When MGM Growth Properties spun off from MGM Resorts International five years ago, James Stewart was employee No. 1.
During Friday’s first-quarter conference call, Stewart said the real estate investment trust has grown admirably, enabling dividend increases 12 times in 20 quarters for a collective 39% increase since the 2016 initial public offering.
If the macro view looked good, so did the micro view. The REIT boosted a key cash flow measure to top Wall Street forecasts and posted revenue that matched them.
Stewart said MGM Growth continues to talk to a number of gaming, hospitality, and leisure operators to explore potential real estate transactions, though he wouldn’t provide any names.
When Truist Securities gaming analyst Barry Jonas asked whether MGM Growth has considered buying Las Vegas Sands expansive real estate holdings on the Las Vegas Strip, Stewart said he couldn’t comment on specific deals.
The Venetian, Palazzo, and Sands Expo and Convention Center were sold on March 3 to rival REIT VICI Properties and private equity giant Apollo Global Management for a combined $6.25 billion on March 3.
“There are a lot of factors going on in the business, which are generating increased interest in various locations, including the desire to get physical properties in sports betting locations … and a lot of new jurisdictions opening up,” Stewart said. “We have Illinois talking. We have Virginia (which recently opened sports betting), we have Nebraska (moving toward legalization). New York (is) talking about expansion. All those things have really caused an uptick in overall discussions in (and) around deals.”
Q1 results
In a statement Thursday, MGM Growth said funds from operation were $184.7 million, or 67 cents per share, for the three months ended March 31, up 34.7% from $137.1 million, or 42 cents per share, a year earlier.
Funds from operation, which take net income and add back depreciation and amortization, are a closely watched fiscal yardstick for REITs. The latest result topped the 55 cents-per-share average funds from operation forecast of analysts polled by Seeking Alpha.
Net income was $115.4 million, or 42 per share, reversing a year-earlier loss of $125.3 million, or 39 cents per diluted share, a year earlier, when the government-mandated coronavirus pandemic shutdown weighed heavily.
Adjusted earnings before interest, taxes, depreciation, and amortization, a cash flow measure that excludes one-time costs, was $240.9 million in the first quarter, up from $234.1 million, a 2.9% increase.
Revenue fell 7.3% to $194.3 million from $209.6 million. The latest result was in line with the forecast of Seeking Alpha-polled analysts.
Investors seemed heartened by the results Friday, pushing MGM Growth shares higher in regular trading (up 10 cents, or 0.28% to $36.02) and after-hours trading (up 98 cents, or 2.72% to $37) on the New York Stock Exchange.
All rents paid
In a Friday conference call with analysts and journalists, Stewart said the REIT’s properties in Las Vegas and regional markets performed strongly in the first quarter, paying all rents in cash and on time. He added that he expects performance to continue escalating toward 2019 levels as travel and capacity restrictions lessen with the rolling of COVID-19 vaccines and midweek group business returns.
“In the face of last year’s unprecedented economic challenges, our business model demonstrated incredible resiliency and stability,” Stewart said. “I believe we’re in the early innings of a sector-wide valuation rerating and anticipate cap rates to compress meaningfully in the near to medium term as we build momentum, and the economy returns to full capacity.”
Stewart also noted that MGM Resorts, in its earnings call this week, forecast that its regional properties will return to 2019 revenue levels by the end of 2021 and that Las Vegas will likely return to 2019 revenue levels in 2022’s first half.
“We are very bullish on Las Vegas … the upcoming year or two years is going to be really Las Vegas’ time to shine,” he said.
J.P. Morgan gaming analyst Joe Greff commented in a research note that MGM Growth expects and the combination of a strong recovery in Las Vegas, low-interest rates, and high equity valuations will continue to drive increased transaction activity.
In March, MGM Growth Properties redeemed 37.1 million operating partnership units from MGM Resorts valued at about $1.2 billion using cash on hand together with the proceeds from the registered public offering of 21.9 million Class A shares.
As of March 31, about 264.7 million operating partnership units were outstanding; MGM Resorts owns about 42.1%; MGM Growth owns the remaining 57.9%.
MGM Growth Chief Financial Officer Andy Chien said that the REIT boosted its revenue twice in 2020 and in the first quarter and the REIT’s balance sheet, with a liquidity position of nearly $1.5 billion, is poised to allocate capital prudently and achieve accretive growth this year.
Follow Matthew Crowley on Twitter @copyjockey
