MGM Growth Properties Will Sell 24 Million Shares to Fund ‘Potential’ Deal With MGM Resorts

Posted on: November 19, 2019, 02:44h. 

Last updated on: November 19, 2019, 02:57h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Growth Properties LLC (NYSE:MGP) stock slid more than one percent during Tuesday’s after-hours trading session after the company said it’s selling 24 million shares. Some of the proceeds could be used to fund its role in a joint venture with majority owner MGM Resorts International (NYSE:MGM).

MGM Growth Properties is selling 24 million shares of stock so it could enter a potential venture with majority owner MGM Resorts. (Image: TripAdvisor)

There are some complexities to the transaction, in that MGP will sell 12 million shares directly to underwriters J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, and BofA Securities. Under forward sale agreements, those brokers will buy another 12 million shares from other buyers or “their affiliates.”

In plain English, MGP will get proceeds for the sale of 12 million units of its equity, according to a statement issued by the company. Based on Tuesday’s closing price of $32.49, 12 million MGP shares are worth nearly $390 million.

The Company plans to use the net proceeds from the sale of shares in the offering and the physical settlement of the forward sale agreements primarily to repay a portion of the borrowings outstanding under its senior secured term loan A facility and senior secured term loan B facility,” said MGP.

Those debt reduction efforts, MGP believes, “will well-position it to be able to agree to and consummate a potential joint venture transaction under discussion with MGM Resorts International.”

Keeping It In The Family

MGP, the gaming real estate investment trust (REIT) separated from integrated resort operator MGM more than three and a half years ago, did not say what a joint venture with the casino company would entail or what properties it could involve.

MGM’s $4.25 billion sale of the Bellagio on the Las Vegas Strip closed yesterday, and the company is close to finalizing its $825 million divestment of Circus Circus. MGP wasn’t involved in either deal. However, the operator is the REIT’s largest tenant, and the real estate firm owns the property assets of well-known MGM venues, such as the Luxor and Mirage on the Strip and the Borgata in Atlantic City, N.J.

At the end of the third quarter, the gaming company held a 68 percent stake in MGP, an asset viewed as valuable by MGM executives. In 2018, the casino giant collected $333 million in dividends from its position in the real estate company.

Potential Ideas

While MGP’s statement announcing the share sale didn’t mention specific venues, Casino.org reported last week that MGM is actively shopping MGM Grand and Mandalay Bay on the Strip. MGP currently owns the real estate assets of Mandalay Bay.

MGM Springfield in Massachusetts has also been mentioned by the gaming company alongside its other “valuable” assets, such as MGM Grand, a 50 percent position in CityCenter, and its MGP stake.

MGP stock, which is up 23 percent year-to-date, fell on news of the share issuance, because that new stock dilutes current investors. At the close of trading Tuesday, MGP had 390.98 million shares outstanding.