Leases

9 Months Ended

Sep. 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 an initial annual rent for the lease year beginning November 15, 2019 and ending November 30, 2020 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 September 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 for the lease year beginning February 14, 2020 and ending February 28, 2021 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 September 30, 2020.

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
		2020			2019		2020			2019
	(In thousands)
Operating lease cost, primarily classified within "General and administrative"⁽¹⁾	$	199,166		$	25,520	$	551,807		$	75,777

Finance lease costs
Interest expense⁽²⁾	$	(5,990	)	$	208	$	(19,796	)	$	621
Amortization expense		17,851			2,277		52,495			7,247
Total finance lease costs	$	11,861		$	2,485	$	32,699		$	7,868

(1)	For the three and nine months ended September 30, 2020, operating lease cost includes $83 million and $248 million related to the Bellagio lease, respectively, and $99 million and $248 million related to the Mandalay Bay and MGM Grand Las Vegas lease, respectively.

(2)	For the three and nine months ended September 30, 2020, interest expense includes the effect of COVID-19 related rent concessions received on certain finance leases, for which such effect was recognized as negative variable rent expense.

	September 30,		December 31,
	2020		2019
Supplemental balance sheet information	(In thousands)
Operating leases
Operating lease right-of-use assets, net⁽³⁾	$	8,330,530	$	4,392,481
Operating lease liabilities - current, classified within "Other accrued liabilities"	$	35,651	$	67,473
Operating lease liabilities - long-term⁽⁴⁾		8,380,341		4,277,970
Total operating lease liabilities	$	8,415,992	$	4,345,443

Finance leases
Finance lease right-of-use assets, net classified within "Property and equipment, net"	$	217,321	$	93,437
Finance lease liabilities - current, classified within "Other accrued liabilities"	$	79,087	$	27,975
Finance lease liabilities - long-term, classified within "Other long-term obligations"		151,472		67,182
Total finance lease liabilities	$	230,559	$	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

(3)	As of September 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.

(4)	As of September 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.

	Nine Months Ended
	September 30,
		2020		2019
Cash paid for amounts included in the measurement of lease liabilities	(In thousands)
Operating cash outflows from operating leases	$	421,932	$	66,562
Operating cash outflows from finance leases		1,741		621
Financing cash outflows from finance leases		19,514		5,533

ROU assets obtained in exchange for new lease liabilities
Operating leases	$	4,120,312	$	45,387
Finance leases		175,446		4,215

Maturities of lease liabilities were as follows:

	Operating Leases			Finance Leases
Year ending December 31, 2020	(In thousands)
2020 (excluding the nine months ended September 30, 2020)	$	152,226		$	28,720
2021		610,886			73,951
2022		615,855			72,240
2023		625,365			63,718
2024		635,755			1,034
Thereafter		20,445,881			517
Total future minimum lease payments		23,085,968			240,180
Less: Amount of lease payments representing interest		(14,669,976	)		(9,621	)
Present value of future minimum lease payments		8,415,992			230,559
Less: Current portion		(35,651	)		(79,087	)
Long-term portion of lease liabilities	$	8,380,341		$	151,472