MGM Growth Properties reported adjusted funds from operations of $119 million and net income of $12.4 million for the fourth quarter of 2016 Thursday morning, the final quarter of its inaugural year as a standalone real estate investment trust spun-off from MGM Resorts.
The triple-net REIT, which serves as landlord to 10 MGM properties in the United States, reported rental revenue of $163 million, adjusted EBITDA of $159 million net income of $51 million for the quarter. Funds from operations – a REIT-specific metric showing net income minus property sales and depreciation – checked in at $0.49 per share.
“2016 was an extraordinary debut year for MGM Growth Properties and our shareholders. The Company’s $1.2 billion initial public offering was one of the largest of the year and was named International Financing Review magazine’s 2016 U.S. IPO of the year,” said James Stewart, CEO of MGM Growth Properties.
“We acquired the real property of the Borgata, increased our dividend 8 percent, strengthened our balance sheet, and were added to the MSCI U.S. REIT Index,” Steward continued. “Looking ahead into 2017, we remain focused on further driving shareholder value and strategically growing our premier asset portfolio.”
MGP is the only REIT currently focusing specifically on gaming space aside from Gaming and Leisure Properties, Inc. Stewart emphasized on a call with investors that the company is in its strongest position since going public in April, and that it possesses an attractive cost and access to capital, scale, historical relationships and expertise that make it well-positioned to continue growing the dividend it pays out to shareholders.
It announced a payout of $0.39 to shareholders for the fourth quarter, equating to a $1.55 per share payout on an annualized basis. REITs are required to pay out at least 90 percent of their earnings to shareholders in the form of dividends.
For the full year 2016, MGP reported rental revenues of $419 million, $120 million for the period from the IPO through the end of the year, adjusted EBITDA of $387 million and adjusted funds from operations of $279 million.
The REIT also highlighted that its debt rating had been upgraded by Moody’s from B1 to Ba3 in early February. While this is still considered speculative or “junk” status, it illustrates that MGP’s balance sheet is improving – with $3.6 billion in total debt and a 5.2 debt to adjusted EBITDA ratio.
These improvements, MGP executives said, have allowed for renegotiations of loans that have realized 75 basis points worth of interest rate savings since the end of the fourth quarter.
“We are extremely proud of the progress we’ve made over the course of the quarter in further positioning our balance sheet for sustained value creation,” said Andy Chien, CFO of MGM Growth Properties. “The successful execution of our term loan B repricing, interest rate swaps and subsequent to the quarter, credit rating upgrade, have put us in position to continue to drive shareholder value.”
MGM Growth properties owns the underlying real estate assets of 10 destination resort properties operated by MGM – including six in Las Vegas, two in Mississippi, one in Detroit and one in Atlantic City – and a dining and entertainment complex. Combined, these properties total more than 27,000 hotel rooms, roughly 2.6 million square footage of convention space.
The company’s next likely acquisition will be MGM National Harbor – a transaction that will probably occur toward the end of 2017. But Stewart left open the possibility of a deal – potentially with a non-MGM property – before then.
“We have a list of potential acquisitions that I think would all be well received and are attractive,” he said. “We’re always looking for ways that we can sustainability increase our AFFO and our dividend. If that happens before National Harbor, terrific.”
