Q4 2019 Earnings Call
[music].
Good morning, welcome to the MGM growth properties fourth quarter and for year 2019 earnings Conference call.
Joining the call from the company today, our James Stewart, Chief Executive Officer, and Eddie Chen Chief Financial Officer.
Participants are in listen only mode.
After the company's remarks, there will be a question and answer session.
Please note this event is being recorded.
Now I'd like to turn the call over to Mr. Andy Chen.
Thank you good morning, welcome to MGM growth properties fourth quarter full year 2019 earnings call, let's call it being broadcast live on the Internet at MGM growth properties that car, we furnished our press release on form 8-K to the FCC. This morning.
On this call will make forward looking statements under the safe Harbor provisions for the federal Securities laws.
Actual results may differ materially from those projected in the forward looking statements.
Additional information concerning factors that could cause actual results materially differ from these forward looking statements contained in today's press release and in our periodic filings with the FCC.
During the call. We'll also discuss non-GAAP financial measures and talking about our performance you can find a reconciliation to GAAP financial measures in the press release, which is also available on our website. Finally, please note that this presentation at your accordingly, I will now turn over to Jane. Thank you Andy I'd like to welcome everyone to Mgps fourth quarter and full year 2019 conference call.
As Im sure Youre, all aware, our chairman and the chairman and CEO of MGM resorts Mr., Jim Murren announced that he would step down from its physicians at MGM resorts prior to the expiration of his contract.
I'd like to say on a personal level I have no one Jim for over 20 years and happy, but most respect for the man and what he's accomplished in his career.
When he arrived at MGM and 1998, the company had one and a half properties added market cap of $800 million think about that compared to today MGM consisted of the MGM Grand and 50% of New York New York.
Since then Jim is definitely guided the company through the gaming expansion in Las Vegas and across the country.
Acquisition of Mirage resorts, and the acquisition to Mandalay Resort group.
He then successfully weathered the great financial crisis to bring the company to its current state as a world renowned gaming entertainment and hospitality Juggernaut.
It has been a remarkable business story.
Throughout his career.
Jim has always been demand at the highest integrity intelligence compassion and resolve.
Jim is both a great friend and a great leader at MGM MGP in the industry he will be missed.
However.
Sure It will not be a stranger as he moves onto the next phase of his legacy.
Now I'll turn to the potential impact of this development on MGP.
As discussed on Mgms earnings call their goal is to Deconsolidate MGP.
Which we see is an opportunity and meaningful valuation catalyst for current and future shareholders.
We've entered into an agreement with MGM to deliver cash for up to 1 billion for of Mgms units, which have exercise will reduce their ownership to around 55%.
We're always exploring initiatives to further mgps evolution to become just premier read in the entire triple net space.
Now I'll turn to brief recap 2019.
Which was a year of significant growth for MGM growth properties.
We added $160 million of annual rental revenue to our master lease with MGM.
Through the acquisition of the real estate of Empire City Casino, the sale of MGM, Northfield parks operation and the monetization of the park MGM improvements.
Actions led to three dividend increases, resulting in an annualized dividend rate of $1.88, which represents a nine cents increase per share year over year.
We remain disciplined and our investment strategy to pursue accretive acquisitions with strategic significant.
Northfield Park at Empire City are great examples of our ability to successfully identify and execute on three of transactions with third party sellers and we'll continue to pursue these kinds of transactions in the future.
2020 is off to a tremendous start as well as we just announced we have closed and completed.
The venture with Blackstone to acquire a majority ownership of the MGM Grand Las Vegas, and we couldn't be more excited about this innovative transaction.
The joint venture.
Which also will acquire as acquired the real estate assets at Mandalay Bay.
Entered into a long term triple net lease with MGM resorts fighting for an initial ran out of $292 million with fixed annual escalators robust minimum capex requirements.
The joint venture acquired the properties for aggregate get to consideration representing a multiple of 15.7, fivex times rent or cap rate of 6.35%.
In addition, Blackstone invested $150 million directly into MGP common stock highlighting their confidence in the value of our shares and our growth story.
This transaction further illustrates the strong institutional demand for gaming real estate and is another example of the attractiveness in value inherent in Mgps asset.
We believe that this combination of transactions will lead to meaningful cap rate compression for MGP and ultimately the entire gaming net lease REIT space.
As the owner of the largest portfolio of Premier integrated casino resort assets across the United States, We will be the biggest beneficiary of this natural evolution of our real estate vertical.
MGM resorts has also reaffirmed its domestic net financial leverage target approximately one times. This underscores their commitment to a fortress balance sheet, which only strengthens the value of our master lease guarantee.
We also could not be prouder of the performance at MGM reported at a number of MGP owned properties, but typically Northfield Park in New York, New York, both had record quarters and gold strike at a record quarter and a record year.
We believe we have the best assets with the best leases from the best operator that we'll have one of the best balance sheets in the entire leisure industry.
All of the elements that generate premium valuations for net lease rights.
We continue to actively explore transaction opportunities and we've had many conversations with potential sellers and third party operators in and out of gaming.
We remain committed to our growth strategy and disciplined allocation of resources and capital.
Our priority remains identifying and executing accretive transactions that will enhance our ability to return shareholder value increase our AFFO and dividend over the long term I will now turn it over to Andy to discuss our financial results.
Thank you James.
It hasn't I think was a great year mbps balance sheet with a number of well executed capital markets transactions.
Turning to follow on equity offerings, resulting gross proceeds of approximately 1.5 billion that $750 million senior unsecured notes offering.
With the closing of the joint venture transaction.
The finalized on a highly attractive CMBS financing blackstone's equity investment in the JV and our direct investment MGP through the purchase to 150 million class a shares.
This is a testament to the confidence of quality of our assets the joint venture structure mgps growth prospects and strategy.
I will now provide some highlights for few items in our fourth quarter financial results.
We recognize 219.8 million of rental revenue on a GAAP basis for 236.5 million on a cash basis.
Net income was 72.9 million AFFO as $177.5 million were 58 cents per diluted operating partnership units.
Adjusted EBITDA was 233 million, she and expenses for the quarter for 4.2 million.
For the fourth quarter, our dividend was 47 cents per share, which represents a $1.88 on an annualized basis.
Our net leverage at year end was 4.5 times.
Subsequent to year end with the settling of our forward equity contracts. This week and the just announced closing of the joint venture our term loan a and B have been fully repaid. In addition, with an additional 200 million of cash on balance sheet.
With the closing the joint venture in Blackstone's MGP investment.
With that let's turn it back over to James Thank you Andy we'd like to thank all of our investors for their continued support.
Operator, now we'd like to turn it over to you for questions. Thank you. We will now begin the question answer session.
Ask a question you in the press Star then one on your telephone keypad, if you're using the speakerphone. Please pick up your handset before addressing the key.
So much on your question. Please press Star then too.
Todays first question comes from Joseph.
Morgan. Please go ahead.
Hey, guys is actually Dan pilots on for Joe Good afternoon, and thank you for taking my questions.
So first given given Jim's recent new that he stepping down MGM, presumably you will it MGP question is this you think this accelerates the increased independents have MDP as it relates mgms influence there and I guess, how do you see this playing out with respect to the board composition and MGM stake in NTT. Thanks.
Yes.
All of this is very new to us obviously and.
Where things go from here.
Is.
Just something we're not prepared to comment on at this time.
Other than.
What's already been out there from the MGM resorts side.
So we'll see.
Okay and I guess this is relates to this is still might be a similar answer but I guess how quickly do you think about redeeming. The 1.4 billion of MGP LP units that that MGM owns and.
Is it consumable that this will be soon given engines capital markets activities.
Well, you're going to unfortunately get kind of a similar after they.
You know as part of the.
As part of the agreement they have two years basically to make that request for up to 1.4 billion. So I would just have to say, we'll just have to wait and see when that occurs I think in other at MGM releases. They have talked about in the early part of that window, yes.
Right. Okay, and then just the last one changing gears little bit you do you think about do you think you need some time to digest. The recent transactions before you could reasonably do another one.
No I don't think so we have ER.
Our balance sheet and a great spot we are always out looking for things that that will enhance shareholder value and.
I don't I don't think that will come into things at all.
All right. Thanks, so much as I appreciate it thanks Dan.
And our next question today comes from Spencer, Oh Boy, Oh Green shoots advisors. Please go ahead.
Hi, Thank you can you talk about the decision to use debt as opposed to equity as it relates to the forthcoming LP unit redemption.
Sure in terms of the capital markets activity for the upcoming redemption on having to debt capacity to do so provides us the flexibility to do so when they request comes and we do have a certain amount of time to deliver the cash upon request, but this gives us balance sheet flexibility the ability to do a quick.
Currently.
The other thing I'd add to that Spencer is this really lets us.
Control, how this gets done to a much greater degree because as you know.
Debt in today's world is very inexpensive.
And permits us to basically eliminate any kind of market risk to ourselves out of such a transaction. So we.
And we have very significant capacity compared to our targets are for leverage so.
All those things, we just automate the most sense to do it.
Okay, and then as it relates to amgen's commentary to eventually add Deconsolidate I you know NTP can you walk us through how the mechanics of retiring a b shares would work do you suspect that MGM would simply for gold shares are they going to expect to be economically compensated for them.
Well its a.
That is certainly an unknown at this time I. They have stated the goal is to Deconsolidate and the B share Theres no physical share it's just to.
Attraction arrangement between the two companies so and contractually speaking once their ownership represents 30% or less it would go away automatically falls away. So.
We look forward to working with them on these done such decision.
Again not to repeat the last answer but time will tell.
Okay. Thank you.
Thanks Spencer.
Next question comes from Carlos and for all his looser banks. Please go ahead.
Hey, guys. Good afternoon. Good morning, Thank you.
Hey, Andy just in terms of the the contribution of the debt to the joint venture could you talk a little bit about what the joint venture debt looks like as of today and maybe provide a little bit of color on kind of the CMBS financing and kind of what the rate is on that.
So in terms of the capital structure. It. It's just the 3 billion of the CMBS debt.
The term loans that we contributed were paid off with the closing of the transaction literally couple of minutes ago.
And in terms of the details of the to the alone will have to get into that a later stage when some some other things become public but just the 3 billion at that at the joint venture with it.
Okay, and then in terms of of obviously staying active in coming out of this this process and kind of what day with a fresh slate.
Obviously, you know your funding position in your liquidity position is strong at present is there is there.
I guess, knowing that you have kind of that the billion for potential LP unit redemption kind of sitting out there is it possible that you would do potentially a smaller deal kind of in the near term that doesn't require any kind of financing and you can kind of go with what you currently have while still leaving the dry powder for the.
For the unit redemptions.
I think you know what we showed in the presentation upon the.
Announcement it gives a guide posts in terms of where we aren't going to leverage in our capacity to do a transaction between now and the redemption and there is capacity and so we're comfortable.
Continuing to chase down some of the transactions were looking at knowing that we can funded between now and you know before after doing the redemption.
Yeah, and I would say also it's certainly not limited to.
Small deals because of this at all we know we're in an excellent balance sheet position, even pro forma for.
For the redemption.
Debt raise so.
We are we're in a very good spot and I wouldn't even limit to that were on the hunt as always for things that we think will be long term beneficial for our shareholders.
Understood and then just one last housekeeping one in terms of of the venture.
Have you guys. Yeah, I'm, assuming you you have but in terms of the accounting and kind of reporting of the joint venture equity method Kinda <unk> do you have any clarity as to how you will account for it going forward.
Or the in the preliminary views, it's likely equity method I think MGM posted something in their presentation on that.
But obviously, we will continue to work with others with our auditors to finalize that when we reported in Q1.
Great. Thank you guys.
Carl.
Next question comes from Daniel I don't know more Instinet. Please go ahead.
Hey, guys. Thanks for taking my questions and for the second you're in a row happy Valentine's day [laughter]. Thank you.
Right.
[laughter]. So my first question is I know you guys still have plenty of cushion, but does NTM withdrawing its 2020 EBITDA guidance.
And the near term cash burn at MGM, China does it concern you at all from a coverage standpoint.
I know the.
MGM, China is a as I'm sure you all know way a completely separate entity with its own capital structure and public stock that trade.
On the Hong Kong exchange so.
You know I am I am very I'm convinced they will get the other incredibly great liquidity position, there and I'm convinced they get through this.
ER and end up very strong but for us it's not really one we don't own any assets there too to separate public company that does contribute dividends now and then to MGM, but I'm really doesn't impact our.
Coverage and safety of our own cash flows.
Okay got it that makes sense.
My second question is.
Going forward, what do you see is the primary acquisition vehicle for MGP is it MGP standalone or the Blackstone joint venture or both.
And are there any meaningful differences between your cost of capital Mgps cost of capital and that is the JV. Thanks.
We.
One of the hallmarks of our company is the ability to be creative.
And thoughtful around all the different sources of capital that are available to us.
We're able to.
Hi, bring the grand into the fold with a fantastic partner through what I think it's a pretty innovative structure.
That.
Demonstrates the ability to get capital.
Got some you know very attractive cap rate fundings and in size. It is hard to predict with any kind of reliability exactly what structure will use in the future what capital sources will tap because again, our our our low our guiding path.
Our guiding star is too.
Increase sustainably the dividend increase sustainably our share price and so how one accomplishes that and how we you know what what capital pools, we think are most efficient to sort of.
Bringing asset into the fold that we want.
It will do whatever we need that accomplishes those two goals ultimately.
Andy.
Not at agree with and I think what this transaction. It shows is that our access to capital has expanded beyond just public equity public debt bank that et cetera, but there's JV equity CMBS debt.
Direct equity placements into Mtpa, so the pool of capital to different pockets of capital with proven out additional Matt additional pass and creates opportunities go forward, we can evaluate each funding source as transactions come.
Great. That's very helpful. Thank you.
Yes.
I don't know next worsened today comes from Nick Yulico Scotiabank. Please go ahead.
Thanks, just just going back to CMBS financing I know you haven't given all the details other but presumably it's gonna be a very attractive rates similar to what already came out with Blackstone doing blasio. So I guess I'm wondering is you know based on your your term loan.
Existing capital structure May you able to put more CMBS debt.
On your balance sheet assets as a way to fund acquisitions, let's say if they were outside of Vegas, which it seems like that's a little bit more difficult to get see a minute CMBS financing.
Look in terms of a go forward funding of transactions as well as our on balance sheet I think.
We will evaluate all all possible avenues right and we can find the most efficient financing as we go forward. We don't have any pick maturities coming up the nearest bond is still five six years away, but as we look at transactions and if that as most attractive funding source, we can evaluate it you're right in terms of a regional asset.
In that structure has been proven out, but certainly the Las Vegas assets have proven they can answer that tap that mark yeah, and I would say one thing that I.
I think it's fair to say with that market is that they are most.
Track that too.
Very high quality high fit and finish types of properties.
And as I look across our portfolio.
Basically every one of them.
It would be you don't fit that category look it gives us some nice flexibility.
Okay and that's helpful. And then and then just one other question on their relationship with Blackstone Yeah. They now owned the stock and I guess I'm wondering I mean, how did the conversation go with you know the ultimate amount of stock they ended up purchasing.
You know what was it where they willing to do more did you guys want to place a certain limit on that or how did those how did those conversations go.
[laughter] Pal.
All I will say Nick is we couldn't be happier to have them, both department and the JV and an investor and our equity and.
I'll leave it at that.
Okay, but there was no like size constraints that you were putting on from your end, saying, Hey, we don't we don't want or you know, we can't do more than the than this.
[laughter] it other than just read limitation cetera, but certainly as the upper limit, but that but well I stick by my prior we'll leave it at that [laughter]. Okay. All right [laughter] Fair point I guess, just one last question is on the on the pipeline of acquisitions that you're looking at.
Outside of traditional gaming I mean, he just give us a feel for you know what that's looking like and and as we're thinking about cap rates right, where cap rates seem like they have now compressed in Vegas and maybe in other aspects of gaming you know would these be higher how would you be pursuing higher cap rate deals I figure.
Going outside of gaming and what are some potentials there.
Each class has you know obviously its own.
General sort of range of cap rate crap rates at which.
Deals transact.
And I think to a degree you're kind of.
You know you get what you pay for.
One of the things that we have been very very focused on and I think ultimately well and you were to the great benefit of all our shareholders is a high quality portfolio of assets will always garner.
People, who want to be part of that system.
And so.
We look at.
We look at all sorts of different deals some of which you know have different levels of attractiveness in different risk reward tradeoffs.
But I always want to maintained a lens of again very high quality for whatever we do so we're certainly not going to.
Chased a little bit of extra return for something that we think could.
Hamper that component of our company or ultimately hamper the ability to you know habit contribute its fair share dividend will stick with high quality assets.
You know any deal that we pursue.
Alright, thanks, guys.
Hey, Scott.
And I am I supposed to say it comes from Robin fairly far we Ah Yes. Please go ahead.
Hi. Thank you. This is actually arpino for you, yes, we heard meant a MGM talk about a real estate transaction by year end should we assume you aren't interested in Springfield at these levels the run rate EBITDA I mean, so how would a potential city centers transaction work there. Thank you.
I would not assume the former is ER or an asset on which we have a right of first offer.
And I'm still in its.
Ramping up stage, and we'll see ultimately where it goes.
Obviously, a beautiful facility and I think longer term it will start to demonstrate its power within the market, but that will take.
Some ramping up time, it's still in that so.
And City Center as I think you know I was a joint venture between MGM resorts and Dubai World.
Very very attractive asset oreos one of the.
Most beautiful assets in.
Certainly I read all of Las Vegas, all of United States and I would argue one of the.
You know best integrated resorts in the entire world.
And ER will be.
We're not you know there's nothing that I can really say regarding any potential.
Deal there other than it would obviously be something that would certainly fit our quality lands and I think it's just a fantastic and gorgeous asset.
Okay and could you are you could you comment on how that transaction could potentially work and whether the partner has shown any interest down the road or at this time.
It's not.
That either for you to comment on it.
I'm not going to comment on any hypotheticals.
Okay fair enough. Thank you. Thanks.
And our next question comes from Barry Jonas Suntrust. Please go ahead.
Hey, guys.
Just for starters with Amgen I'm talking about lowering their percentage or you're fairly agnostic as to how low that could go or is there a floor that you'd prefer.
From our perspective.
I would say, it's the former I think they are as well as you know they are the best.
Gaming company in the World if the best array of assets, they're the best tenants, we love them as an investor We love the balance sheet strength the company has and.
You know we had some want it it's not really up to US right. It's at MGM decision and whatever percentage they own we'd love to have them and where you know it is enough to us we love all are investors and we love Mg.
And it Valentine's day, Barry so message of life.
Fair enough, Okay, and then look there's clearly checks in place now for conflicts with the board, but I'm curious to get into perspective from you what changed in the board composition potentially starting with more management representation, what that might mean for the company and because its strategy.
Well at this point I don't think there's anything really to comment on.
Uh huh.
You know I will.
I'll leave it to say, we'll work it out in the future and one of the things that we as a company I think would be.
Valuable is.
I'm continuing to.
Have the best in class governance, given that we have a very large shareholder rights are very meaningful stake for minority shareholders until those minority shareholders off when they become majority shareholders and our goal is to have.
Absolutely.
Governance.
Are you know all scenarios to help the the minority or ultimately majority shareholders.
Great. Thanks, so much guys. Thanks Barry.
And ladies and gentlemen, I was reminder, if you'd like to ask a question what is front store them one at this time.
Next question comes from John degree Union Gaming. Please go ahead.
Hi, James Handy, Thanks for all the color so far.
I think you answered most of most my questions about the quarter and the transaction. So maybe just a conceptual question for you guys.
Talked in the past about.
Your discussions with would be sellers of assets and we get feedback from a lot of the casino operators that have kind of indicated to us they'd like to read says a financing tool for additional M&A.
But curious what your thoughts on hard if anything has changed given the cap rate compression as we've seen over our Sip more sellers looking for exits and more willing to do an outright sale.
To you went into read or is it still kind of a focus on on looking at the reaches the financing tool for as a growth engine Im just curious if there's been any shifts given where about valuation has gone.
It's been a very interesting market over the past a year and a half and I would I think a combination of.
A continued decline in interest rates.
Which I think you know the general view of pundits is that they don't see that reversing anytime soon.
Along with some gyrations in the valuation various operators stocks.
And our own ability to raise money at.
Lower and lower.
Cost of capital.
Have you old extremely attractive environment for us and four people looking to monetize assets.
You have a combination and the cap rate compression [noise].
As an expression of that.
I think there is a long long long wait to go in terms of where are those cap rates will ultimately end up because although we've got compression from.
Historically, the attractiveness of its asset class is only in getting one.
Of where I think ultimately institutional investors will see.
Safety Security Ah Ah safety and security of not just the cash flows but at the fundamentals.
Facility itself.
So.
All of those things.
Contributed to a very very attractive environment on all of the fronts that you mentioned.
And I think it will only continue to move in that direction.
As.
Bigger and bigger.
Pockets of capital understand how safe.
How.
Got a secure.
The.
Investment into these assets, especially the highest quality ones that whether you know ups and downs or they could there.
Really are.
I'd just add to that John that left in terms of.
The.
Rationale for transaction actually happening with a re.
Financing for M&A. That's one thing that you talked about but also just positioning companies balance sheets and I think one thing that people are seeing and seeing MDM do is getting that financial leverage down.
Two appointed very safe, it's something that's attractive for some of these companies.
In addition, just to get leverage down to a level, where they can distribute dividends to their own shoulders, it's something that's attractive to them. So doing a sale leaseback is on track the mechanism there not only for M&A, but also just positioning balance sheet for whatever.
Corporate reasons that those companies might have.
Okay. That's helpful. Maybe I'll follow up to that to talk about some of your comments James when we look at some of the [noise].
Interesting capital like a blackstone's behind the Las Vegas strip and then we look at some of the assets in the legal markets in particular, some your assets like National Harbor that sell them very high caliber.
How do you see how do you think the market has a these additional kinda.
Pools of capital started to look at some of the regional markets and regional assets in a similar capacity is as they did Las Vegas I mean, it's quite obvious the level of interest on the Las Vegas strip, given just the scarcity there of how many buildings but.
Just curious to get your thoughts on whether you've seen at the same level of interest or are seeing the same level of interest.
For those more regional assets.
[laughter] well you can imagine we have.
Many many conversations with all sorts of different potential partners investors and so on that just as a regular course of our business.
I think that.
Oh.
Beyond sort of a regional or Las Vegas split.
The most attractive thing.
That seems to be the magnitude of the you know that attracts this type of capital.
Is fit and finish and the proven ability to earn.
Free cash sort of through thick and thin.
Yeah, I'm done different people get their different ways, but.
Hi value.
Big properties in metropolitan areas.
A really seem to get it seemed to be the that's sort of magnet that attracts people.
Yeah, I'm done so I don't view it so much along a regional.
Biggest split.
As a.
Initial build cost fit and finish a you know.
Ability to draw customers that are.
That's the best for whatever customer you're targeting whether it'd be a mid level person. The high level, you know spend or et cetera. When you have that kind of building. It just it is very.
The very attractive to many different funds, who are willing to pay for.
The fit and finish and the cash flows that come out of those so that that's really Howard split it down it's very much my own view quality versus lesser quality.
Lens, even though when it gets so I think one of the questions maybe nickel that even though you can get better values for lesser quality properties.
Thank you.
You just don't five people aren't chasing last little bit of yield so much as wanting something that's safe.
Loss from lots of different customer tight draws lots of different activities has lots of activities in it.
And you know sits in a good area.
And generally at at that I, just you know either mature real estate markets right that that provides its financing.
And if you look at just pure real estate values.
And you know its can pick pick your measure whether its gross book value [noise] replacement value. When you look at our assets you look at our balance sheet with gross book value of our assets.
It's about equal to the market value of the company well you look at any other portfolio and theirs.
The public markets putting.
Premium or pay more for the growth of the only assets because of the net lease aspect right and so I think in our company there's significant upside in that.
You're getting the book value, but the real estate.
But the premium value for the quality of the tenant the quality of the credit the quality of the Onetimes financial Levered.
Entity being your kind of here at your tenants that's value over and above the real estate, that's that's not a being reflected the market today.
I agree Andy that's really helpful inside guys. Thanks, again and congratulations on another successful year.
Thanks, John.
And then there's worsened today comes from Jay Kornreich about somebody see please go ahead.
Hey, guys. Thanks, much for taking the question.
As it looking at the TV at least with Blackstone and this new features in it with a 50 year.
Do you at least with the took extensions and locked in annual rent growth is this kind of the new form that we should expect leases to take with the acquisitions.
Like every transaction is unique right and buyers sellers have different goals and prospects for the next 10, 2030 50 years right and so I think it reflects what.
Those goals are those prospects are for those companies, except various types of a lease escalators and you know market continues to evolve since our IPO date till now there has been different forms of leases look like in each transaction is unique but we certainly like what we've structured relaxed.
Shown here on this joint venture lease and.
And attractive for all our shareholders.
Got it thanks for that and then just one follow up is as you look towards diversification and external growth just beyond MGM and even the gaming industry are there any opportunities for you to purchase real estate directly from Blackstone from any of their ongoing projects where investments.
I think yeah.
You know when you're when you have developed a partnership like this which I think is and you know very.
Pause instead of feelings on all sides.
My own experiences.
Say that frequently just other opportunities come from that whether its buying things together looking at things together you know whatever it is.
Getting through all of the.
Negotiations and finalizing documents and all of that stuff generates an understanding of the closeness between parties. So.
We'll see where it all goes.
Okay. Thanks, so much that's all for me.
Hey.
Next question. Please come from Shaun Kelley of Bank of America. Please go ahead.
Hi, Good morning, everyone to I just wanted to go back in a you may or may not really be able to answer but I just figured I'll try anyways on the on the deconsolidation point would just wanted to go back to you know wondering I mean I think the question was asked around sort of the b shares and how that would work, but I I mean.
A question a little bit more specific with anything else have to take place. Other then yeah, I guess changing the structure of the b shares or eliminating them in order to move the called the ownership or the deconsolidation threshold from 30% up close to a more of an accounting driven 49 or 50%.
Well the beach did the structure of the B share again is a.
Just an agreement between M., GP, and MGM, which was.
Constructed prior to the IPO.
And all of it is subject amongst agreements if the parties for amendment or change or whatever so there is.
You know to the extent to two parties get together, which obviously we have a very good relationship with MGM. We talk all the time, we can talk with them you know propose anything they can propose anything to us, but it's really just coming to agreement amongst the two parties to the extent that something you know when I get you want it to be changed or whatever yeah.
Okay. So there's there's no other I guess gating factor that couldn't there wouldn't be subject to negotiation or discussion as it relate to those agreements and I understand that right.
Yeah I don't.
Correct.
Great.
Thanks for that James and then the other question I have is just a you know specifically on Springfield to go back to that one yeah. I think obviously, we do know yeah. The assets performance has been not you know kind of quite up to what was anticipated, but you know, but overall the he mentioned the quality of the of the property and and I think come up.
So then there and seen it you know no no the asset to be it could be a very good one to the question for that one is a little bit more on you know I can you just help us think about how you think about that versus the kind of broader master lease and let's call. It the broader.
Corporate coverage is the he could you can contemplate doing something there that might be you know at a coverage ratio that might be kind of it you know on the ramp up or on a different trajectory than perhaps normal but with the confidence of knowing that you had the tenant naturally it's kind of sit there just how would you how you balance those two there's two pieces.
To the extent that a transaction was completed where it went into the master lease. The one thing that I think sometimes gets lost is.
There is no individual lease against that any property within the master.
So if one comes in and.
Knocked the cover off the ball and another one is in its doesn't do as well.
Rent payments the rent payment and you have to pay either all of it or are you lose all those assets. So it's really the cross collateralization all the assets in the master lease.
I mean, you never are looking to one property necessarily perform.
No and pay us.
French share.
Oh pool of problem, though.
Then that an asset comes into the master lease that.
It is not contributing at Oh.
Hi, but allocated fair share or whatever you think.
I do want to say it doesn't matter because obviously you want all that.
Well, but.
Other the cash flow.
That is coming from the other assets in the Master lease, we'll just have to shore up there as part of the rent and above and beyond that the assets that are not.
Leased to wise.
Also as a result of the corporate guarantee.
Also have to come up with no would have to come up with the ability to pay the rent. So we don't.
<unk>.
It is an asset that is of a size that I think.
Certainly.
This point in the company with just a tick under $1 billion revenue.
It is gorgeous asset.
Best operator, it is taking a long time to ramp.
A lot you no longer than people thought but were not restricted by the sole performance of that asset because there it to extend that comes into the master lease because there is no.
They're never is a lease against anyone property in the mass release, that's the whole points.
Got it I think that's that's very helpful.
Thank you very much.
Sean.
And our next question comes from Smedes Rose of Citi. Please go ahead.
Hi, Thanks, Youve answered most of our questions or aren't able to answer some of them, but I wanted to just follow up on something you said about.
You feel that there's sort of an under appreciation in the stock relative to the quality of MGM is your core tenants, who I mean is it your view that maybe that.
There'll be more appreciation as mgms ownership declines or what do you. What do you think kind of creates more appreciation and better value when the stock as as you see it.
[noise] when we went public.
Many of the investors who we.
Met with <unk>.
Had.
There were were not in the mode.
Meeting or particularly wanting to understand the performance of the various operators.
Cash flows that underlay their rent.
ER coverage number and who they were et cetera, if you're having and I'm comparing it to a retail triple net you know if you have.
3000 tenants that each contribute one 3000 to your revenue line, you're making 800 million of revenue.
The ability to analyze that is zero right and any one tenants contribution is so small after you're done with that one.
It's like pain Golden Gate Bridge, you get to one and you have to restart at the beginning just immediately again.
And so they're became there was just a view that like no one.
No when did it and their way of looking at things of risk was how much leverage was on the read to you know things like this.
As we came around which was a pretty different.
Model for them to analyze.
Understanding the underlying performance of the tenant is a key component of you know understanding how safe the castles where that came to us.
So it takes time for people to get over the hump that they have to understand you know a big entertainment integrated resort company and figure out whether or not they.
You know like those assets et cetera versus just relying on.
Theory that we have thousands of tenants I sure hope they all do well without really having any knowledge anything that they're doing.
But as time has progressed the people understand that having a.
You know 15 billion dollar.
Market cap multi faceted.
Entertainment company with assets all over the country in the world.
That generate.
Massive amounts of EBITDA.
As I've gotten comfortable how to analyze and think about it.
Think about the different balance sheets and buildings and so on.
It has really generated you know the change your view so much as anything it's just time and the.
Sort of acceptance that one has to kinda do that work in order to understand the company at least to some degree like if you don't want to do it by getting Kazan Q, it's going to force MGM as a public filer, there's probably 40 research reports out at any one time when the company and that research and so on so is there for people to analyze it's not the hardest thing to see if you know if you think the credit safe or not.
We just a very different path for investors and one that took some time and still is taking people time to really get their head around.
Which is one of the reasons why I think as time goes on the analyze it there's no question that we.
I'll take this bought at a much might take a spot in the market at a much try to cap rate than we currently are.
Well, let me just asking do you think that.
You know, what Jim hearing, leaving and probably some upcoming changes to your own board. I mean this is it seems like this might be an opportunity to really sit down with MGM and talk about you know I'm, an accelerated a path to lower ownership, because I know you're getting to 55%, but you know it seems like you know the non MGM holders wanted to see that number go down.
More and it seems like MGM continues to want to raise cash.
I mean wouldn't this be kind of the opportunity now to kind of fit well with that plan. How do you think about that.
Well, it's only been a day [laughter] so oh.
Well I'm not asking you to give me the HBC and I think generally like Big picture is this an opportunity for you to step out of the MGM.
Mothership, I guess and.
I don't know I mean, this is all sort of in line with questions you've sort of get every quarter, but I'm just sort of wondering your views on it sure. So.
We are frequently from our investors in from analysts and so on about what their views ours to pass that we've been taken so one and.
Some of the commentary that you've made its certainly not lost on US. It. That's also not lost on Mgms on investors right and so.
I think both parties.
Our very incented to do.
[noise], whatever we can to try to increased and enhance the share value of MGP and how want accomplishes that and what you know works or [noise] may fall by the wayside, It's something we'll both HAFTA kind of figure out but.
Yeah.
It is the the biggest stakeholder.
The biggest economic stakeholder, we have them Jim resorts, they're sitting on you know a rough number a 6 billion dollar stake even more.
7 billion dollar stake so nobody is more incented than them to want to see an increase in this value and.
So.
No I would say that it's again, it's something we talked with about 20 with them and are both very much in the same page as we always have been about job trying to maximize that value.
Okay. Thank you actually any commentary [laughter].
I don't have questions when it comes from John Masako Blumberg Solomon. Please go ahead good morning.
Yeah. So as we think maybe a about longer term with regard to the CMBS debt does that impact your ability at all to becoming investment grade issuer or does having that in the JV in somewhat remote mitigate any impact that might have.
The.
Ratings agencies might look at you guys.
I don't think that's an impediment John obviously on the.
Other side at the capital structure [noise].
As I talked about in prepared remarks will only have.
Or unsecured bonds and our revolver with the term loans paid down and so those are things that the agencies will look at as well as just what the leverage is the raul leverage or on the.
Got traditional capital structure sites, all of those things faster [noise] seasoning factor into their analysis and.
I I don't believe preclude us from having that sort of outcome and you know at some point of the future and that's something that we continue to look at to see if there are things that we can do to help without them as well.
Okay, and then as kind of maybe you know a potential acquisitions outside of gaming become more important as you know you move through the M., Jim on balance sheet real estate here, how do you structure those kind of transactions that are outside of gaming in a way that kind of makes.
I guess your investment thesis differentiated just given how.
Many guys there are in the REIT space, you investing kind of more traditional net lease assets. You know how do you kind of I guess, maybe a lake concerns the investors might potentially have that you're buying <unk>.
<unk> potentially assets that you don't have an expertise in that you know theoretically at least another net leased investor passed on <unk> for some reason.
Okay, you know James and I, we weren't just pure gaming bankers and our careers were.
Gaming lodging leisure bankers that was are you know I was covering read since early 2000 and real estate right from office Industrial Health care net lease we worked on deals for all those types of companies.
And so gaming, while we have been investing and gave me real estate assets for the last four years.
But we also continue to keep the relationships in the lodging leisure industries.
Keep those relationships are very close to harvest and.
Continue to talk through transactions on those fronts as well we've done transactions for those types of companies. We studied those companies in a very familiar and comfortable.
Comfortable investing in the Industrys broadly say you know you look at what's going on inside National Harbor, Borgata, MGM Grand Detroit over Vonage, Lux or MGM Grand et cetera.
There's a CNO floor. There is a day club Thursday Night club there is a restaurant company within each building that would put it you know among the largest restaurant companies in the world. There the ticket service that would be amongst the largest ticket providers in the world. There is a show that goes on at all.
Every one of those buildings, where you'd be one of the biggest purveyors of live entertainment. There are sports arenas, there are retail malls, which.
Have garnered incredibly high cap rate of kind of you probably low cap rate in sales so.
You know we're not running.
A box in a city.
That's you know 100000 people outside of a corn field with slot machines in it.
It is a global.
Entertainment company with lots of things that go on inside the building.
And.
So I would say that the idea you know I wouldn't look at it was such a narrow lens in terms of both.
Experience and sort of knowledge of these basis I mean, it the knowledge level, both within our own firm and within our partners at MGM is extraordinarily Dee Ann.
And extraordinarily broad.
Would it be fair then maybe you assume that if you know non gaming acquisitions would they focus on these kind of categories that essentially incur occur inside the casino, but maybe you know our.
You have those kind of entertainment type of facilities outside of a casino would be kind of your primary targets and interaction to are there. Other you know kind of potential real estate categories that just aren't being addressed by your traditional net leased investors that maybe you think are attractive.
Every transaction, we look at individually irrespective of sort of categories and it stands on its own or it doesn't and if we think that it is.
Accretive.
Doesn't impair that doesn't harm.
Accretive without raising our leverage above our target it will pay the rent for the life of the lease without keeping anybody up.
That's a deal we want to look out if it fails on anyone of those metrics.
Probably a deal we don't want to look at and the other component of looking at that metric is.
Yes, it has to be of a high enough quality and fit and finish such that.
We're not concerned about it and the rent for diminishing.
Overall value the portfolio and each one has to stand on its own.
We're irrespective space, we don't look at it like.
Okay that makes sense that's it for me. Thank you very much.
Next question comes from Felicia Hendrix Barclays. Please go ahead.
Oh no Suntrust. Your line is open.
Oh. This is what was your question answer session I'd like to turn the conference back over to Mr. steward for any closing remarks.
Thank you off for listening to today's conference call I'd like to end with falling.
We continue to execute our long term business strategy and focus on creating a stable and growing income stream that we can enhance disciplined acquisitions of quality.
Our rent continues to be protected by our superior assets Master lease structure the parents level guarantee.
We believe our portfolio of properties at the highest quality collection of integrated resorts ever assembled.
And in addition to the quality of our assets. We also have the highest net rent coverage in the industry.
I believe there's significant upside to what relative trading levels and the underlying valuable real estate, which over time I'm confident we'll continue to be reflected in our stuff.
Thank you very much talk to you all next quarter.
Thank you Sir This concludes todays conference call. Thank you all for attending you may now disconnect your lines another wonderful day.