MGM Hauls in $1.2 Billion Through Further Reduction of MGP Stake

Posted on: March 16, 2021, 09:02h. 

Last updated on: March 16, 2021, 09:25h.

MGM Resorts International (NYSE:MGM) continues thinning its position in its real estate partner MGM Growth Properties (NYSE:MGP).

The exterior of the Mirage Las Vegas, seen here. Operator MGM sold more MGM Growth stock. (Image: Las Vegas Review-Journal)

Late Monday, the casino operator said it redeemed another 37.1 million units of the gaming real estate investment trust (REIT), resulting in a haul of $1.2 billion in gross proceeds. The sale sends MGM’s cash on hand to north of $7 billion, giving it one of the strongest balance sheets in the industry.

Our strong liquidity position has been an invaluable asset to the company through the crisis,” said MGM CFO Jonathan Halkyard in a statement.

The latest sale of MGP equity reduces the gaming company’s stake in the real estate firm to 42.1 percent from 53 percent. In the span of about a year, the Mirage operator has reduced its investment in the REIT from 61 percent. MGM Growth Properties was spun-off from the parent company in April 2016.

Predictable Move by MGM

It’s not surprising that the gaming company continues paring its stake in its primary landlord. On the fourth-quarter earnings conference call last month, both Halkyard and MGM CEO Bill Hornbuckle discussed downsizing the MGP stake.

Hornbuckle said the plan is to reduce that investment over time, if not eliminate it entirely. Halkyard added paring that position would simplify the MGM corporate story and structure. The latest sale is well-timed because MGP shares are higher by 9.17 percent year-to-date, confirming the gaming company is selling into strength.

Monday’s announcement arrived after MGM sold $1.4 billion worth of MGP equity last year in two tranches of $700 million apiece – one in May and another in December.

The casino giant didn’t say exactly what it plans to do with the influx of cash, but Halkyard notes the capital can be used for “key growth opportunities, maintaining a strong balance sheet, and returning cash to shareholders.”

At the height of the coronavirus pandemic last year, MGM scrapped a share buyback plan and slashed its dividend to token levels.

Benefits for MGP, Too

For MGM Growth, there are potential benefits in further separation from its former parent, namely in the form of increased independence.

That’s an issue some Wall Street analysts previously mentioned regarding the real estate company. Whereas rivals Gaming & Leisure Properties (NASDAQ:GLPI) and VICI Properties (NYSE:VICI) have multiple clients, MGP’s lone tenant to date is MGM.

In the US, the REIT owns the property assets of all MGM-operated casinos except for Bellagio on the Las Vegas Strip and MGM Springfield in Massachusetts.

Separately, MGP said Monday it’s boosting its annual dividend by three cents, to $1.98 a share. That’s the 12th time it’s increased the payout since going public.