MGM Growth Properties officials celebrated acquisitions (Empire City) improvements (Park MGM and NoMad) and a sale of operations (MGM Northfield Park) during its first-quarter earnings report. The REIT also said revenue rose from a year earlier, but it and a key cash flow measure missed Wall Street forecasts.
Company officials would not directly address a potential transactional elephant in the room — The Cosmopolitan of Las Vegas, which may eventually be up for sale. Sources told The Wall Street Journal this month that Cosmopolitan owner Blackstone Group has retained Deutsche Bank AG and PJT Partners to explore the property’s options, including a sale.
Blackstone bought The Cosmopolitan for $1.73 billion in 2014.
In a statement issued Tuesday, the Las Vegas-based MGM Growth, which was spun off from casino giant MGM Resorts International in 2015, said its funds from operation were $134 million, or 46 cents per share, for the three months ending March 31.
Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that takes net income and adds back depreciation and amortization. Analysts polled by Zacks Investment Research had expected MGM Growth to have 51 cents per share in funds from operation in the quarter.
MGM Growth’s net income was $20 million, or 24 cents per diluted share, in the quarter, up from $15.8 million, or 22 cents per diluted share, a year earlier.
Quarterly revenue rose 25.7 percent to $271.3 million from $215.8 million, but missed the $288.8 million forecast by Zacks-polled analysts.
In a conference call to announce the results, MGM Growth CEO James Stewart noted that the REIT had just marked three years as a public company and had progressed significantly during that time.
“If you had invested $10,000 in the shares at IPO, that investment would be worth approximately $17,800 today. This represents a return of 78 percent, which exceeds the return of the Nasdaq index, the Standard & Poor’s 500 index and the RMZ REIT index over the equivalent period,” he said. “We’ve completed over $4.7 billion of acquisitions, increased our annualized cash rental revenue from $550 million to $946 million, and returned value to shareholders with a 30 percent increase in our annualized dividend.
“We are building on the momentum of the last three years and believe the future will bring continued success and growth.”
On April 1, MGM Growth and MGM Resorts closed the deal for the Hard Rock Rocksino in Northfield, Ohio. Under the deal, MGM Resorts acquired the property’s operating assets and leased the real estate from MGM Growth.
The deal, valued at $1.06 billion, was announced in July. MGM has since rebranded the property MGM Northfield Park.
During the call, MGM Growth Chief Financial Officer Andy Chien noted that Northfield Park, Ohio’s largest gambling hall, has enjoyed particular success, hitting a first-quarter record for coin-in video lottery terminal revenue, operating revenue and adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure excluding nonrecurring costs.
As part of the Northfield Park transaction, Seeking Alpha noted, MGM Growth Properties Operating Partnership redeemed 9.4 million operating partnership units from an MGM Resorts subsidiary for $275 million. That left MGM Resorts’ economic ownership stake in the operating partnership at 69 percent.
On Dec. 20, MGM Growth said it would pay MGM Resorts $637.5 million for investments to reposition Park MGM, next to the T-Mobile Arena, and NoMad Las Vegas, formerly known as Monte Carlo. Stewart said the deal closed March 7.
Further, on Jan. 29, MGM Growth Properties and MGM Resorts International announced that they’d closed the $850 million deal for the Empire City Casino in Yonkers, New York. In the deal, MGM Growth gained the casino’s land for $625 million and leased it back to MGM Resorts, which will operate the property.
Stewart touted the deals in a statement accompanying the results, adding that they added $160 million in rental revenue. On the call, Stewart added that a rent escalator, executed April 1, increased MGM Growth’s rental revenue by $16 million.
“Our top priority remains to sustainably grow our dividend and create long-term value for our shareholders,” he said during the call. “We continue to explore multiple opportunities that fit our criteria on the (mergers and acquisitions) front and continue to be very optimistic about the growth prospects available to us.”
During the question-and-answer question, Stewart wouldn’t, per company protocol, comment on any potential deal for The Cosmopolitan of Las Vegas. Macquarie Research analyst Chad Beynon has told the Review-Journal The Cosmopolitan could sell for up to 13 times its cash flow, perhaps as much as $4 billion.
Stewart said only that MGM Growth is “as busy as it’s ever been” and that a number of assets that could come up for sale could pique the company’s interest.
“Any acquisition for us would have to be accretive to value, and … (be) assets that we’re sure aren’t going to keep us up at night worrying about whether they’re going to pay the rent.”
MGM Growth shares fell 32 cents, or 0.98 percent, Tuesday to close at $32.26 on the New York Stock Exchange. The shares rose after hours, climbing 2 cents, or 0.07 percent, to reach $32.30 at 1:30 p.m. PDT.
MGM Growth’s share price has risen 16.5 percent in the past 12 months.
Follow Matthew Crowley on Twitter @copyjockey
