The leadership of MGM Growth Partners addressed the elephant in the room head-on Tuesday.
The real estate investment trust, spun off from MGM Resorts International in 2015, lost out on last month’s Las Vegas Strip transaction when the casino giant announced a $4.25 billion sale-leaseback of Bellagio to a REIT owned by the Blackstone Group.
During the MGM Growth’s third quarter conference call with analysts, CEO James Stewart said the deal was good for the gaming industry’s real estate market as a whole and for the REIT’s portfolio as a whole.
“Blackstone is a knowledgeable investor in Las Vegas Strip real estate,” Stewart said of the company that also owns Cosmopolitan of Las Vegas. “It also highlights the strength of MGM Resorts as a superior tenant.”
When asked by several different analysts about the transaction and whether or not MGM Growth made a bid on the Bellagio, Stewart held his ground.
“We don’t comment on transactions we didn’t do, per se, so we’ll just leave it at that,” Stewart said.
The quarterly earnings conference call marked the first time MGM Growth – which is nearly 70% owned by MGM Resorts International, owns the land and buildings associated with 15 of the company’s properties in Las Vegas and other markets – commented on the Bellagio deal.
Stewart said the transaction brought a new player – Blackstone – to the gaming REIT mix that has been dominated by Gaming and Leisure Properties, MGM Growth and VICI Properties. He also told analysts that MGM Growth has been approached by owners of non-gaming leisure properties for potential deals.
“It’s a very active time in gaming resort market and non-gaming resort leisure market,” Stewart said. “We are busy looking at a lot of opportunities.”
The Bellagio sales figure equated to 17.3 times the annual rent of $245 million MGM Resorts will pay Blackstone Real Estate Income Trust to operate the resort. The casino giant has said it was seeking a similar deal for its flagship MGM Grand Las Vegas and hopes to announce a transaction before the end of the year.
Analysts speculated MGM Growth in the mix for MGM Grand and was also involved in talks with MGM Resorts over a sales-leaseback of MGM Springfield in Massachusetts.
“Our policy is to not comment on specific transactions,” Stewart said. “We’ve outlined our ability to create a structure and analyze multiple transaction types and how we would fund a deal. We have creative ideas on how we structure a deal.”
During the quarter than ended Sept. 30, MGM Growth said the company’s total revenue declined 19.9% to $226 million. The company reported rental revenue of $219.8 million. The company’s net income fell 2% to $68.6 million while earnings per share decline 3 cents to 23 cents.
MGM Growth’s cash flow grew 9.8% to $232 million
Stewart said the REIT increased the dividend it paid shareholders for the ninth time since the company’s 2015 initial public offering. The annualized dividend of $1.88 per share represented a 5% year to date increase and an increase of 31.5% since the IPO.
Adjusted funds from operations grew 11.9% to $173.1 million.
“We are excited about the growth opportunities available to us in the market right now and continue to evaluate numerous prospects in the gaming and leisure spaces using a disciplined approach focused on sustainable, long-term value creation,” Stewart said in a statement.
By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders, and investors are taxed at their individual tax rate for the ordinary income portion of the dividend.
MGM Resorts Chairman Jim Murren has said the casino operator wants to reduce its ownership stake in MGM Growth to below 50 percent.
“If MGM were to reduce its ownership stake in MGM Growth, as they have continually discussed, we believe this could act as a technical catalyst for MGM Growth and create more liquidity for the common shares, but also further open the window for (the REIT) to find new partners and M&A away from MGM,” Union Gaming Group analyst John DeCree told investors.
Shares of MGM Growth, traded on the New York Stock Exchange, closed at $31.56, down 50 cents or 1.56%.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
