MGM Growth Properties Will Look at ‘Each And Every Asset on the Strip’ That Comes up for Sale

Posted on: August 9, 2019, 03:00h. 

Last updated on: August 9, 2019, 01:22h.

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

MGM Growth Properties LLC (NYSE:MGP) already owns integrated resorts on the Las Vegas Strip. But the company isn’t being shy about its intent to potentially add to its Sin City portfolio.

The MGM Grand in Las Vegas could be a target for MGM Growth Properties. (Image: Vegas Eater)

MGP, which was spun-off from MGM Resorts International in April 2016, depends on its Strip venues for less than half of its earnings before interest, taxes, depreciation and amortization (EBITDA), down from a high of 73 percent. But that still-sizable percentage wouldn’t prevent the real estate investment trust (REIT) from increasing its Las Vegas footprint.

“We feel like we know and have the deepest knowledge base in terms of relative performance of each of the individual assets on the Las Vegas Strip,” said MGM Growth CEO James Stewart on a conference call with analysts and investors earlier this week. “But we are bullish on Las Vegas, and would certainly want to take a look at each and every asset on the Strip that came up.”

In the largest US gaming destination, MGP owns Excalibur, Luxor, Mandalay Bay, The Mirage, New York-New York and Park MGM, all of which are operated by MGM Resorts. The real estate company also owns The Park, a dining and entertainment area that connects New York-New York, Park MGM and T-Mobile Arena.

Being Selective

Last month, news broke that MGM is mulling sales of Bellagio and MGM Grand, two of its crown jewels on the Strip. While MGP would make for a logical buyer of one or both of those venues because of its established relationship with MGM, some analysts believe the casino operator could look beyond the real estate company in an effort to fetch higher prices for the properties.

During MGM Resorts’ second-quarter earnings call, CEO Jim Murren said some of the company’s property assets are “mispriced” in the market, and that the board’s real estate committee is expected to make recommendations on possible divestments in the fall.

For his part, Stewart, the MGP CEO, said his firm will be discerning with any potential acquisitions.

“There is a very wide dispersion of relative quality, durability, and earnings power from each of those,” he said. “So, like any acquisition that we would look at, we would want to take a very careful look at just that deal in and of itself and make sure that the property matched our high-quality focus, and had the ability to pay the rent for 30 years without keeping anybody up at night, and that would really be the lens under which we look at it.”

Other Options

Even if MGM Growth doesn’t wind up with Bellagio or MGM Grand, there could be other opportunities to buy a Strip venue. It is widely expected that when Eldorado Resorts puts the finishing touches on its $17.3 billion purchase of Caesars in the first half of 2020, the combined company could sell one or more of Caesars’ Las Vegas properties.

Typically, gaming REITs, such as MGP, count the company they were separated from as their most important tenant. But there are examples in the industry of a real estate firm owning casinos not managed by the former parent.

If MGP doesn’t add to its Sin City roster, it could opt to buy a gaming venue in another region. The company has rights of first refusal for MGM Springfield in Massachusetts.