MGM Resorts International has cashed in on $700 million worth of operating partnership units with its affiliated real estate investment trust, MGM Growth Properties.
The move gives MGM Resorts more liquidity amid the COVID-19 pandemic. Acting CEO and President Bill Hornbuckle said he’s optimistic that future redemptions will occur at higher prices; MGM Resorts has until February 2022 cash out on another $700 million worth of units through its agreement with the REIT.
“As we gear up to reopen and safely welcome our guests once again at our properties across the U.S., maintaining a strong balance sheet and preserving our financial flexibility remain critical pillars of long-term success,” Hornbuckle said in a Monday news release.
As of March 31, MGM Resorts had roughly $5.3 billion in cash and cash equivalent, not including MGM China and MGM Growth. In a Monday note, J.P. Morgan analyst Joseph Greff estimated MGM Resort’s liquidity position stands at $5.8 billion total after this transaction.
MGM Growth owns the land underneath several MGM Resorts properties, including Mandalay Bay, The Mirage and the MGM Grand.
The REIT has redeemed 30.3 million of MGM Resorts’ operating partnership units for $700 million, using cash on hand to fund the redemption.
After the transaction, MGM Growth is left with more than $1 billion of liquidity.
MGM Resorts said it plans to use the $700 million in proceeds to repay money drawn under its revolving credit facility. It will have roughly 172 million units after the transaction, leaving it nearly 57 percent economic ownership of MGM Growth. The company previously had a 61 percent stake in the REIT.
According to a Monday news release, MGM Growth expects to increase its regular dividend to an annualized $1.95 per share after this deal, up 5 cents from the prior rate. This would be the 11th time the company has increased its quarterly dividend in four years.
“We are pleased with the benefits this transaction brings to MGP and our shareholders,” said James Stewart, CEO of MGM Growth. “This transaction also creates an even stronger liquidity position for our tenant, MGM Resorts, reinforcing our confidence in the stability of our revenue stream and the strength of our business model.”
Greff said he thinks it’s a positive move for MGM Growth, but views the deal as “largely neutral” for MGM Resorts.
While the deal bolsters MGM Resort’s “already strong” cash position, he said MGM Resort’s cash burn goes up slightly due after this deal due to “the lower expected (MGM Growth) dividend.”
MGM Resorts shares closed up 10.5 percent to $15.31 early Monday afternoon, before the transaction was made public. MGM Growth shares closed up 5.7 percent to $24.19.