MGM Growth Properties, a Las Vegas-based real estate investment trust that announced deals to buy casinos in Ohio and New York state during the quarter, on Tuesday posted higher net income and funds from operation that topped analysts’ forecasts.
In a statement Tuesday, MGM Growth, spun off from MGM Resorts International in 2015, said its funds from operations, a closely watched fiscal yardstick for REITs that takes net income and adds back depreciation and amortization, was $145.6 million, or 55 cents per share, in the three months ended June 30.
That topped the 51 cents per share estimate of analysts polled by Zacks Investment Research. The REIT has topped Zacks analysts’ earnings-per-share forecast two in the past 12 months.
MGM Growth is a triple-net lease REIT; its tenants, casino operators here, maintain the properties and pay real estate taxes and building insurance.
The real estate investment trust said its net income of $13.1 million, or 18 cents per share, for the quarter, was up from net income of $10.7 million, or 18 cents per diluted share, a year earlier.
Revenue rose 19.5 percent to $220.4 million from $184.5 million. The latest result topped the $217.7 million estimate of Zacks-polled analysts.
During MGM Resorts’ second-quarter earnings call in July, CEO Jim Murren suggested on a conference call that the company aims to reduce its stake in the REIT to 50 percent from its current 70 percent and would consider selling off shares.
“We want at MGM Resorts to reduce our ownership of (MGM Growth Properties) and we want to be under 50 percent of an economic interest of MGP within the next three years.”
Murren said his company expects the REIT to grow and suggested his company would consider selling off operating partnership rights for the right price.
“I think everything’s on the table,” he said, responding to a question from Bank of America Merrill Lynch analyst Shaun Kelley. “But the goal is to reduce our equity ownership because we believe that, number one, there’s great value, very valued arbitrage there; and number two, we think MGP would benefit from an expanded shareholding base.”
As the Motley Fool’s Tyler Duprey wrote July 24, because casino REITs are shielded from volatile casino earnings, they can deliver reliable income and the potential for higher payouts as rental rates rise. Yields on dividend payments from MGM Growth Properties have yield 5.7 percent returns, he wrote
REITs must pay 90 percent of income to shareholders, which lets them stay exempt from paying income taxes on the profits paid to investors.
So far, Duprey said, MGM Resorts’ majority ownership stake in the REIT kept the casino company from having to endure nonmarket-rate rate rents and redevelop properties as needed. MGM Resorts, he said, aimed to finish projects including MGM National Harbor in Maryland, by year’s end.
MGM Growth Properties in mid-July announced a $1.02 billion deal to buy the Hard Rock Rocksino in Northfield Park, Ohio.
Under the deal, first announced in April, the 200,000-square-foot Hard Rock Rocksino, will keep its name. The property, 18 miles north of Akron and 16 miles southeast of downtown Cleveland opened in December 2013 and has 2,300 video lottery terminals. It’s the largest of the state’s seven racino slot operations regulated by the Ohio Lottery Commission.
During a question-and-answer session on Tuesday’s MGM Growth conference call, CEO James Stewart said the company expected the deal to close in the year’s second half and plans to operate the real estate for the Rocksino and find a partner to manage the casino. He said several quality candidates have emerged, but he wouldn’t name any of the candidates or say when such a partnership might close.
On May 29, the REIT agreed to acquire Empire City Casino and Yonkers Racetrack in New York for $850 million. In the deal, MGM Growth will lease the property to MGM Resorts to operate.
If Empire City wins a license for live table games by Dec. 31, 2022, and MGM Resorts accepts that license by Dec. 31, 2024, MGM Resorts will pay an extra $50 million.
In a statement announcing the deal, MGM Resorts CFO Dan D’Arrigo said, “With Empire City’s approximately 40 percent share of gross gaming revenues in the market, we believe there are significant opportunities for MGM Resorts to further drive growth.”
MGM Growth Properties shares fell 59 cents, or 2.03 percent, to close at $28.54 on the New York Stock Exchange.
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