The earlier-in-the-week acquisition news was so loud that earnings news seemed almost like a muted afterthought for MGM Growth Properties.
On Wednesday, the Las Vegas real estate investment trust said it would be sold to another casino-oriented REIT, VICI Properties, in a $17.4 billion deal that would create the Strip’s largest landholder.
The deal, expected to close by next summer, will combine the landholdings of MGM Resorts International and Caesars Entertainment Corp., but leave all the MGM resort names in place. An MGM spokesman told MarketWatch casinogoers will notice no changes.
The deal, which will need regulatory and stockholder approvals, includes about $5.7 billion in debt.
Meanwhile, MGM Growth reported second-quarter cash flow and revenue that missed Wall Street forecasts.
In a statement, MGM Growth said its funds from operations were $142 million, or 53 cents per diluted share, for the three months ended June 30, down from $165.9 million, or 52 cents per diluted share, a year earlier.
The latest result missed the 57-cents-per-share consensus forecast of analysts surveyed by Seeking Alpha. Funds from operation, a closely watched fiscal yardstick for real estate investment trusts, takes net income and adds back depreciation and amortization. Net income was $73.7 million, or 28 cents per diluted share, down from $97 million, or 30 cents per share, a year earlier.
Revenue was flat at $194.3 million and missed the $197 million forecast of Zacks polled analysts.
During the second quarter, MGM Growth bought the land and buildings at MGM Springfield in Massachusetts for $400 million from MGM Resorts. As masslive.com reported, the deal had been discussed for the three years the hotel-casino has been open. Under the deal, MGM Resorts’ rent payment to MGM Growth Properties increased by $30 million — $27 million in base rent, $3 million in percentage rent. The MGM Springfield lease has four five-year extensions.
MGM Growth also raised its dividend to $2.06 per share, an 8 cents-per-share year-to-year increase.
Unsurprisingly, MGM Growth CEO James Stewart spent most of the earnings conference call, which skipped the traditional question-and-answer session, discussing the sale to VICI.
Stewart said the deal valued MGM at an implied 17.5 times earnings before interest, taxes, depreciation and amortization and a 5.8% capitalization rate. Stewart added that the deal also valued MGM Growth at a roughly 16% premium to the REIT’s $37.09 Aug. 3 closing price. He said the combined REIT will have more diverse tenants, increased scale, and improved capital costs.
Meanwhile, Stewart, who was MGM Growth’s first employee when the REIT was spun off from MGM Resorts in 2016, ticked off successes.
“For our investors, MGP’s returns have been frankly incredible,” Stewart said. “We went public at $21 per share a little more than five years ago. We have paid over $9 in dividends so far and will receive $43 of value based on the previously mentioned exchange ratio. IPO investors will have more than doubled their money at the $43 deal price and earned another approximately 50% of their investment in income through our dividends.”
Stewart said VICI’s executive team, including Chief Executive Officer Edward Potoniak, will steward the combined mega-REIT well.
“They’re experienced, thoughtful, and great strategic thinkers; I also believe they’re great people,” Stewart said. “We have at times been fierce competitors, but through that process, my already-high level of respect and trust in all of them only grew.”
MGM Growth Properties shares fell 16 cents, or 0.39 percent, Friday to close at $40.67 on the New York Stock Exchange. The share price has risen 36.5% in 2021.
Follow Matthew Crowley on Twitter @copyjockey
