield Road, Northfield, Ohio 44067 (Northfield Park) to the Leased Property demised pursuant to the Master Lease and Landlord desires to lease the same to Tenant and Tenant desires to lease the same from Landlord upon the terms set forth in this Master Lease as amended hereby.
C. Landlord and Tenant further desire to amend the Master Lease to clarify certain provisions of the Master Lease.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Amendment
1.1 Definitions.
(a) Landlord and Tenant hereby agree that references to the term Leased Premises throughout the Master Lease shall be replaced with the term Leased Property.
(b) Landlord and Tenant hereby agree that each Facility covered by the Master Lease shall not include any off-track betting facilities located off-site or other off-site gaming facilities.
(c) Landlord and Tenant hereby agree that the definition of Escalation shall be amended and restated in its entirety to read as follows: For any Lease Year (other than the first Lease Year), an amount equal to the difference between (i) the Escalated Base Rent for such Lease Year and (ii) the Base Rent for the immediately preceding Lease Year; provided, that, beginning with the Lease Year commencing on April 1, 2022, if adding such amount to the Rent for the immediately preceding Lease Year would have resulted in a Net Revenue to Rent ratio for such immediately preceding Lease Year of less than 6.25:1, then, the escalation for such Lease Year shall be zero.
1.2 Additional Leased Property. Landlord and Tenant hereby agree that from and after the Effective Date, (i) Northfield Park shall be added to the List of Facilities set forth on Exhibit A to the Master Lease, (ii) the legal description of Northfield Park attached hereto as Schedule 1 (Part I) shall be added to Part I of Exhibit B to the Master Lease, and the leases and/or subleases attached hereto as Schedule 1 (Part II) shall be added to Part II of the Exhibit B to the Master Lease, (iii) Northfield Park shall constitute a portion of the Leased Property, and shall be a Facility, for all purposes under the Master Lease, (iv) Northfield Park shall be subject to all of the terms and conditions of the Master Lease, as modified by this Amendment and as the same may be further modified from time to time, and (v) Northfield Park shall be subleased by Tenant to one or more Operating Subtenants pursuant to one or more Operating Subleases in accordance with the Master Lease.
1.3 Base Rent. From and after the Effective Date, the amount of Seven Hundred Eighty Five Million Eight Hundred Forty Four Thousand Dollars ($785,844,000) set forth in the definition of Base Rent is hereby replaced with the amount of Eight Hundred Fifty Five Million Five Hundred Sixty Thousand Eight Hundred Eighty Dollars ($855,560,880) (which amount includes the Escalation applied on the date hereof), and the Base Rent initially allocated to Northfield Park shall be Fifty Four Million Dollars ($54,000,000) (the Base Rent Adjustment Amount). The Base Rent Adjustment Amount payable during any Lease Year or portion thereof consisting of more or less than twelve (12) calendar months shall be prorated on a monthly basis such that the Base Rent Adjustment Amount that is included within the Base Rent for each calendar month is equal to the Base Rent Adjustment Amount divided by twelve (12). In the event the month in which the Base Rent Adjustment Amount takes effect is a partial month, Tenant shall pay (i) Base Rent (calculated without application of the Base Rent Adjustment Amount) for such month in accordance with Section 3.1 of the Master Lease and (ii) a portion of the Base Rent Adjustment Amount which shall be prorated on a daily basis such that the Base Rent Adjustment Amount for such calendar month is equal to the monthly Base Rent Adjustment Amount divided by the actual number of days in such month and multiplied by the number of days for which the adjustment is applicable.
1.4 Percentage Rent. From and after the Effective Date, the amount of Eighty Four Million Five Hundred Thousand Dollars ($84,500,000) set forth in the definition of Percentage Rent is hereby replaced with the amount of Ninety Million Five Hundred Thousand Dollars ($90,500,000), and the Percentage Rent initially allocated to Northfield Park shall be Six Million Dollars ($6,000,000) (the Percentage Rent Adjustment Amount). The Percentage Rent Adjustment Amount payable during any Lease Year or portion thereof consisting of more or less than twelve (12) calendar months shall be prorated on a monthly basis such that the Percentage Rent Adjustment Amount that is included within the Percentage Rent for each calendar month is equal to the Percentage Rent Adjustment Amount divided by twelve (12). In the event the month in which the Percentage Rent Adjustment Amount takes effect is a partial month, Tenant shall pay (i) Percentage Rent (calculated without application of the Percentage Rent Adjustment Amount)
2
for such month in accordance with Section 3.1 of the Master Lease and (ii) a portion of the Percentage Rent Adjustment Amount which shall be prorated on a daily basis such that the Percentage Rent Adjustment Amount for such calendar month is equal to the monthly Percentage Rent Adjustment Amount divided by the actual number of days in such month and multiplied by the number of days for which the adjustment is applicable. For the purpose of calculating Percentage Rent at the next Percentage Rent Reset Date, the average annual Net Revenues of any Facility added to the Leased Property during the trailing five calendar year period prior to such Percentage Rent Reset Date shall be calculated taking into consideration only the portion of such trailing five-year period during which the Facility was included as Leased Property under the Master Lease commencing on the date such Facility was added to the Leased Property.
1.5 Identified Subleases. In addition to the Identified Subleases indicated by letters from Landlord to Tenant dated April 26, 2016, August 2, 2016, October 5, 2017, and January 29, 2019, the definition of Identified Subleases shall also include those certain leases and/or subleases identified in a supplemental letter of even date herewith from Tenant to Landlord.
1.6 Gaming Licenses. The description of gaming licenses contained on Schedule 2 attached hereto shall be added to Exhibit D to the Master Lease.
1.7 Amendment to Section 5.1 of the Master Lease. Landlord and Tenant hereby agree that the references to title insurance and Title Insurance Proceeds in Section 5.1 of the Master Lease shall include any title insurance and Title Insurance Proceeds of Landlord and any Affiliates of Landlord and that Landlord shall cause its Affiliates to comply with the provisions of Section 5.1 with respect to the provisions concerning title insurance and Title Insurance Proceeds.
Landlord and Tenant hereby agree that Section 5.1 of the Master Lease is hereby amended to add the following sentence following the eighth sentence of Section 5.1 of the Master Lease:
Landlord agrees for the benefit of Tenant that in the event that Tenant desires to cause to be asserted a claim against any title insurer providing coverage under any policy of title or similar insurance maintained by Landlord, Landlord will reasonably cooperate with Tenant in asserting such claim and use commercially reasonable efforts to enforce such policy so that all available Title Insurance Proceeds are received, provided that Tenant bears all costs and expenses of such enforcement.
ARTICLE II
Reaffirmation of Guaranty
2.1 Reaffirmation of Guaranty. By executing this Amendment, Guarantor acknowledges and agrees that Tenants obligations under the Master Lease have been modified by this Amendment and therefore Guarantors Obligations (as defined in the Guaranty) have been modified by this Amendment. Guarantor hereby reaffirms the Guaranty and Guarantors Obligations thereunder, as modified by this Amendment.
3
ARTICLE III
Ohio Regulatory Requirements
3.1 Approval by the Ohio Lottery Commission and Ohio State Racing Commission. This Amendment is subject to the receipt of any necessary approvals from the Ohio Lottery Commission and the Ohio State Racing Commission.
ARTICLE IV
Miscellaneous
4.1 No Further Amendment. The Master Lease shall remain in full force and effect, unmodified, except as expressly set forth in Article 1 above.
4.2 Governing Law. Subject to Section 41.5 of the Master Lease, this Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York without regard to conflicts of laws principals.
4.3 Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be a valid and binding original, but all of which together shall constitute one and the same instrument.
SIGNATURES ON FOLLOWING PAGE
4
IN WITNESS WHEREOF, this Fifth Amendment to Master Lease has been executed by Landlord and Tenant as of the date first written above.
LANDLORD: | ||
MGP Lessor, LLC | ||
By: | /s/ Andy H. Chien | |
Name: Andy H. Chien | ||
Title: Chief Financial Officer and Treasurer | ||
TENANT: | ||
MGM Lessee, LLC | ||
By: | /s/ Andrew Hagopian III | |
Name: Andrew Hagopian III | ||
Title: Assistant Secretary |
Guarantor executes this Amendment solely for purposes of the acknowledgement and reaffirmation of Guaranty contained in Article 2 hereof.
GUARANTOR: | ||
MGM Resorts International | ||
By: | /s/ Andrew Hagopian III | |
Name: Andrew Hagopian III | ||
Title: Chief Corporate Counsel and Assistant Secretary |
[Signature Page to Fifth Amendment to Master Lease]
SCHEDULE 1
Part I
LEGAL DESCRIPTION
Cuyahoga County
Situated in the Village of Walton Hills, County of Cuyahoga, and State of Ohio:
And known as being a part of Original Bedford Township Lot No. 97, further bounded and described as follows:
Beginning at a 1 inch iron pin monument found at the intersection of the centerline of Northfield Road, also known as State Route 8, width varies, and the Southerly line of said Original Lot No. 97, said line also being the Southerly line of Cuyahoga County;
Thence North 00 deg. 02 42 West, along the centerline of said S.R. 8, a distance of 274.81 feet to its intersection with the Southerly line of a parcel of land conveyed to Ford Motor Company by deed recorded in Volume 7873, page 664 of the Cuyahoga County Deed Records;
Thence along the Southerly lines of said parcel of land so conveyed to Ford Motor Company, the following courses;
Thence South 88 deg. 16 30 East, 30.01 feet, passing over a 5/8 inch iron pin with cap set at its intersection with the Easterly line of said S.R. 8, a total distance of 1028.12 feet to an angle point therein;
Thence North 00 deg. 02 42 West, 25.48 feet to an angle point therein;
Thence North 64 deg. 39 35 East, 171.34 feet to a 5/8 inch iron pin with cap set at an angle point therein;
Thence South 88 deg. 16 30 East, 497.00 feet to a 3/8 inch iron pin in concrete found at an angle point therein;
Thence South 00 deg. 02 42 East, 378.29 feet to a 5/8 iron pin with cap set at an angle point therein, said point also being in the Southerly line of said Original Lot No. 97;
Thence North 88 deg. 16 30 West, along said Southerly line of Original Lot No. 97, a distance of 1680.11 feet to the place of beginning and containing 522,886 square feet of 12.0038 acres, be the same more or less, but subject to all legal highways, and being according to a survey dated August 10, 2004 as prepared by Seymour D. Weiss, P.E., P.S. of Seymour D. Weiss & Associates, Inc.
Parcel Numbers: 794-38-002 and 794-38-003
Schedule 1 - 1
Summit County
Parcel 1
Situated in the City of Macedonia and the Village of Northfield, County of Summit and State of Ohio:
And known as being a part of Original Northfield Township Lots Nos. 21 and 31, further bounded and described as follows:
Beginning at a 1 inch iron pin monument found at the intersection of the centerline of Northfield Road, also known as State Route 8, width varies, and the Northerly line of said Original Lot No. 31, said Northerly line also being the Northerly line of said Summit County;
Thence South 88 deg. 16 30 East, along the Northerly line of said Original Lots Nos. 31 and 21, 2,196.71 feet to a 3/4 inch iron pipe found at the intersection of said Northerly line with the Westerly line of a parcel of land conveyed to the Cleveland and Pittsburgh Railroad Company by Deed recorded in Volume 3904, Page 216 of the Summit County Deed Records;
Thence South 08 deg. 49 28 East, along the Westerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company, 246.64 feet to a 5/8 inch iron pin with cap set at its intersection with the Northerly line of a parcel of land conveyed to the Cleveland and Pittsburgh Railroad Company by Deed recorded in Volume 4640, Page 350 of the Summit County Deed Records;
Thence South 00 deg. 07 42 East, along the Westerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company, 491.00 feet to a 3/4 inch iron pipe found at an angle point therein;
Thence South 88 deg. 23 13 East, along a Southerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company, 77.53 feet to a 5/8 inch iron pin found at an angle point therein;
Thence South 07 deg. 59 22 East, along the Westerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company, 107.06 feet to a 3/4 inch iron pipe found at an angle point therein;
Thence South 00 deg. 01 23 West, along the Westerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company and the Westerly line of a parcel of land conveyed to the Cleveland and Pittsburgh Railroad Company by Deed recorded in Volume 3249, Page 71 of the Summit County Deed Records and the Westerly line of a parcel of land conveyed to the Cleveland and Pittsburgh Railroad Company by Deed recorded in Volume 3181, Page 233 of the Summit County Deed Records, 1,089.43 feet to a 1 inch iron pipe found at an angle point therein;
Schedule 1 - 2
Thence North 88 deg. 36 05 West, along a Northerly line of said parcel of land so conveyed to the Cleveland and Pittsburgh Railroad Company, 199.65 feet to a railroad spike set at the intersection of said Northerly line with the Easterly line of the Summit Heights Park Subdivision as recorded in Volume 13, Page 29 of the Summit County Map Records;
Thence North 00 deg. 17 44 East, along said Easterly line of said Summit Heights Park Subdivision, 159.03 feet to the Northeast corner thereof, from which point a 1/2 inch iron pipe found bears North 88 deg. 42 16 West, 0.35 feet, and South 00 deg. 17 44 West, 0.09 feet;
Thence North 88 deg. 36 04 West, along the Northerly line of said Summit Heights Park Subdivision, 2,473.25 feet, passing over a 5/8 inch iron pin set at its intersection with the Easterly line of S.R. 8, a total distance of 2,503.94 feet to its intersection with the centerline of said S.R. 8;
Thence North 13 deg. 36 21 East, along the centerline of said S.R. 8, 687.22 feet to a 3/4 inch iron pin monument found at an angle point therein;
Thence North 13 deg. 44 28 East, along the original centerline of said S.R. 8, 900.47 feet to an angle point therein;
Thence North 00 deg. 02 42 West, along said original centerline of S.R. 8, 230.82 feet to the place of beginning.
Containing 4,382,440 square feet or 100.6070 acres, be the same more or less, but subject to all legal highways, and being according to a survey dated August 10, 2004 as prepared by Seymour D. Weiss, RE., P.S. of Seymour D. Weiss & Associates, Inc.
Less and Except:
Situation in the Village of Northfield, County of Summit and State of Ohio:
In Part of O.L. Section 31 of Northfield Township, TSN, Range 11-W and bounded and described as follows:
Parcel No. 146-WD
Being a parcel of land lying on the right side of the centerline of a survey, made by the Department of Transportation and recorded in Book 124, Page 62 and 63 of the records of Summit County and being located within the following described points in the boundary thereof;
Commencing at the centerline intersection of Kennedy Avenue (50 feet side) and Northfield Road, S.R. 8, 60 feet wide;
Thence North 13 degrees 23 16 East, along the centerline of Northfield Road, S.R. 8, 106.68 feet to the true place of beginning;
Schedule 1 - 3
Said point being centerline Station 737 + 78.00;
Thence North 13 degrees 23 16 East, continuing along said centerline of Northfield Road, S.R. 8, 30.00 feet to a point;
Thence South 76 degrees 36 44 East, 38.00 feet to a point;
Thence South 13 degrees 23 16 West, 30.00 feet to a point;
Thence North 76 degrees 36 44 West, 38.00 feet to the true place of beginning and containing 1140 square feet of land, including the present road, which occupies 900 square feet of land.
Description of the above parcel is based on a survey by J. J. Knecht, Registered Surveyor No. 4548.
PM: 41-01195 PPN: NF-00004-01-001.000
PM: 41-02574 PPN: NF-00004-B4-002.000
PM: 41-01558 PPN: NF-00004-01-003.000
PM: 41-02578 PPN: NF-00004-B4-004.000
PM: 41-01559 PPN: NF-00004-01-006.000
PM: 41-02579 PPN: NF-00004-B4-005.000
PM: 41-01560 PPN: NF-00004-01-005.000
PM: 41-02580 PPN: NF-00004-B4-006.000
PM: 41-01199 PPN: NF-00004-01-004.000
PM: 41-02577 PPN: NF-00004-B4-003.000
PM: 41-01192 PPN: NF-00004-01-008.000
PM: 41-02573 PPN: NF-00004-B4-001.000
PM: 41-02056 PPN: NF-00004-01-007.000
PM: 41-02581 PPN: NF-00004-B4-007.000
PM: 33-01467 PPN: NF-00005-03-005.000
PM: 33-01469 PPN: NF-00005-03-004.000
PM: 33-01470 PPN: NF-00005-03-003.000
PM: 33-01468 PPN: NF-00005-03-002.000
Parcel 2:
Situated in the Village of Northfield, County of Summit and State of Ohio:
And known as being all of Sublot Nos. 49 and 50 Summit Avenue of Emily K. Hartwigs Summit Heights Park Subdivision of part of Original Lot No. 31 in said City of Northfield, as shown in Plat of said Emily K. Hartwig, recorded September 5, 1911, in Volume of Plats No. 13, Page 29 of Summit County Map Records.
PM: 41-01197 PPN: NF-00192-01-018.000
PM: 41-02576 PPN: NF-00192-B4-002.000
PM: 41-01196 PPN: NF-00192-01-019.000
PM: 41-02575 PPN: NF-00192-B4-001.000
Schedule 1 - 4
10777 Northfield Road
Northfield Ohio 44067
Part II
LEGAL DESCRIPTION
None.
Schedule 1 - 5
SCHEDULE 2
GAMING LICENSES
Leased Property |
License / Jurisdiction |
Original License Date |
Regulatory Agency | |||
Northfield Park |
Video Lottery Sales Agent License | March 11, 2013 | Ohio Lottery Commission | |||
Northfield Park |
Permits to Conduct a Commercial Horse Racing Meeting | Issued annually for the racing dates authorized for such year | Ohio State Racing Commission |
Exhibit 99.1
MGM GROWTH PROPERTIES LLC
MGM GROWTH PROPERTIES OPERATING PARTNERSHIP LP
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
MGM Growth Properties LLC (MGP or the Company) conducts its operations through and consolidates MGM Growth Properties Operating Partnership LP (the Operating Partnership). MGP is controlled and consolidated by MGM Resorts International (MGM). A wholly owned subsidiary of the Operating Partnership (the Landlord) leases substantially all of its real estate properties back to a wholly owned subsidiary of MGM (the Tenant) under a master lease agreement (as amended, the Master Lease).
On July 6, 2018, one of our wholly owned taxable REIT subsidiaries (the TRS) completed the acquisition of the membership interests of Northfield Park Associates LLC, (Northfield), an Ohio limited liability company that owned the real estate assets and operations of the Hard Rock Rocksino Northfield Park (the Northfield Acquisition), for approximately $1.1 billion. The Operating Partnership funded the acquisition through a $200 million draw on its term loan A facility and a $655 million draw under its revolving credit facility, with the remainder of the purchase price paid with cash on hand.
On April 1, 2019, MGP sold the operations of Northfield (Northfield OpCo) to a subsidiary of MGM for approximately $275 million, plus working capital and other customary purchase price adjustments, and retained the real estate assets. MGM funded its acquisition of the Northfield OpCo from MGP with Operating Partnership units that were ultimately redeemed by the Operating Partnership. Concurrent with the closing of the transaction, the TRS liquidated, the real estate assets of Northfield were transferred to the Landlord, and Northfield was added to the existing Master Lease between the Landlord and Tenant (the Northfield OpCo Disposition and together with the Northfield Acquisition, the Northfield Transactions), and the annual rent payment to MGP increased by $60.0 million, prorated for the remainder of the lease year. Consistent with the Master Lease terms, 90% of this rent will be fixed and contractually grow at 2% per year until 2022.
The unaudited pro forma condensed consolidated financial information was based on, and should be read in conjunction with:
| the accompanying notes to the unaudited pro forma condensed consolidated financial information; and |
| the separate consolidated financial statements and the accompanying notes of MGP and the Operating Partnership as of and for the year ended December 31, 2018, as contained in MGPs and the Operating Partnerships Combined Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission on February 27, 2019. |
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MGM Growth Properties LLC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2018
(in thousands)
Historical | Pro Forma | |||||||||||||
As of | As of | |||||||||||||
December 31, 2018 | December 31, 2018 | |||||||||||||
Northfield | ||||||||||||||
Transactions | MGP | |||||||||||||
MGP | Adjustments | (Adjusted) | ||||||||||||
Note 2 | ||||||||||||||
ASSETS |
||||||||||||||
Real estate investments, net |
$ | 9,742,225 | $ | 768,976 | 2(a) | $ | 10,511,201 | |||||||
Property and equipment, used in operations, net |
784,295 | (784,295 | ) | 2(a) | | |||||||||
Cash and cash equivalents |
59,817 | (29,062 | ) | 2(a) | 30,755 | |||||||||
Tenant and other receivables, net |
14,990 | (7,322 | ) | 2(a) | 7,668 | |||||||||
Prepaid expenses and other assets |
37,837 | (3,023 | ) | 2(a) | 34,814 | |||||||||
Above market lease, asset |
43,014 | | 43,014 | |||||||||||
Goodwill |
17,915 | (17,915 | ) | 2(a) | | |||||||||
Other intangible assets, net |
251,214 | (251,214 | ) | 2(a) | | |||||||||
|
|
|
|
|
|
|||||||||
Total assets |
$ | 10,951,307 | $ | (323,855 | ) | $ | 10,627,452 | |||||||
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|
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|
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LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||||||||
Liabilities |
||||||||||||||
Debt, net |
$ | 4,666,949 | $ | | $ | 4,666,949 | ||||||||
Due to MGM Resorts International and affiliates |
307 | | 307 | |||||||||||
Accounts payable, accrued expenses and other liabilities |
49,602 | (26,940 | ) | 2(a) | 32,043 | |||||||||
9,100 | 2(b) | |||||||||||||
281 | 2(c) | |||||||||||||
Above market lease, liability |
46,181 | | 46,181 | |||||||||||
Accrued interest |
26,096 | | 26,096 | |||||||||||
Dividend and distribution payable |
119,055 | | 119,055 | |||||||||||
Deferred revenue |
163,977 | (51 | ) | 2(a) | 163,926 | |||||||||
Deferred income taxes, net |
33,634 | (3,913 | ) | 2(b) | 29,721 | |||||||||
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|
|
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Total liabilities |
5,105,801 | (21,523 | ) | 5,084,278 | ||||||||||
Commitments and contingencies |
||||||||||||||
Shareholders equity |
||||||||||||||
Class A shares |
| | | |||||||||||
Additional paid-in capital |
1,712,671 | (24,893 | ) | 2(d) | 1,687,778 | |||||||||
Accumulated deficit |
(150,908 | ) | (1,433 | ) | 2(b) | (152,419 | ) | |||||||
(78 | ) | 2(c) | ||||||||||||
Accumulated other comprehensive income |
4,208 | | 4,208 | |||||||||||
|
|
|
|
|
|
|||||||||
Total Class A shareholders equity |
1,565,971 | (26,404 | ) | 1,539,567 | ||||||||||
Noncontrolling interest |
4,279,535 | (271,971 | ) | 2(d) | 4,003,607 | |||||||||
(3,754 | ) | 2(b) | ||||||||||||
(203 | ) | 2(c) | ||||||||||||
|
|
|
|
|
|
|||||||||
Total shareholders equity |
5,845,506 | (302,332 | ) | 5,543,174 | ||||||||||
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 10,951,307 | $ | (323,855 | ) | $ | 10,627,452 | |||||||
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
2
MGM Growth Properties LLC
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2018
(in thousands, except share and per share amounts)
Historical | Pro Forma | |||||||||||||
Year ended | Year ended | |||||||||||||
December 31, 2018 | December 31, 2018 | |||||||||||||
Northfield | ||||||||||||||
Transactions | MGP | |||||||||||||
MGP | Adjustments | (Adjusted) | ||||||||||||
Note 2 | ||||||||||||||
Revenues |
||||||||||||||
Rental revenue |
$ | 746,253 | $ | 59,074 | 2(aa) | $ | 805,327 | |||||||
Tenant reimbursements and other |
123,242 | 1,685 | 2(bb) | 124,927 | ||||||||||
Gaming, food, beverage and other |
132,949 | (132,949 | ) | 2(cc) | | |||||||||
|
|
|
|
|
|
|||||||||
1,002,444 | (72,190 | ) | 930,254 | |||||||||||
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||
Gaming, food, beverage and other |
88,053 | (88,053 | ) | 2(cc) | | |||||||||
Depreciation and amortization |
273,031 | (5,487 | ) | 2(cc) | 274,152 | |||||||||
6,608 | 2(dd) | |||||||||||||
Property transactions, net |
20,319 | | 20,319 | |||||||||||
Reimbursable expenses |
119,531 | 1,685 | 2(bb) | 121,216 | ||||||||||
Amortization of above market lease, net |
686 | | 686 | |||||||||||
Acquisition-related expenses |
8,887 | (5,780 | ) | 2(ee) | 3,107 | |||||||||
General and administrative |
16,178 | (129 | ) | 2(ff) | 16,049 | |||||||||
|
|
|
|
|
|
|||||||||
526,685 | (91,156 | ) | 435,529 | |||||||||||
|
|
|
|
|
|
|||||||||
Operating income |
475,759 | 18,966 | 494,725 | |||||||||||
Non-operating income (expense) |
||||||||||||||
Interest income |
2,501 | | 2,501 | |||||||||||
Interest expense |
(215,532 | ) | (21,099 | ) | 2(gg) | (236,631 | ) | |||||||
Other non-operating |
(7,191 | ) | | (7,191 | ) | |||||||||
|
|
|
|
|
|
|||||||||
(220,222 | ) | (21,099 | ) | (241,321 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Income before income taxes |
255,537 | (2,133 | ) | 253,404 | ||||||||||
Provision for income taxes |
(10,835 | ) | 3,913 | 2(ff) | (6,922 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net income |
244,702 | 1,780 | 246,482 | |||||||||||
Less: Net income attributable to noncontrolling interest |
(177,637 | ) | 1,160 | 2(hh) | (176,477 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net income attributable to Class A shareholders |
$ | 67,065 | $ | 2,940 | $ | 70,005 | ||||||||
|
|
|
|
|
|
|||||||||
Weighted average Class A shares outstanding: |
||||||||||||||
Basic |
70,997,589 | 70,997,589 | ||||||||||||
Diluted |
71,185,674 | 71,185,674 | ||||||||||||
Per Class A share data |
||||||||||||||
Net income per Class A share (basic) |
$ | 0.94 | $ | 0.99 | ||||||||||
|
|
|
|
|||||||||||
Net income per Class A share (diluted) |
$ | 0.94 | $ | 0.98 | ||||||||||
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
3
MGM Growth Properties Operating Partnership LP
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 2018
(in thousands)
Historical | Pro Forma | |||||||||||||
As of | As of | |||||||||||||
December 31, 2018 | December 31, 2018 | |||||||||||||
Northfield | Operating | |||||||||||||
Operating | Transactions | Partnership | ||||||||||||
Partnership | Adjustments | (Adjusted) | ||||||||||||
Note 2 | ||||||||||||||
ASSETS |
||||||||||||||
Real estate investments, net |
$ | 9,742,225 | $ | 768,976 | 2(a) | $ | 10,511,201 | |||||||
Property and equipment, used in operations, net |
784,295 | (784,295 | ) | 2(a) | | |||||||||
Cash and cash equivalents |
59,817 | (29,062 | ) | 2(a) | 30,755 | |||||||||
Tenant and other receivables, net |
14,990 | (7,322 | ) | 2(a) | 7,668 | |||||||||
Prepaid expenses and other assets |
37,837 | (3,023 | ) | 2(a) | 34,814 | |||||||||
Above market lease, asset |
43,014 | | 43,014 | |||||||||||
Goodwill |
17,915 | (17,915 | ) | 2(a) | | |||||||||
Other intangible assets, net |
251,214 | (251,214 | ) | 2(a) | | |||||||||
|
|
|
|
|
|
|||||||||
Total assets |
$ | 10,951,307 | $ | (323,855 | ) | $ | 10,627,452 | |||||||
|
|
|
|
|
|
|||||||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||||||||
Liabilities |
||||||||||||||
Debt, net |
$ | 4,666,949 | $ | | $ | 4,666,949 | ||||||||
Due to MGM Resorts International and affiliates |
307 | | 307 | |||||||||||
Accounts payable, accrued expenses and other liabilities |
49,602 | (26,940 | ) | 2(a) | 32,043 | |||||||||
9,100 | 2(b) | |||||||||||||
281 | 2(c) | |||||||||||||
Above market lease, liability |
46,181 | | 46,181 | |||||||||||
Accrued interest |
26,096 | | 26,096 | |||||||||||
Distribution payable |
119,055 | | 119,055 | |||||||||||
Deferred revenue |
163,977 | (51 | ) | 2(a) | 163,926 | |||||||||
Deferred income taxes, net |
33,634 | (3,913 | ) | 2(b) | 29,721 | |||||||||
|
|
|
|
|
|
|||||||||
Total liabilities |
5,105,801 | (21,523 | ) | 5,084,278 | ||||||||||
Commitments and contingencies |
||||||||||||||
Partners capital |
||||||||||||||
General partner |
| | | |||||||||||
Limited partners |
5,845,506 | (296,864 | ) | 2(d) | 5,543,174 | |||||||||
(5,187 | ) | 2(b) | ||||||||||||
(281 | ) | 2(c) | ||||||||||||
|
|
|
|
|
|
|||||||||
Total partners capital |
5,845,506 | (302,332 | ) | 5,543,174 | ||||||||||
|
|
|
|
|
|
|||||||||
Total liabilities and partners capital |
$ | 10,951,307 | $ | (323,855 | ) | $ | 10,627,452 | |||||||
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
4
MGM Growth Properties Operating Partnership LP
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2018
(in thousands)
Historical | Pro Forma | |||||||||||||
Year ended | Year ended | |||||||||||||
December 31, 2018 | December 31, 2018 | |||||||||||||
Northfield | Operating | |||||||||||||
Operating | Transactions | Partnership | ||||||||||||
Partnership | Adjustments | (Adjusted) | ||||||||||||
Note 2 | ||||||||||||||
Revenues |
||||||||||||||
Rental revenue |
$ | 746,253 | $ | 59,074 | 2(aa) | $ | 805,327 | |||||||
Tenant reimbursements and other |
123,242 | 1,685 | 2(bb) | 124,927 | ||||||||||
Gaming, food, beverage and other |
132,949 | (132,949 | ) | 2(cc) | | |||||||||
|
|
|
|
|
|
|||||||||
1,002,444 | (72,190 | ) | 930,254 | |||||||||||
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||
Gaming, food, beverage and other |
88,053 | (88,053 | ) | 2(cc) | | |||||||||
Depreciation and amortization |
273,031 | (5,487 | ) | 2(cc) | 274,152 | |||||||||
6,608 | 2(dd) | |||||||||||||
Property transactions, net |
20,319 | | 20,319 | |||||||||||
Reimbursable expenses |
119,531 | 1,685 | 2(bb) | 121,216 | ||||||||||
Amortization of above market lease, net |
686 | | 686 | |||||||||||
Acquisition-related expenses |
8,887 | (5,780 | ) | 2(ee) | 3,107 | |||||||||
General and administrative |
16,178 | (129 | ) | 2(ff) | 16,049 | |||||||||
|
|
|
|
|
|
|||||||||
526,685 | (91,156 | ) | 435,529 | |||||||||||
|
|
|
|
|
|
|||||||||
Operating income |
475,759 | 18,966 | 494,725 | |||||||||||
Non-operating income (expense) |
||||||||||||||
Interest income |
2,501 | | 2,501 | |||||||||||
Interest expense |
(215,532 | ) | (21,099 | ) | 2(gg) | (236,631 | ) | |||||||
Other non-operating |
(7,191 | ) | | (7,191 | ) | |||||||||
|
|
|
|
|
|
|||||||||
(220,222 | ) | (21,099 | ) | (241,321 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Income before income taxes |
255,537 | (2,133 | ) | 253,404 | ||||||||||
Provision for income taxes |
(10,835 | ) | 3,913 | 2(ff) | (6,922 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Net income |
$ | 244,702 | $ | 1,780 | $ | 246,482 | ||||||||
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. | Basis of Presentation |
The unaudited pro forma condensed consolidated balance sheets as of December 31, 2018 give effect to the Northfield Transactions as if they had occurred on December 31, 2018. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2018 give effect to the Northfield Transactions as if they had occurred on January 1, 2018. The unaudited pro forma condensed consolidated financial information gives effect to events that are (i) directly attributable to these transactions, (ii) factually supportable and (iii) with respect to the statements of operations, are expected to have a continuing impact on MGPs and the Operating Partnerships consolidated results.
The Northfield Acquisition has been accounted for using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations (ASC 805), with the TRS as the accounting acquirer and based on the historical consolidated financial statements of MGP and the Operating Partnership.
The Northfield OpCo Disposition is considered to be a transaction between legal entities under common control and has been accounted for under the common control subsections of ASC 805. Under the common control subsections of ASC 805, the recognized assets and liabilities transferred to MGM in connection with the Northfield OpCo Disposition shall be disposed by MGP on the same basis as that established by the Operating Partnership. Any difference between the purchase consideration paid by MGM and the basis of the net assets sold by MGP and the Operating Partnership is recorded as an adjustment to shareholders equity and partners capital, respectively.
The pro forma adjustments represent managements best estimates and are based upon currently available information and certain assumptions that MGP and the Operating Partnership believe are reasonable.
The unaudited pro forma condensed consolidated financial information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Northfield Transactions had been completed on the dates indicated, nor is it indicative of the future operating results or financial position of MGP or the Operating Partnership. The unaudited pro forma condensed consolidated financial information does not reflect any cost savings, operating synergies or revenue enhancements that MGP and the Operating Partnership may achieve, the costs necessary to achieve these cost savings, operating synergies and revenue enhancements, or the integration related costs of MGP and the Operating Partnership.
2. | Northfield Transactions Adjustments |
Unaudited Pro Forma Condensed Consolidated Balance Sheets
(a) | Reflects the sale of Northfield OpCo, along with the reclassification of Northfields real property assets to real estate investments, net, in connection with the Northfield OpCo Disposition. |
(b) | Reflects the accrual of taxes related to the gain on liquidation of the TRS. These tax-related expenses are not reflected as an adjustment in the unaudited pro forma condensed consolidated statements of operations because they do not have a continuing impact on MGP or the Operating Partnership. Deferred tax liabilities of $3.9 million have been eliminated in connection with the sale of the Northfield OpCo. |
(c) | Reflects acquisition-related expenses related to the Northfield OpCo Disposition that have been reflected as a pro forma adjustment reducing shareholders equity and partners capital in the unaudited pro forma condensed consolidated balance sheets of MGP and the Operating Partnership, respectively. These acquisition-related expenses are not reflected as an adjustment in the unaudited pro forma condensed consolidated statements of operations because they do not have a continuing impact on MGP or the Operating Partnership. |
(d) | Reflects MGMs consideration of 9,362,326 Operating Partnership units for the purchase of the Northfield OpCo from MGP, for which the fair value as of April 1, 2019 is $301.4 million, partially offset by the difference of $4.5 million between such consideration and the carrying amounts of the net assets sold in connection with the Northfield OpCo Disposition of $296.9 million in accordance with the common control subsections of ASC 805. The April 1, 2019 closing share price of MGPs Class A shares was utilized to determine the fair value of the Operating Partnership units. |
6
Unaudited Pro Forma Condensed Consolidated Statements of Operations
(aa) | Reflects rental income associated with rent from the Master Lease attributable to Northfield. For pro forma purposes, the Master Lease amendment related to the Northfield OpCo Disposition is reflected as if it were effective beginning on January 1, 2018 at the beginning of the twenty second month in the second lease year and subject to the fixed annual rent escalator of 2.0% for the second through the sixth lease years (as defined in the Master Lease). |
(bb) | Reflects revenue for the property taxes paid by the Tenant under the Master Lease for calendar year 2018, as if the Northfield Acquisition had occurred on January 1, 2018, with a corresponding offsetting expense as the Landlord is deemed the primary obligor of such property tax payment. |
(cc) | Reflects the elimination of the revenue and expenses related to Northfield OpCo. |
(dd) | Reflects depreciation expense for the period from January 1, 2018 to July 5, 2018, as if the Northfield Acquisition had occurred on January 1, 2018. |
(ee) | Reflects the elimination of nonrecurring acquisition-related expenses incurred that are directly related to the Northfield Acquisition, as such expenses do not have a continuing impact on MGP or the Operating Partnership. |
(ff) | Reflects the elimination of nonrecurring corporate overhead and tax-related expenses that are directly related to Northfield OpCo, as such expenses do not have a continuing impact on MGP or the Operating Partnership. |
(gg) | Reflects incremental interest expense for the period from January 1, 2018 to July 5, 2018, as if the Northfield Acquisition had occurred on January 1, 2018, related to the borrowings under the term loan A and revolving credit facilities used to fund the Northfield Acquisition, including the amortization of the related discount and debt issuance costs. |
(hh) | Reflects the effect of the Northfield Transactions after which MGM owned 72.4% of the weighted average Operating Partnership units outstanding for the period presented, entitling MGM to 72.4% of the economic interest in the Operating Partnership. |
7