MGM Growth Properties, the real estate investment trust that serves as landlord to ten MGM Resorts casino properties in the U.S., completed a victory lap in the third quarter with its acquisition of MGM National Harbor, outside of Washington, D.C.
In September, the REIT raised $387.5 million in proceeds from new stock issuance and $350 million from new bonds to help finance a portion of the $1.2 billion transaction.
The transaction was completed on October 5 with MGP assuming $425 million of debt, $465 million of cash and the issuance of 9.8 million operating partnership units to an MGM subsidiary. Upon closing, National Harbor was added to MGM’s master lease with MGP, the annual rent of which increased by $95 million to $756.7 million.
“We are excited about closing the acquisition of MGM National Harbor, a premier integrated resort & casino in Maryland,” said James Stewart, chief executive officer.
“This transaction, and the debt and equity financings that we have completed to fund the acquisition, highlight the continued successful execution of our long term strategy – sustainable and accretive growth to our AFFO per share, further diversification of our portfolio geographically, and the addition of another premier asset to our portfolio,” Stewart continued.
“During the third quarter, the capital markets continued to show its tremendous support of our Company and growth strategy as we successfully executed the debt and equity financings for the National Harbor acquisition,” said Andy Chien, chief financial officer.
For the quarter, MGP reported rental revenues of $163.2 million, which was up from $154.8 million year-over-year. Adjusted funds from operations, a REIT-specific metric that tracks net income plus real estate depreciation, minus gains and losses from property sales and adjusted for amortization, financing and other costs, was $121.7 million – up from $111.1 million in the prior year quarter.
As of September 30, MGP had cash of $1.13 billion on its balance sheet – $903.6 million of which was used for the National Harbor transaction – against $3.9 million in total debt.
“The success of our first follow on equity offering along with our new 10 year bond offering allowed us to execute the National Harbor transaction on a leverage neutral basis and achieve the high end of our AFFO per share accretion range,” said Chien. “Our balance sheet remains robust, and our ability to access capital positions us well to further grow the Company on an accretive basis.”
MGP executives declined to offer any specifics on potential acquisitions in the pipeline but emphasized that conversations were in the works with numerous parties involving potential deals for both integrated resorts and non-integrated resort properties.
The most likely next target would be MGM Springfield in Massachusetts in approximately 2020, though Stewart reckoned that more deals would likely close before then.
“We are relatively confident that something will happen before then, and it could take a number of different forms,” he said. “The primary goal at the end of the day is to sustainably grow the dividend.”
Stewart also said that the massive gambling expansion package passed recently in Pennsylvania adds some new wrinkles for existing mid-Atlantic casino resorts to cope with.
“It puts a degree of uncertainty into what, ultimately, the earnings power and cash flow generation power is from any one particular asset in the market,” he said. “Time will tell what the impact is.”A
