The real estate investment trust affiliated with MGM Resorts International has faith that its sole tenant will be able to continue paying rent for several of its properties despite being unable to accept guests at its domestic properties.
MGM Growth Properties made $209.6 in total revenue between January and March, up 3 percent compared to the previous year, and reported a net loss of $125.3 million in the first quarter of 2020 amid the coronavirus pandemic.
In a Tuesday statement, MGM Growth CEO James Steward said MGM Resorts continued to make rental payments “in full and on time” and that he believes the casino operator has enough liquidity to cover its rental obligations.
MGM owns roughly 61 percent of MGM Growth and is estimated to have about $4.5 billion of cash on hand, according to Union Gaming analyst John DeCree.
“Not only does MGM have the liquidity to continue paying rent, but its valuation is circular in that as long as MGP’s value remains resilient, there should be a solid floor on the shares of MGM as well,” DeCree said in a Tuesday note, following the company’s first-quarter earnings call.
But DeCree questioned how long MGM would be able to continue paying rent under current conditions, saying Las Vegas’ recovery remains a “Wild Card.”
“It would be imprudent to assume there isn’t any risk,” he said. “That said, shares are still too cheap at current levels and the upside stemming from the put option or share repurchase arbitrage could be significant.”
MGM Growth has 15 mixed-use Las Vegas resorts and market-leading metropolitan assets in its portfolio, including two new additions: Mandalay Bay and the MGM Grand. In February, the company — along with Blackstone Real Estate Trust Inc. — announced they had closed on a deal to acquire the real estate beneath the two properties.
The joint venture now leases the two properties to a subsidiary of MGM for an initial annual base rent of $292 million.
MGM Growth shares were trading at $23.90 early Tuesday afternoon, down 1 percent.
MGM Growth Properties LLC
First-quarter revenue and earnings for Las Vegas-based MGM Growth Properties, the real estate investment trust affiliated with MGM Resorts International, and owner of the real estate beneath 15 mixed-use Las Vegas resorts and market-leading metropolitan assets. (NYSE: MGP)
2020: $209.6 million
2019: $203.4 million
Net income (loss)
2020: ($125.3 million)
2019: $66.4 million
Earnings per share
2020: (40 cents)
2019: 24 cents