MGM Growth Properties posted revenue of $154.8 million and funds from operations at $0.48 per unit, the company reported Monday morning for the third quarter – its first full quarter as an independent company after going public with a $1 billion initial public offering in April.
The quarter was highlighted by the acquisition of the underlying real estate assets of the Borgata from MGM Resorts – a deal that was completed on August 1, 2016 and added $100 million in annual rental revenue.
“As reflected by the Borgata acquisition, the Company is executing on its strategy of sustainably growing the Company and dividend,” said James Stewart, CEO of MGM Growth Properties. “The Borgata acquisition was accretive to our (adjusted funds from operations), diversified our portfolio with a premiere integrated resort in the eastern U.S., and was executed in a manner that enabled us to maintain our strong balance sheet.”
The revenue and funds from operations numbers were $8.41 million and $0.02 below consensus expectations on Wall Street, respectively, according to Zacks’ Investment Research, with the revenue shortfall being partly attributable to $9.5 million closing fees related to the Borgata transaction.
Funds from operations is an accounting term defined by the National Association of Real Estate Investment Trusts that is net income excluding gains and losses from property sales and real estate depreciation.
MGP also posted net income of $42.7 million and adjusted EBITDA of $151.3 million, while accruing $42.8 million in interest expenses.
MGP is a gaming REIT that owns the real estate assets of 10 destination resort properties operated by MGM – including six in Las Vegas, two in Mississippi, one in Detroit and one in Atlantic City – and a dining and entertainment complex. Combined, these properties total more than 27,000 hotel rooms, roughly 2.6 million square footage of convention space,
In following with its dividend-heavy strategy, MGP paid out a dividend of $0.26 per share in July at the beginning of the quarter and declared another $0.39 payout in September – which was paid out on October 14.
The company had $340.3 million in cash on hand and $3.6 billion in total long-term debt at the end of the quarter. In late October, however, it MGP announced a re-pricing of a $1.81 billion term B loan facility to a new interest rate of 2.75 percent plus LIBOR, a savings of 50 basis points from the previous 3.25 percent rate.
“The capital markets continue to show their tremendous support in our Company and our growth strategy,” said Andy Chien, CFO of MGM Growth Properties. “With our new 10-year bond offering and our recent re-pricing of the term loan B, we are demonstrating that our strong balance sheet, improving credit profile and access to capital position us well to grow the Company on an accretive basis.”
While MGP’s portfolio is currently comprised of strictly MGM properties, Stewart said on a call with investors that expanding beyond MGM was a very realistic and likely possibility, provided that the underlying financial fundamentals of any such deal are sound.
“We want to make sure we always maintain our underwriting standards and our 5-5.5 times debt to EBITDA ratio. That said, we are very open to doing transactions with parties other than MGM,” he said, adding that MGM would be “very supportive” to ventures that would help grow MGP’s portfolio and dividend. ““I think we are relatively confident that we will get some things done that will be a positive to the company outside of MGM.”
A frequently-raised theme on a call with investors was whether it would make sense for MGP to potentially acquire Caesars properties as the company works its way through bankruptcy proceedings.
Stewart left the door open to the possibility, with the caveat that there are too many unknowns to say definitively.
“Some of them might make sense for us. It’s still working its way through the court system and subject to the ins and outs of that process,” he said. “Some of the assets could fit, but given the nature of the structure around those assets, there’s still a huge amount of wood to chop.”
