MGM Growth cash flow, revenue miss forecasts; officials noncommittal on possible Strip deals

MGM Growth Properties stuck to its strategy in the second quarter, transferring operational control of the MGM Northfield Park hotel-casino in Ohio to MGM Resorts International and benefiting from a real estate base rent escalator. But the real estate investment trust missed Wall Street forecasts for both revenue and a key cash flow measure.

In a Tuesday morning statement, Las Vegas-based MGM Growth Properties, which owns a dozen MGM-branded casino properties, including three in Las Vegas, said its adjusted funds from operation were $147.6 million, or 51 cents per share, for the three months ended June 30, compared with funds from operation of $145.6 million, or 55 cents per share, a year earlier.

Funds from operation, a closely-watched fiscal yardstick for real estate investment trusts, takes net income and adds back depreciation and amortization.

The latest funds from operation result missed the 53 cents per share forecast of analysts polled by Zacks Investment Research. Zacks noted that the REIT has failed to surpass funds from operation forecasts for four straight quarters.

Net income for the quarter was $21.9 million, or 24 cents per diluted share.

Quarterly revenue rose 2.5 percent to $225.8 million from $220.4 million, but missed the $233.5 million forecast of Zacks-polled analysts.

Despite the results, MGM Growth Properties shares rose Tuesday. They climbed 3 cents or 0.1 percent, to close at $28.71 in regular trading on the New York Stock Exchange and added 29 cents, or 1.01 percent, to hit $29 at 2 p.m. PDT in after-hours trading.

MGM Growth’s share price has risen 9.5 percent in 2019.

In a statement, MGM Growth said transferring MGM Northfield Park’s operations, adding the property to its master lease, and executing its third base rent escalator brought the REIT’s current annualized rental revenue to $946 million, a 72 percent increase since its April 2016 initial public offering.

MGM Growth Properties, launched by MGM Resorts International in late 2015, is a triple-net lease REIT; its tenants, casino operators here, maintain the properties and pay real estate taxes and building insurance.

During a conference call with analysts and journalists to announce the results, MGM Growth CEO James Stewart said his company remained focused on creating stable, growing income through property acquisitions. He didn’t, however, hint at what properties the REIT is eyeing.

“We actively monitor the (mergers and acquisitions) market to identify assets that meet our criteria and we are committed to being thoughtful with our allocation of resources and capital,” he said. “We continue to explore opportunities both within and outside of the gaming sector.”

When pressed during a question-and-answer session whether MGM Growth might be considering deals for Strip hotel-casinos, Stewart was noncommittal. Caesars Entertainment Corp. has said it will likely sell some Strip hotel-casinos as part of its $17.3 billion merger with Eldorado Resorts.

“We are bullish on the Las Vegas Strip and would certainly want to take a look at each and every asset on the Strip that came up,” Stewart said. “That said, there is a very wide dispersion of relative quality, durability and earnings power from each of those.

“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,” he added, “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.”