MGM Growth touts closed deal, says rents paid up; quarterly results mixed

May 6, 2020 11:24 AM
  • Matthew Crowley, CDC Gaming Reports
May 6, 2020 11:24 AM
  • Matthew Crowley, CDC Gaming Reports

MGM Growth Properties stuck to business in its first-quarter earnings statement Tuesday, mentioning closing of transactions related to the sale of Mandalay Bay and its corresponding 50.1% investment in the venture with Blackstone Real Estate Investment Trust.

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The real estate investment trust said its tenant, MGM Resorts International, is up to date in rents despite the coronavirus crisis that has closed the company’s casinos. MGM Resorts has $4.5 billion in cash and is likely to have enough liquidity to continue paying rent on time.

“We note triple-net lease results are typically stable with little variability with most of the variance relating to mergers and acquisitions timing,” SunTrust Robinson gaming analyst Barry Jonas said in a note to investors Tuesday. “Management noted no prior discussions around rent restructuring, with MGM Growth and MGM benefiting from more than ample liquidity amidst casino closures.”

MGM Growth’s quarterly results were mixed. Revenue missed Wall Street forecasts, but a key cash flow measure topped them.

The real estate investment trust said adjusted funds from operations, a cash flow measure that excludes one-time costs, $182.8 million, or 56 cents per diluted share, for the three months ended March 31, which topped the 49 cents-per-share average forecasts of Wall Street analysts surveyed by Seeking Alpha.

Funds from operation, a closely watched fiscal yardstick for real estate investment trusts, take net income and add back depreciation and amortization.

The company’s net loss for the quarter was $49.7 million, or 40 cents per diluted share, for the quarter, reversing year-earlier income of $20 million, or 24 cents per diluted share.

Revenue rose 3.4% to $203.5 million from $196.9 million but fell short of the $216.6 million forecast by Seeking Alpha-polled analysts.

MGM Growth shares dropped on the news, slipping 24 cents, or 0.99% Tuesday, to close at $23.90 on the New York Stock Exchange. MGM Growth’s share price has dipped 22% in 2020 and 25% in the last 12 months.

In January, a partnership of MGM Growth and the Blackstone said it would take over ownership of the MGM Grand and Mandalay Bay on the Strip in a $4.6 billion deal. In Tuesday’s statement, MGM Growth said the deal had closed.

Blackstone Real Estate Income Trust is owned by New York-based Blackstone, a private equity and real estate firm.

MGM Resorts will continue to operate and oversee the two hotel-casino operations through a long-term lease agreement. MGM Resorts will pay $292 million annually in rent to the joint venture.

In a separate January deal, MGM Growth agreed to pay $1.4 billion for MGM Resorts’ existing operating partnership units. The casino company has 24 months to redeem them.

MGM Resorts owns 61% of the REIT and once the units are redeemed, the stake will drop to 55%. MGM has stated its desire to reduce its ownership in MGM Growth.

MGM Growth controls 50.1% of the joint venture with Blackstone Real Estate Investment Trust.

In a statement, MGM Growth CEO James Stewart said the Blackstone deal immediately boosted adjusted funds from operation.

“While we are also cognizant of the severe and unique challenges the COVID-19 pandemic is having on global and domestic economies,” Stewart said, “we are pleased that our tenant has continued to make rental payments in full and on time and based upon its publicly reported liquidity position, we believe our tenant’s liquidity position is sufficient to cover its expected rental obligations.”

In March, MGM Growth Properties shuffled its executive ranks after Jim Murren resigned from its board and as MGM Resorts’ chairman and CEO. MGM Growth named Paul Salem chairman March 22 and added MGM Resorts Chief Financial Officer Corey Sanders to its board the same day.

Bill Hornbuckle resigned from MGM Growth’s board to focus on his duties as MGM Resorts acting CEO.

Union Gaming analyst John DeCree remained bullish on MGM Growth, despite the uncertainty on when MGM Resorts’ casinos in eight states – including 13 properties on the Las Vegas Strip – will reopen.

“There are few securities in our coverage universe that offer the stability that MGM Growth does today,” DeCree said in a research note “Its sole tenant, MGM, has significant liquidity on hand and has indicated it will continue to pay its rent obligations, which in turn makes MGM Growth’s current roughly 8% dividend yield quite secure and attractive.”

DeCree added that “while we are nearing the early phases of reopening, the recovery in Las Vegas remains a wild card.”

Follow Matthew Crowley on Twitter @copyjockey