The commercial gaming and hospitality giant MGM Resorts International (NYSE: MGM) reported Wednesday that it managed to raise $700 million from the second sale of asset units in MGM Growth Properties’ (MGP) gaming real estate investment trust (REIT).
Building a Strong Capital Base
MGM Resorts International, the owners and operators of Las Vegas’ famous Mandalay Bay announced, following the close of US markets on December 2, that it had raised the $700 million in added capital and that it planned to use the money for “general corporate purposes”.
Importantly, this comes naturally as MGM Resorts International and REIT structured a previous deal where the former company would recoup the $1.4 billion worth of equity held in the latter in two installments. The first of those was paid out in May of this year, with this recent one being the second.
With this latest cash influx, MGM Resorts has managed to build a cumulative $5.9 billion in liquid cash, bolstering its ledgers and placing it in a comfortable position financially. Ahead of next year, the company is better equipped to handle any unexpected shocks due to 2020’s uncertain economic climate – as it assumes its strongest financial position in a while.
Speaking briefly on the news, MGM’s CEO Bill Hornbuckle had this to say on Wednesday:
“Today’s announcement reflects our continued focus on enhancing our balance sheet to strengthen our financial flexibility.”
REIT Stands to Benefit As Well
Interpreting this news at face value, it might seem like only MGM emerged in a stronger position from this deal. However, digging in further reveals that this is a positive move for MGP and its REIT fund as well.
Spelling out the underlying benefits for the gaming fund, an anonymous industry analyst said:
“The transaction will allow the casino landlord to boost its acquired funds from operations (AFFO), a critical metric in valuing REITs, on a single-digit basis while allowing it to keep pro-rata net leverage at 5.3x, within the company’s stated goal of 5x to 5.5x”.
In a nutshell, this move has allowed the gaming fund to boost its credibility in the markets and improve its inherent performance metrics. Furthermore, while Wall Street plays nicely with the REIT, independent investors feel like the fund would perform better with reduced MGM oversight and control – something that it has gained with this recent selloff. MGM’s business interest in the fund now stands at 53%.
In Other Las Vegas Casino News
On Wednesday, Nevada’s Gaming Control Board announced that it has decided to appeal the ruling by Clark County District Court Judge Adriana Escobar preventing gaming regulators in the Silver State from banning the 78-year-old gaming tycoon Steve Wynn.
Notably, in 2018, Steve Wynn sold off his stake and retired from Wynn Resorts, the hospitality and gaming empire he founded in 2002. This was following allegations from a Wall Street Journal publication of sexual misconduct spanning decades.
While Wynn still maintains his innocence, the NGC hopes to appeal the court ruling. A successful appeal will enable the regulatory body to place a lifetime ban preventing him from investing or participating, in any way, in Nevada’s gaming industry.
