Leases

6 Months Ended

Jun. 30, 2020

NOTE 6 — LEASES

The Company leases the land underlying certain of its properties, real estate, and various equipment under operating and, to a lesser extent, finance lease arrangements. The master lease agreement with MGP is eliminated in consolidation and, accordingly is not included within the disclosures below; refer to Note 11 for further discussion of the master lease with MGP.

Bellagio real estate assets. The lease provides for initial annual rent of $245 million with a fixed 2% escalator for the first ten years and, thereafter, an escalator equal to the greater of 2% and the CPI increase during the prior year, subject to a cap of 3% during the 11th through 20th years and 4% thereafter. The lease requires the Company to spend a specified percentage of net revenues at the property on capital expenditures and for the Company to comply with certain financial covenants, which, if not met, would require the Company to maintain cash security or a letter of credit in favor of the landlord in an amount equal to rent for the succeeding two-year period. The Company was in compliance with its applicable covenants as of June 30, 2020.

Mandalay Bay and MGM Grand Las Vegas real estate assets. Pursuant to a lease agreement between a subsidiary of the Company and MGP BREIT Venture, the Company leases the real estate assets of Mandalay Bay and MGM Grand Las Vegas from the MGP BREIT Venture. The Mandalay Bay and MGM Grand Las Vegas lease has an initial term of 30 years with two subsequent ten-year renewal periods, exercisable at the Company’s option. The lease provides for an initial annual rent of $292 million with a fixed 2% escalator for the first fifteen years and, thereafter, an escalator equal to the greater of 2% and the CPI increase during the prior year, subject to a cap of 3%. The Company does not consider the renewal options reasonably certain of being exercised and, accordingly, has determined the lease term to be 30 years. In consideration of such, the Company determined the expected lease term of 30 years to be less than 75% of the economic useful life of the real estate assets of Mandalay Bay and MGM Grand Las Vegas. Further, the MGP BREIT Venture provided its implicit rate to the Company, with which the Company determined that the present value of the future lease payments is less than 90% of the fair market value of the Mandalay Bay and MGM Grand Las Vegas real estate assets. Accordingly, in consideration of these lease classification tests, as well as the fact that the lease does not transfer ownership of the assets back to the Company at the end of the lease term or grant the Company a purchase option and the real estate assets have alternative uses at the end of the lease term, the Company classified the Mandalay Bay and MGM Grand Las Vegas lease as an operating lease.

In addition, the lease requires the Company to spend a specified percentage of net revenues at the properties on capital expenditures and for the Company to comply with certain financial covenants, which, if not met, will require the Company to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period. The Company was in compliance with its applicable covenants as of June 30, 2020.

Other information. Components of lease costs and other information related to the Company’s leases was as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
		2020			2019		2020			2019
	(In thousands)
Operating lease cost, primarily classified within "General and administrative"⁽¹⁾	$	200,105		$	25,909	$	352,641		$	50,257

Finance lease costs
Interest expense	$	(12,854	)	$	204	$	(13,806	)	$	412
Amortization expense		17,238			2,379		34,644			4,970
Total finance lease costs	$	4,384		$	2,583	$	20,838		$	5,382

(1)	For the three and six months ended June 30, 2020, operating lease cost includes $83 million and $166 million related to the Bellagio lease, respectively, and $99 million and $150 million related to the Mandalay Bay and MGM Grand Las Vegas lease, respectively.

	June 30,		December 31,
	2020		2019
Supplemental balance sheet information	(In thousands)
Operating leases
Operating lease right-of-use assets, net⁽²⁾	$	8,379,607	$	4,392,481
Operating lease liabilities - current, classified within "Other accrued liabilities"	$	36,619	$	67,473
Operating lease liabilities - long-term⁽³⁾		8,376,770		4,277,970
Total operating lease liabilities	$	8,413,389	$	4,345,443

Finance leases
Finance lease right-of-use assets, net classified within "Property and equipment, net"	$	225,897	$	93,437
Finance lease liabilities - current, classified within "Other accrued liabilities"	$	77,312	$	27,975
Finance lease liabilities - long-term, classified within "Other long-term obligations"		160,912		67,182
Total finance lease liabilities	$	238,224	$	95,157

Weighted-average remaining lease term (years)
Operating leases		30		31
Finance leases		3		4

Weighted-average discount rate (%)
Operating leases		8		7
Finance leases		3		3

(2)	As of June 30, 2020 and December 31, 2019, operating lease right-of-use assets, net included $3.7 billion and $3.7 billion related to the Bellagio lease, respectively and $4.1 billion and $0 related to the Mandalay Bay and MGM Grand lease, respectively.

(3)	As of June 30, 2020 and December 31, 2019, operating lease liabilities – long-term included $3.8 billion and $3.7 billion related to the Bellagio lease, respectively and $4.1 billion and $0 related to the Mandalay Bay and MGM Grand lease, respectively.

	Six Months Ended
	June 30,
		2020		2019
Cash paid for amounts included in the measurement of lease liabilities	(In thousands)
Operating cash outflows from operating leases	$	273,162	$	33,921
Operating cash outflows from finance leases		865		412
Financing cash outflows from finance leases		9,459		3,208

ROU assets obtained in exchange for new lease liabilities
Operating leases	$	4,121,810	$	40,929
Finance leases		167,089		4,180

Maturities of lease liabilities were as follows:

	Operating Leases			Finance Leases
Year ending December 31, 2020	(In thousands)
2020 (excluding the six months ended June 30, 2020)	$	301,958		$	46,850
2021		613,280			71,240
2022		616,970			69,375
2023		625,303			61,060
2024		634,548			—
Thereafter		20,447,088			—
Total future minimum lease payments		23,239,147			248,525
Less: Amount of lease payments representing interest		(14,825,758	)		(10,301	)
Present value of future minimum lease payments		8,413,389			238,224
Less: Current portion		(36,619	)		(77,312	)
Long-term portion of lease liabilities	$	8,376,770		$	160,912