MGM Growth CEO hints at deal for Las Vegas Sands properties, REIT cash flow tops forecasts

November 3, 2020 12:43 PM
  • Matthew Crowley, CDC Gaming Reports
November 3, 2020 12:43 PM
  • Matthew Crowley, CDC Gaming Reports

MGM Growth Properties shook off and shook up as it recapped the third quarter.

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The real estate investment trust said it has mostly shaken off the coronavirus pandemic, posting a key cash flow measure that topped Wall Street forecasts and maintaining perfect rent collection from its tenants.

Then, MGM Growth’s CEO delivered a miniature room-shaking bombshell, saying Monday the REIT might buy another Strip hotel-casino if it could find a suitable partner to run it.

During a conference call with analysts, James Stewart told Union Gaming’s John DeCree the REIT would consider adding another Strip resort.

DeCree had mentioned last week’s news that Las Vegas Sands had been in talks to sell The Venetian and Palazzo, seeking at least $6 billion for the hotel-casinos and the Sands Expo and Convention Center.

“I think that (in) the city, in particular, those properties are going to be set up for some very, very significant growth once we get to the other side of COVID,” Stewart said. “I think the attractiveness of Vegas and our venues here is going to only increase compared to those other cities given space, ability to creatively sort of structure that space. … So the answer is, yes, we think a deal could get done on the Strip. We would definitely be interested.”

Stewart added the tenant “has to be one who has a great incentive to keep on paying the rent because there could be some bumpy times here in the next little while. If we can go to bed at night without having anything keep us up over worrying about is the rent going to get paid, it’s absolutely a deal that we should do.”

MGM Growth already owns a dozen MGM Resorts-branded casino properties, which comprise half of the REIT’s portfolio.

Truist Securities gaming analyst Barry Jonas said in a research note that MGM Growth believes there are 50-to-60 domestic gaming properties within its sights that would pass its minimum requirements, such as greater than $40 million in cash flow.

“Management believes Las Vegas, where 50% of its portfolio lies, is still an attractive market for M&A,” Jonas said. “Post-COVID, Las Vegas’s long-term attractiveness, and growth opportunities still rate very high relative to other U.S. metropolitan/destination group markets.”

MGM Growth’s revenue fell from a year earlier and missed Wall Street forecasts. The REIT’s stock rose during regular trading but fell after hours.

In a statement, MGM Growth said its funds from operation, a key cash flow measure, were $166.1 million, or 55 cents per diluted share, for the three months ended June 30, up from funds from operation of $150.4 million, or 51 cents per diluted share, a year earlier.

Analysts polled by Seeking Alpha had, on average, forecast 53 cents per share in funds from operation for the quarter. Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization.

MGM Growth said its net income was $43.7 million, or 34 cents per diluted share, up from net income of $68.6 million, or 24 cents per diluted share, a year earlier.

Adjusted income before interest, taxes, depreciation, and amortization, a cash flow measure that excludes one-time costs, fell to $173.5 million, or 57 cents per share, from $232.6 million, or 59 cents per share, a year earlier.

Quarterly revenue fell 14% to $194.3 million from $226 million. Seeking Alpha-polled analysts had expected $195.6 in revenue.

Stewart said gradually increasing hotel occupancy signaled that Las Vegas may be escaping its coronavirus doldrums. As in previous quarters, he said Las Vegas will be resilient.

“We are encouraged by the improvement and ramp-up of operations across our portfolio, and we’re also pleased to see occupancies in the weekends in Las Vegas recovering,” Stewart said, adding that the REIT looks forward to the return of conventions. “We’re long-term believers in Las Vegas as one of the premier destinations for business and leisure travel in the world.”

Stewart said some properties beyond Las Vegas also thrived — Gold Strike Tunica, in Tunica, Mississippi; MGM Northfield Park in Northfield, Ohio; and MGM National Harbor, in Oxon Hill, Maryland, all achieved record quarterly adjusted property EBITDAR, (EBITDA plus rents costs) in the quarter.

MGM Growth Properties shares rose 68 cents, or 2.57%, Monday to close at $27.13 on the New York Stock Exchange. The shares fell 10 cents, or 0.37%, to reach $27.03 at 6 p.m. PST. The share price has fallen by 10.5% in 2020.

Follow Matthew Crowley on Twitter @copyjockey