MGM Growth Properties, the triple-net real estate investment trust that serves as landlord to 10 MGM Resorts properties, reported first quarter results slightly down from 2016 but largely in-line with expectations.
The REIT posted rental revenue of $163 million and adjusted funds from operations of $119 million – equating to $0.49 per diluted share and in-line with fourth quarter 2016 figures. Net income checked in at $47 million – a $4 million quarter-over-quarter drop and adjusted EBITDA was $156 million, down from $159 million.
MGP also returned capital to shareholders – the bread and butter activity of any REIT – by paying out $0.39 per share dividend.
“We are pleased with our first quarter results, which further demonstrate our continued commitment to strengthening our balance sheet and improving our cost of capital,” said James Stewart, chief executive.
Stewart highlighted the onset of an escalator clause in MGP’s lease with MGM that will serve to generate an earnings boost in the coming quarters.
“The first base rent escalator under our Master Lease of 2% went into effect on April 1, 2017, resulting in almost $12 million of additional rent to a new total annual rent amount of $662 million for our second lease year,” he said. “This represents an increase of almost 5 cents a share to our AFFO per share, further demonstrating the built in growth of our business model. With this escalator, our Right of First Offer opportunities and other potential acquisitions, we continue to work towards sustainably growing our dividend to drive shareholder value.”
The quarter marked the company’s inaugural first quarter following its initial public offering last April.
“One week ago today we celebrated our first anniversary as a public company,” said Stewart. “We’ve accomplished a great deal in the last year.”
Over to its balance sheet, MGP currently sits on $368 million in cash and cash equivalents and – as of April 1 – has annual rent payments receivable under its master lease at $662 million. Total long-term debt is at $3.6 billion – roughly a 5.2 times debt-to-adjusted EBITDA ratio.
“We are committed to maintaining a conservative balance sheet, continuing to improve our credit ratings and enhancing our capital structure flexibility,” said Andy Chien, MGP’s chief financial officer.
“In connection with this goal, we executed additional interest rate swaps in January, improved our term loan B pricing in February as a result of our upgraded credit rating to Ba3, and subsequent to the quarter, further improved our term loan B pricing to LIBOR plus 2.25%,” he continued. “These actions further demonstrate our efforts to continuously improve our financial strength.”
Stewart and Chien iterated that the company remains in talks about acquiring the real estate underlying several other MGM properties, including National Harbor and the Monte Carlo.
However, MGP is not limiting its search for new acquisitions solely to MGM.
“We have a pretty active dialogue going on with a number of people in the industry where I think transactions could develop from,” said Stewart, adding that the valuation of gaming properties tends to be more attractive than those in other leisure segments. “There’s a better pricing environment in the larger integrated resort market than in many of the other leisure sector activities we’ve looked at.”
MGP is the only REIT currently focused specifically on gaming space aside from Gaming and Leisure Properties, Inc, though that projects to change later this year with the introduction of a post-bankruptcy Caesars REIT.
