MGM Growth Properties hung tough amid the coronavirus pandemic’s lingering fourth-quarter gloom. The Las Vegas-based real estate investment trust said it collected all rents from its casino tenants and reported a key cash flow measure and revenue that virtually matched Wall Street forecasts.
In a Tuesday statement, MGM Growth said its funds from operation, a cash flow measure, was $169.6 million, or 57 cents per share, for the three months ended Dec. 31, up from $144 million, or 47 cents per diluted share, a year earlier.
Funds from operation, a closely watched fiscal yardstick for real estate investment trusts, takes into account net income and adds back depreciation and amortization.
Analysts surveyed by Seeking Alpha had, on average, forecast funds from operations of 58 cents per share.
Consolidated net income was $91.3 million, or 31 cents per share for the quarter, up from $72.9 million, or 24 cents per diluted share, a year earlier.
Fourth-quarter revenue fell 14% to $194.3 million up from $225.9 million. Seeking Alpha-polled analysts had forecast revenue of $194.8 million.
Following the company’s quarterly earnings conference call, Truist Securities gaming analyst Barry Jonas said MGM Growth noted a strong mergers and acquisition pipeline that has been steady for the past few months.
However, Jonas told investors the MGM Growth’s management prefers larger properties with more diverse customer bases, often found in urban settings.
“MGM Growth has noted roughly 50-60 properties meet this criteria,” Jonas said. “(Management) cited the difficulty of a smaller transaction in moving the needle for a company of their size while the amount of work to complete a smaller deal could actually be greater than in larger deals.”
Jonas said MGM Growth was open to acquiring non-gaming real estate, but “gaming is their preferable asset class.”
J.P. Morgan gaming analyst Joe Greff also weighed on the mergers and acquisition environment, saying the MGM Growth believes there could be additional transactions as casino operators look to gain access to new markets where sports betting is legal.
“MGM Growth management continues to prefer existing properties with established cash flows over greenfield opportunities,” Greff said.
In a statement accompanying the earnings, MGM Growth CEO James Stewart said the REIT completed $1.4 billion of unit redemption transactions to expand operations and diversify its shareholder base.
He also touted acquiring, through a joint venture with Blackstone Real Estate Income Trust, majority ownership of the real estate assets of the MGM Grand Las Vegas.
The REIT in January 2020 closed a joint venture to acquire the real estate assets of MGM Grand and Mandalay Bay on the Strip for $4.6 billion from MGM Resorts International.
Under the deal, the MGM Growth Properties-Blackstone Real Estate Income Trust joint venture owns the properties and receives triple-net leases rent payments from MGM Resorts. The lease deals have casino tenants maintain the properties and pay real estate taxes and building insurance.
“While 2020 presented a unique set of challenges, MGM Growth successfully completed transactions that put us on a solid footing to continue to execute on our long-term business strategy,” Stewart said. “The strength of our business model was again demonstrated through our 100% rent collection record and 3.7% annualized dividend increase over the year.”
Deutsche Bank gaming analyst Carlo Santarelli stuck by MGM Growth, reiterating his “buy” rating and setting a price target of $38, about 14.4% above Tuesday’s $33.21 closing price.
Barron’s in June wrote that MGM Growth Properties, formed in 2015, had an attractive and arguably safe yield of 6.6%.
“We think it’s pretty safe in terms of MGM continuing to pay the rent to MGM Growth so that it can pay a dividend,” American Century Mid Cap Value Fund co-manager Mike Liss told Barron’s.
For the full year, MGM Growth reported funds from operations of $703.7 million, or $2.26 per share, up from $581.1 million, or $1.98 per diluted share, a year earlier. Full-year revenue fell 10.2% to $768.4 million from $856.4 million.
MGM Growth Properties shares fell 2 cents, or 0.06% in regular trading to close at $33.21 on the New York Stock Exchange. The shares added 36 cents, or 1.08%, to reach $33.57 by 6 p.m. PST.
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