You can forgive MGM Growth Properties shareholders if they felt a little whiplash Friday.
Late in the day, there may have been uplift. The Las Vegas-based real estate investment trust announced the closing of a joint venture to acquire the real estate assets of MGM Grand Las Vegas and Mandalay Bay on the Strip for $4.6 billion.
But hours earlier, there may have been a pang of disappointment, when MGM Growth Properties posted fourth-quarter funds from operation and revenue that missed Wall Street forecasts.
The missed forecasts hardly registered during MGM Growth’s conference call with analysts and journalists. Company officials touted the joint venture with Blackstone Real Estate Income Trust under which MGM Growth will have a 50.1% ownership stake and Blackstone will buy $150 million in MGM Growth Class A shares.
The MGM Growth-Blackstone joint venture will own the two properties and MGM Resorts International will continue managing and operating the hotel-casinos and pay annual rent of $292 million.
SunTrust Bank gaming analyst Barry Jonas told investors Friday said the investor sentiment over the Blackstone deal was “largely positive, with MGM Growth gaining a highly reputable partner with an economic interest in MGM Growth’s success.”
Jonas also said the joint venture also provides MGM Growth with “mergers and acquisition optionality, benefitting from Blackstone’s access to attractive financing. We could also see valuation support from the potential for further equity investments by Blackstone into MGM Growth.”
MGM Growth Properties serves as landlord to 13 properties all managed by MGM Resorts. Under the triple-net lease REIT, its tenants, casino operators here, maintain the properties and pay real estate taxes and building insurance.
In the fourth quarter, MGM Growth posted funds from operation, a cash flow measure, of $144 million, or 47 cents per diluted share, for the three months ended Dec. 31. Analysts polled by Seeking Alpha had forecast funds of operation of 51 cents per share.
Funds from operation, a closely watched fiscal yardstick for real estate investment trusts, takes net income and adds back depreciation and amortization.
Consolidated net income was $72.9 million, or 24 cents per diluted share for the quarter, up from $68.6 million, or 26 cents per share.
Fourth-quarter revenue was $225.89 million, up 4.3% from $216.6 million a year earlier, but short of the $226.34 forecast of Seeking Alpha-polled analysts.
MGM Growth shares rose in regular trading 47 cents, or 1.41%, to close at $33.75 on the New York Stock Exchange. But the company’s shares fell after hours, dropping 8 cents, or 0.24% to reach $33.67 at 5 p.m. PST.
During the conference call, MGM Growth CEO James Stewart first lauded Jim Murren, who announced his resignation as MGM Resorts International’s CEO earlier this week.
“I have known Jim for over 20 years and have the utmost respect for the man and what he has accomplished in his career,” Stewart said. “When he arrived to MGM in 1998, the company had one and a half properties, and a market cap of $800 million. … Since then, Jim definitely guided the company through the gaming expansion in Las Vegas and across the country, the acquisition of Mirage Resorts and the acquisition of Mandalay Resort Group.
“He then successfully weathered the great financial crisis to bring the company to its current state as a world-renowned gaming, entertainment and hospitality juggernaut.”
Then, Stewart hailed the deal with Blackstone.
“We believe that this combination of transactions will lead to meaningful cap rate compression for MGP and ultimately the entire gaming net leasing space,” he said. “As the owner of the largest portfolio of premier-integrated casino resort assets across the United States, we will be the biggest beneficiary of this natural evolution of our real estate vertical.”
Macquarie Securities gaming analyst Jordan Bender said MGM Growth is a company “that has seen nine dividend increases since its IPO just over three years ago.”
#exclusive – MGM Growth officials tout joint-venture deal; fourth quarter revenue, cash flow miss forecasts. -Matthew Crowley, @copyjockey, CDC Gaming Reports. https://t.co/4BbBbNW9rd #CDCgaming
— CDC Gaming Reports (@CDCNewswire) February 16, 2020
Stewart recapped MGM Growth’s feats of strength for 2019, including adding $160 million of annual rental revenues or master lease with MGM by buying the real estate of Empire City Casino in Yonkers, New York (for $850 million in January 2019), selling MGM Northfield Park’s operation in Ohio, and benefiting from improvements at Park MGM in Las Vegas.
The moves, Stewart said, helped the REIT thrice boost its dividend in 2019 to reach $1.88, a 90 cents year-over-year increase.
For the 12 months ended Dec. 31, MGM Growth had net income of $275.6 million, or 97 cents per share, up from net income of $244.7 million, or 94 cents per share, a year earlier.
Full-year funds from operation were $581.1 million, or $1.98 per diluted share.
Full-year revenue rose 14.8% to $856.4 million from $746.3 million.
Follow Matthew Crowley on Twitter @copyjockey.
