MGM Resorts International said Monday that it had added $700 million to its balance sheet after redeeming a chunk of its partnership units in real estate investment trust MGM Growth Properties.
In a statement, MGM Resorts said the transaction increased the company’s liquidity position to $5.3 billion while supporting its corporate efforts during the ongoing COVID-19 coronavirus pandemic. MGM’s portfolio of more than two dozen properties in eight states has been closed since mid-March in an effort to slow the spread of the virus.
But with states beginning to allow casinos to reopen under health and safety protocols, MGM could see its two casinos in Mississippi open later this week.
In Las Vegas, MGM Resorts has said it will initially reopen New York-New York and Bellagio once Nevada gaming regulators and Governor Steve Sisolak give the state’s gaming industry the green light to restart.
“Today’s announcement is another example of our efforts to bolster our already strong liquidity position during the COVID-19 pandemic,” MGM Resorts acting CEO Bill Hornbuckle said in a statement. “As we gear up to reopen and safely welcome our guests once again at our properties across the U.S., maintaining a strong balance sheet and preserving our financial flexibility remain critical pillars of long-term success.”
The transaction for MGM Resorts was part of a previous agreement with MGM Growth, which was spun off by the company in 2016, to purchase up to $1.4 billion of the company’s units in the REIT for cash through February 2022.
On Monday, MGM said it would redeem 30.3 million units. MGM Resorts still has roughly 172 million units in MGM Growth, representing a 56.7% ownership stake.
“This transaction both strengthens MGM’s balance sheet and delivers significant accretion to MGM Growth,” Hornbuckle said. “We continue to see significant value in our MGM Growth stake and are optimistic that future redemptions will occur at higher prices.”
MGM plans to use some of the $700 million to repay amounts drawn down from its credit facility.
Deutsche Bank gaming analyst Carlo Santarelli told investors he was somewhat surprised by the timing of the transaction, “given MGM’s healthy liquidity dynamics.” Santarelli said MGM had roughly 15 months of cash available, based on current monthly burn rates. He said the deal adds another two and a half months.
“In our view, we viewed MGM Growth, and the gaming REIT complex in general, as inexpensive, and, as such, we felt MGM Growth shares were likely to migrate higher as gaming came back online and investors garnered more confidence in MGM’s ability to meet its medium and longer term rental commitments,” Santarelli said.
MGM Growth owns the land and buildings associated with MGM Resorts’ casinos. MGM Resorts pays a rental fee to operate the facilities back to MGM Growth.
The company still owns the real estate associated with MGM Springfield in Massachusetts, a 50% interest in the CityCenter complex on the Las Vegas Strip, and a 56% interest in MGM China, which includes MGM Macau and MGM Cotai.
Because MGM Growth used cash to fund the redemption, the REIT expects its next quarterly dividend will increase by 5 cents to $1.95 per share.
“This transaction also creates an even stronger liquidity position for our tenant, MGM Resorts, reinforcing our confidence in the stability of our revenue stream and the strength of our business model,” said MGM Growth CEO James Stewart.
Shares of MGM Resorts closed at $15.31 Monday, up $1.46, or 10.54%. MGM Growth closed at $24.19, up $1.31 or 5.73%. Both companies are on the New York Stock Exchange.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
