A major share redemption and the reopening of tenant hotel-casinos helped MGM Growth Properties weather the second-quarter coronavirus uncertainty. The real estate investment trust posted a key cash flow measure that topped Wall Street forecasts, though revenue missed.
In a Tuesday statement issued before stock markets closed, the Las Vegas-based real estate investment trust, which owns a dozen MGM-branded casino properties, including three in Las Vegas, said its funds from operation were $165.9 million, or 52 cents per diluted share, for the three months ended June 30, up from funds from operation of $147.6 million, or 51 cents per diluted share, a year earlier.
The latest funds from operation result matched the average 52-cents-per share estimate of analysts polled by Seeking Alpha. Funds from operation, a closely watched fiscal yardstick for real estate investment trusts, take net income and adds back depreciation and amortization.
Net income was $97 million, or 30 cents per share, for the quarter, up 43.1% from net income of $67.8 million, or 24 cents per share, a year earlier.
Revenue fell 14% to $194.3 million from $225.8 million and missed the $198.7 million average forecast of Seeking Alpha-polled analysts.
In the statement, CEO James Stewart said the REIT continued to receive rental payments in full and on time. Also, he said, the REIT completed the redemption of 30.3 million shares for $700 million in cash in its agreement with MGM Resorts International. The deal reduced MGM Resorts’ stake in MGM Growth to 57%.
Truist Securities gaming analyst Barry Jonas said MGM Growth leadership noted “headwinds” to potential acquisitions. However, Jonas said noted, “consistent discussions with operators regarding potential sale-leasebacks while management believes the strategic merits of REIT financing remains intact.”
In the statement, Stewart said the redemption let the REIT increase its dividend for the 11th time in four years. The dividend now stands at $1.95 per share, up 36% from the REIT’s 2016 initial public offering. MGM Growth also retains the option to redeem an additional $700 million worth of shares, which the REIT dubbed operating units, from MGM Resorts, Stewart added.
In a conference call with analysts, Stewart added that nearly all of its rent-paying tenants had opened from their COVID-19 curve-flattening shutdowns. Nearly all of its Las Vegas properties had positive earnings before interest taxes, depreciation and amortization, a cash flow measure, and high margins.
“MGP currently sits in a very enviable position,” Stewart said. “We have access to approximately $2 billion of liquidity which is enough to run our operations and pay our current interest and dividends for about two years. Our tenant has nearly $4.8 billion of liquidity at their domestic operations which gives us confidence they’ll be able to pay the rent for the foreseeable future and we continue to pay our dividend 100% in cash as a result.”
On July 1, MGM Growth named Kathryn Coleman and Charles Irving to its board of directors. Chairman Paul Salem said the pair, who will increase the board to seven directors, will help the REIT explore acquisitions.
Coleman is a partner at international law firm Hughes Hubbard and Reed LLP; Irving is the founder and president of Davenport Cos., a real estate firm focused on investing in the retail, residential, and office sectors.
Stewart said MGM Growth continues to watch the market for deal-making chances but named no potential partners.
“We continue to communicate frequently with various gaming operators and explore sale-leaseback transactions that would help them generate immediate liquidity and provide them with an opportunity to replace financial debt with predictable long-term leases,” he said. “The benefits of long-term leases with no maturities are more apparent than ever. We’re confident in our ability to grow over the long-term.”
In response to an analyst query about whether the REIT would look to new industries for possible acquisitions, Stewart said he retained faith in the gambling business.
“If there is one thing that is really, I think highlighted through this very difficult economic time, it’s the fundamental strength of the gaming business,” he said, answering Evercore analyst Steve Sawka. “It has been really gratifying to see the ability of the tenants in that industry, to be able to adjust extremely quickly to a very quick-changing economic environment.”
MGM Growth Properties shares rose 12 cents, or 0.44%, to close at $27.48 on the New York Stock Exchange. The REIT’s share price has dropped 9.4% in 2020.
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