MGM Bolsters Balance Sheet Again, This Time Through $700 Million MGP Stake Sale

Posted on: May 19, 2020, 08:54h. 

Last updated on: May 19, 2020, 10:03h.

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

Continuing its efforts to firm up its balance sheet, MGM Resorts International (NYSE:MGM) sold $700 million worth of equity in MGM Growth Properties (NYSE: MGP), bringing the Mirage operator’s liquidity position to $5.3 billion.

MGM Bolsters Balance Sheet
MGM sold $700 million of its position in MGM Growth Properties, boosting its cash balance while the real estate company raised its dividend. (Image: Bloomberg)

Contending with closures of all its domestic gaming properties by the coronavirus pandemic, MGM is actively seeking avenues to enhance its cash position. The operator previously said it has a deal in place with MGP under which the real estate company could redeem $1.4 billion worth of units in the operator. There’s $700 million left on that accord.

This transaction both strengthens MGM’s balance sheet and delivers significant accretion to MGP,” said acting MGM CEO Bill Hornbuckle in a statement. “We continue to see significant value in our MGP stake and are optimistic that future redemptions will occur at higher prices.”

The Mandalay Bay operator maintains a 56.7 percent in interest in MGP.

A Win-Win

With the transaction, MGM obviously brings cash onto its balance sheet, which the company said will be used to pay a recently tapped credit revolver, in effect reducing the operator’s liabilities while replenishing a liquidity instrument for future.

MGP, one of the three publicly traded domestic gaming real estate investment trusts (REITs), benefits as well. MGM is the property company’s only tenant, and the operator’s fortified cash position decreases the likelihood of any rent payment interruptions.

MGP added that as a result of the transaction, it’s increasing its dividend to $1.95 a share, up from $1.90, marking the second time this year the company boosted its payout.

That’s good news for MGM, too, because with the operator still holding 172 million MGP units, the higher dividend means more cash flowing to the former parent company. Based on that ownership and the new payout, MGM will collect $335.4 million over the next year on its MGP stake, assuming the position isn’t further reduced and no more dividend increases over that time.

More Levers to Pull

Should MGM need to raise more cash, it has multiple avenues to raise capital that don’t include heading to debt markets – likely a relief to investors concerned about the company’s $11.8 billion in liabilities at the end of the first quarter.

In addition to the aforementioned remaining position in the real estate company, “MGM Resorts continues to hold significant real estate assets, including its ownership of MGM Springfield, its 50% interest in CityCenter in Las Vegas, and its 56% interest in MGM China,” according to the company.

Separately, the gaming company delivered some other positive news today, saying its Mississippi venues are close to reopening. The Gold Strike Casino Resort in Tunica will have a “limited” reopening on May 25, while the Beau Rivage Resort & Casino in Biloxi will open its doors again on June 1. Both venues will host invitation-only events on the weekends prior to the broader restarts.