ANNUAL REPORT OF 2016 CONTENTS Corporate Information 2 Financial Highlights 3 Chairperson’s Statement 4 Directors and Senior Management 10 Management Discussion and Analysis 22 Sustainability 48 Corporate Governance Report 79 Report of the Directors 99 Consolidated Financial Statements Independent Auditor’s Report 149 Consolidated Statement of Profit or Loss and Other Comprehensive Income 156 Consolidated Statement of Financial Position 157 Consolidated Statement of Changes in Equity 159 Consolidated Statement of Cash Flows 160 Notes to the Consolidated Financial Statements 162 Financial Summary 241 Glossary 242 1 ANNUAL REPORT OF 2016 CORPORATE INFORMATION BOARD OF DIRECTORS LEGAL ADVISORS EXECUTIVE DIRECTORS As to Hong Kong law: Herbert Smith Freehills James Joseph Murren (Chairperson) 23rd Floor, Gloucester Tower, 15 Queen’s Road Central Pansy Catilina Chiu King Ho (Co-Chairperson) Hong Kong Chen Yau Wong William Joseph Hornbuckle As to Macau law: Grant R. Bowie (Chief Executive Officer) DSL Lawyers Avenida da Praia Grande no. 409 NON-exeCUTIVE DIRECTORS China Law Building 16th Floor William M. Scott IV Macau Daniel J. D’Arrigo Kenneth A. Rosevear REGISTERED OFFICE IN CAYMAN ISLANDS INDEPENDENT NON-exeCUTIVE DIRECTORS 190 Elgin Avenue Zhe Sun George Town Sze Wan Patricia Lam Grand Cayman KY1-9005 Peter Man Kong Wong Cayman Islands Russell Francis Banham PRINCIPAL PLACE OF BUSINESS AND AUDIT COMMITTEE HEAD OFFICE IN MACAU Russell Francis Banham (Chairperson) Daniel J. D’Arrigo Avenida Dr. Sun Yat Sen, Edificio MGM MACAU Zhe Sun NAPE, Macau Peter Man Kong Wong PLACE OF BUSINESS IN HONG KONG REMUNERATION COMMITTEE REGISTERED UNDER PART 16 OF THE Zhe Sun (Chairperson) COMPANIES ORDINANCE Pansy Catilina Chiu King Ho 1402 China Merchants Tower William Joseph Hornbuckle 200 Connaught Road Sze Wan Patricia Lam Central, Hong Kong Peter Man Kong Wong Russell Francis Banham HONG KONG LISTED SHARE NOMINATION AND CORPORATE REGISTRAR GOVERNANCE COMMITTEE Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor Sze Wan Patricia Lam (Chairperson) Hopewell Centre William M. Scott IV 183 Queen’s Road East Chen Yau Wong Wanchai, Hong Kong Zhe Sun Peter Man Kong Wong CAYMAN ISLANDS UNLISTED SHARE Russell Francis Banham REGISTRAR AND TRANSFER OFFICE COMPANY SECRETARY Intertrust Corporate Services (Cayman) Limited Antonio Jose Menano 190 Elgin Avenue George Town, Grand Cayman KY1-9005 AUTHORIZED REPRESENTATIVES Cayman Islands Antonio Jose Menano COMPANY WEBSITE William M. Scott IV www.mgmchinaholdings.com AUDITOR STOCK CODE Deloitte Touche Tohmatsu Certified Public Accountants 2282 2 ANNUAL REPORT OF 2016 FINANCIAL HIGHLIGHTS For the year ended December 31, 2016 2015 HK$’000 HK$’000 Casino revenue 14,606,066 16,841,551 Other revenue 301,402 328,902 Total revenue 14,907,468 17,170,453 Adjusted EBITDA (unaudited) 4,491,838 4,668,960 Profit for the year attributable to owners of the Company 3,036,508 3,112,515 Earnings per Share — Basic and Diluted HK$0.80 HK$0.82 3 4 ANNUAL REPORT OF 2016 CHAIRPERSON’S STATEMENT 2017 will be a transformational year for MGM, our team of employees will double as will our scale and operation in Macau. With almost twice the square footage of what we have at MGM MACAU, MGM COTAI’s scale will allow us to develop what we are known for around the world with diversified entertainment offerings. 5 ANNUAL REPORT OF 2016 CHAIRPERSON’S STATEMENT JAMES JOSEPH MURREN Chairperson Dear Shareholders, and reached HK$216.7 billion. Importantly, the market showed improvement as the year went on with gross 2016 has been a year of stabilization and gaming revenue in the second half up 6% year- development both for the Macau marketplace and over-year. Mass gaming revenue was also a bright for our Company. Macau gross gaming revenue spot with estimated growth of 7% in 2016. The solid finished with a slight decline of 3.3% from last year recovery in mass market allows us better footing as 6 ANNUAL REPORT OF 2016 we prepare for the opening of MGM COTAI in 2017. We are adapting our business to current conditions. MGM Resorts International has shown its conviction in Strategically we are focused on driving revenue the long term opportunity of MGM China by investing across the business with a focus on main floor in an incremental 4.95% of the Company, taking its customers, which is where we see the most ownership to approximately 56%. We continue to opportunity. We are in the process of redesigning and believe in the future of the Macau marketplace and refurnishing our main floor layout in MGM MACAU to are confident in ongoing success of MGM China as improve traffic flow and operating efficiencies. We we expand into Cotai in 2017. are diversifying our business by adding retail outlets and will open new and improved food and beverage At MGM MACAU we continue to manage costs and outlets in 2017. Beyond this, we are committed to run our operations in a disciplined manner, whilst we continuing to bring exciting and memorable events to are ramping up in preparation for the launch of MGM our property in support of the Macau Government’s COTAI. This discipline has allowed us to expand vision for diversification and developing the city as a margins in a challenging and evolving marketplace. In world-class tourism destination. 2016 MGM China adjusted EBITDA margin improved by 290 basis points year-over-year to 30.1%. 7 ANNUAL REPORT OF 2016 CHAIRPERSON’S STATEMENT MGM China continues to be recognized for its Our commitment to environmental sustainability was support of the local community, our team members marked by the achievement of inclusion in the Hang and the environment. We have one of the best Seng Sustainability Index for MGM China Holdings Human Resources teams in the region and this Limited. Also MGM COTAI was awarded with the China year we were recognized with five awards from Green Building (Macau) Design Label for making our the Macau-based Human Resources Magazine. property the largest ever to achieve this status. The Company delivered nearly 270,000 hours of training in 2016, representing 45 hours for each team 2017 will be a transformational year for MGM, our member, preparing for promotion and training of our team of employees will double as will our scale staff leading up to the opening of MGM COTAI. We and operation in Macau. With almost twice the grew our business with local small and medium sized square footage of what we have at MGM MACAU, enterprises by MOP155 million. MGM COTAI’s scale will allow us to develop what 8 ANNUAL REPORT OF 2016 MGM COTAI in March 2017 we are known for around the world with diversified hotel rooms, up to 500 gaming tables and 1,500 slot entertainment offerings. Our theater will be a machines. I am certain the opening of MGM COTAI transformable space, the first of its kind in Asia and will bring never been seen before experiences to the the only one of its kind in the world at this size, visitors of Macau. offering a wide range of entertainment to draw visitors from around the world. Our Spectacle, We look forward to an extraordinary year for our situated at the heart of the resort, will be enriched Company in 2017. with incredible experiential technology elements to wow our guests. When completed, our new resort will provide a truly James J. Murren unique MGM experience with approximately 1,400 Chairperson 9 ANNUAL REPORT OF 2016 DIRECTORS AND SENIOR MANAGEMENT 10 11 9 12 1. Pansy Ho 7. Bill Hornbuckle 6 7 8 5 2 2. Jim Murren 8. Zhe Sun 4 3 1 3. Grant R. Bowie 9. Ken Rosevear 4. Russell Banham 10. Peter Wong 5. CY Wong 11. William Scott 6. Patti Lam 12. Dan D’Arrigo 10 ANNUAL REPORT OF 2016 MEMBERS OF OUR BOARD Executive Directors James Joseph Murren, aged 55, is the Chairperson and an Executive Director of MGM China Holdings Limited. Mr. Murren is the Chairman and Chief Executive Officer of MGM Resorts International. He has served as a director of MGM Grand Paradise since January 19, 2010. Since April 22, 2016, Mr. Murren also serves as Chairman of the Board of MGM Growth Properties, a real estate investment fund listed in the New York Stock Exchange that is engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts, whose diverse amenities include casino gaming, hotel, convention, dining, entertainment and retail offerings. In 1998, Mr. Murren joined MGM Grand Inc. (a predecessor of MGM Resorts International) as Chief Financial Officer and a member of the board. He completed significant acquisitions over the next seven years, overseeing the transformation of MGM Resorts International into one of the world’s leading gaming companies. In 1999, the board promoted Mr. Murren to President and then to Chief Operating Officer in 2007. As Chief Financial Officer, Mr. Murren directed the implementation of an extensive reorganization of MGM Grand Inc. and started the development of CityCenter. Before he joined MGM Grand Inc., Mr. Murren served as a Managing Director of U.S. Equity Research at Deutsche Bank AG. Mr. Murren graduated with a Bachelor’s degree in art history and urban studies from Trinity College, Hartford in 1983. Prior to joining the board of MGM Grand Paradise, Mr. Murren was involved in the design, development, financing, management and operations of MGM Grand Paradise. Pansy Catilina Chiu King Ho, JP, aged 54, is the Co-Chairperson, an Executive Director and a member of the Remuneration Committee of MGM China Holdings Limited. Ms. Ho is the Managing Director of Shun Tak Holdings Limited, a leading business conglomerate listed on the Hong Kong Stock Exchange, a position she has held since 1999.