Satisfaction over strong regional property performance and optimism over recent acquisitions abounded as MGM Growth Properties reported third-quarter funds from operation that matched Wall Street forecasts.
In a statement Thursday, MGM Growth Properties, spun off from casino giant MGM Resorts International in 2015, reported adjusted funds from operation, which exclude nonrecurring items, of $154.8 million for the three months ended Sept. 30, up from funds from operation of $134.7 million, a year earlier.
The latest funds from operation result matched the 58 cents per share forecast of three analysts polled by Zacks Investment Research.
Funds from operation are a closely watched fiscal yardstick for real estate investment trusts that take net income and add back depreciation and amortization. MGM Growth Properties, which serves as landlord to 13 properties all managed by MGM Resorts, is a triple-net lease REIT; its tenants, casino operators here, maintain the properties and pay real estate taxes and building insurance.
MGM Growth had net income of $19.5 million, or 27 cents per share, in the quarter. Cash received from rent payments under the master lease for the quarter was $192.6 million.
During a Thursday conference call announcing the quarterly results, Chief Financial Officer Andy Chien said MGM Growth expects to increase annual rental revenue by $110 million, or 14 percent, in the first half of 2019 with the closing of deals for the Hard Rock Rocksino in Northfield Park, Ohio, acquired for $1.06 billion in September, and the announced $850 million acquisition of Empire Casino and Raceway in Yonkers, New York, which is expected to close in the first quarter next year.
MGM Resorts owns 70 percent of MGM Growth. However, MGM Resorts Chairman and CEO Jim Murren said his company’s goal is to bring ownership down to under 50 percent in the next three years.
“We remain Neutral rated on MGM Growth, following inline third qaurter earnings and limited changes to forward estimates,” said Credit Suisse gaming Cameron McKnight. “Clearly, the industry landscape is fluid with activists reportedly invested in MGM and Caesars Entertainment, plenty of investor interest in potential mergers and acquisitions, and MGM’s stated desire to dilute its ownership in MGM Growth over time.”
MGM Growth’s quarterly revenue rose 54.4 percent to $282.2 million from $182.8 million. The result topped the $269 million in revenue forecast by Zacks-polled analysts.
“MGM Growth’s triple net lease model is very stable and secure, leaving few surprises at earnings,” said SunTrust gaming analyst Barry Jonas.
The analyst said MGM Growth executives said the merger market hasn’t been hurt by the volatile stock marts and rising interest rates. Jonas noted the company has multiple acquisition opportunities through MGM Resorts and other operators.
“MGM Resorts’ more selective approach to adding assets supports MGM Growth partnering with third party operators on attractive real estate opportunities less additive for MGM’s operations,” Jonas said.
The Hard Rock Rocksino deal, funded with cash and debt, comes as Ohio’s gambling revenue is rising. Cleveland.com reported that September gambling revenue at Ohio’s casinos and racinos rose 4 percent from a year earlier to $152.2 million.
The Hard Rock Rocksino, which includes 2,300 video lottery terminals, a 1,900-seat music venue, shops and restaurants, generated $193 million in gaming revenue in 2018 through September, Cleveland.com reported. The venue, opened in December 2013, is the largest of Ohio’s seven racetrack casino slot operations.
Chien said the Hard Rock Rocksino earned $22.2 million in earnings before interest, taxes, depreciation and amortization for the quarter, excluding the five days before the Sept. 30 close.
Also on the call, MGM Growth CEO James Stewart said the REIT’s regional properties performed strongly in the quarter. MGM Grand Detroit; Beau Rivage and Gold Strike Tunica in Tunica, Mississippi, and MGM National Harbor in Oxon Hill, Maryland, all achieved their highest-ever quarterly cash flow, he said.
Chien noted that the overall real estate portfolio had performed so well that MGM Growth had, during the quarter, raised its dividend for the fifth time since the REIT’s April 2016 initial public offering. The annualized dividend of $1.75 per share marked a 4.2 percent year-to-date jump and a 22.4 percent jump since the IPO, he said.
MGM Growth shares fell 5 percent, or 0.18 percent, Thursday to close at $28.24 on the New York Stock Exchange. The shares are down 1.5 percent in 2018.
Follow Matthew Crowley on Twitter @copyjockey
