Q1 2021 MGM Growth Properties LLC Earnings Call
Good morning, and welcome to the MGM growth properties first quarter 2021 earnings conference call joining the call from the company today are James Stewart, Chief Executive Officer, and Andy Chien, Chief Financial Officer participants are in a 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 would like to turn the call over to Mr. Andy Chien.
Great. Thank you Sean good morning, and welcome to the MGM growth properties first quarter 2021 earnings call.
This call is being broadcast live on the Internet and MGM growth properties Dot com and net.
Furnished our press release on form 8-K to the S. E C. This morning.
On this call we will make forward looking statements under the safe Harbor provisions under the federal Securities laws.
Actual results may differ materially from those projected in the affordable statements.
Additionally, information concerning factors that could cause actual results to materially differ from these forward looking statements.
Contained in today's press release and in a periodic filings with the SEC.
During the call. We will also discuss non-GAAP financial measures in talking about the performance.
You can find the reconciliation of GAAP financial measures from the press release and our best of presentation, which are also available on a website.
Finally, please note. This presentation is being recorded I will now turn it over to James.
Thank you Andy with.
It was five years ago. This month, the a M. G P went public.
Our IPO was a watershed event the provided investors with an opportunity to allocate their capital into integrated casino resort real estate in a meaningful way for the first time.
I'm very proud of the fact that I was the company's first employee and even more proud of the team that we have built here at M. G. P. A.
Our disciplined approach to capital allocation and growing the company has allowed us to increase our dividend 12 times out of the 20th dividends paid including twice over the last year.
Presenting on the increase in the dividend level of 39% since our IPO.
High quality and growing dividends, along with value accretive transactions, having total generated a 132% gain for IPO investors.
In the face of last year's unprecedented economic challenges our business model demonstrated incredible resiliency and stability the critical nature of a real estate and our industry, leading tenant shine through and we had the best rent collection record of any real estate sector period.
M. G P collected 100% of its rents of cash and on time throughout the economic shutdowns.
We're very proud of our past, but we're even more excited about our future I believe we are in the early innings of a sector wide valuation re rating and anticipate cap rates to a compressed meaningfully in the near to medium term as we build momentum in the economy returns to full capacity.
We're encouraged to see multiple positive indicators that our properties in Las Vegas and in regional markets. Our drive to properties produced very strong financial results throughout the last year as well as in this quarter with robust margin expansion in Las Vegas, We believe our properties will continue to ramp up to 2019 levels and beyond is travel.
And capacity restrictions are reduced and the midweek group business returns.
There are a new and exciting developments that are announced each week. For example, this week because we know it was announced at CES. The consumer Electronics show is returning in person to Las Vegas in January of 'twenty 'twenty two.
I'm, Jim Resorts stated on their earnings call. This week that they believe their regional properties will return to 2019 levels by year end of 2021 and the.
Las Vegas gets back to 2019 levels in the first half of 'twenty 'twenty two.
All of these trends bode well for M. G. P. The propco Opco structure has now been utilized by many gaming operators to monetize the real estate assets improve the evaluations reduce financial leverage and grow their cash flow at a higher rate I am confident that as time progresses, all gaming operators will switch to this asset light.
Model due to its numerous advantages over the legacy wholly owned structure.
2021 is off to a strong start as we continue to execute our long term business strategy in March we completed the redemption of 37 million O P units from MGM using cash on hand, and the proceeds from a public equity offering which reduced the mgm's ownership to 42%.
This redemption was mid single digit accretive to a F F O per share and as a result of purchasing some units with using cash the.
The transaction was beneficial to both the M. G P and MGM as it further bolstered our tenants already robust liquidity position by an additional 1.2 billion well being a financially attractive transaction for us both the.
It's another example of long term value creation through partnering with our tenant MGM resorts.
On March 1st the first 2% rest of the rent escalator of approximately $6 billion under the M. G. P. B REIT joint venture lease went into effect and on April 1st the fifth 2% base rent escalator of approximately $15 million under the MGM Master lease went into effect, resulting in a M. G piece current annualized.
Pro rata rent of $992 million. This represented 80 per cent increase since the IPO.
In addition to the escalators and a current like leases M. G. P. As a right of first offer to acquire the real estate assets of MGM, Springfield, and future gaming developments at Empire City, which sits just north of Manhattan.
It's embedded pipeline of opportunities will help continue to grow a rental revenues in the future and further enhance our portfolio as we also explore opportunities with other potential tenants. We continue to communicate with a number of gaming hospitality and leisure operators to explore a potential real estate transactions that would help grow their businesses generate immediate liquidity.
The replace financial debt with predictable long term leases.
I believe M. G P will be even more successful in the future of that it has been over its past five years, we're well positioned for future growth and able to continue to deliver long term value to shareholders.
I will now turn it over to Andy to discuss our financial results.
Thank you James.
Let's start with providing some highlights for a few items in our first quarter financial results.
We recognize $188 3 million of rental revenue on a GAAP basis.
Cash rental payments received by M D P and.
Of our pro rata share of joint venture cash rent.
In total $243 7 million.
That consists of $206 9 million from India, a master lease.
$36 8 million from my share of the M. T P. B of a joint venture a master lease.
Our share of distributions received from the joint venture was $15 2 million.
Consolidated net income was $115 4 million.
Consolidated <unk> was a $166 9 million or 60 cents per diluted operating partnership unit.
Consolidated adjusted EBITDA was $249 million G&A expenses for the quarter or a three 7 million.
Now a dividend was 49.5 cents per share of which represents a $1 98 on an annualized basis.
As James mentioned, the operating partnership redeemed $37 1 million O P units for MTN using cash on hand, and proceeds from the public equity offering.
The following equity offering was executed successfully and the 2.85 million green shoot.
It was exercised in full.
The resulting in total net proceeds of $676 million.
A public float increased by 17% as a result of the offering and we now of approximately 265 million total shares and units outstanding and.
MGM ownership reduced to $42 one per cent.
The chose the redeemed a portion of the op units in cash because of the attractiveness of repurchasing our shares at the time and the confidence we have in our business.
All of the redemptions, we completed over the last year were great opportunities of buyback a portion of our business at attractive valuations.
And in an accretive mad men or during a time of a relative uncertainty in the broader markets.
Despite the events of the last year, we were able to increase our dividend twice throughout the year and once again in the first quarter of 2020 one.
For the current quarter.
We will have a full quarters benefit of both of the JV and master lease escalators as well as a full quarter of the 265 million share and unit count.
Our balance sheet is well positioned to continue to prudently allocate capital.
And achieve a accretive growth in 2020 one.
With the liquidity position of nearly $1 $5 billion existing.
Consisting of a $143 million of cash.
Our current pro rata net leverage of $5 seven a six times the temporary the temporarily above our targeted range of five to five five times, which.
Which we expect to return to you in the near term as we have done in sort of in the past.
The full effect of the master lease and enjoying a bunch of escalators and increase EBITDA in the second quarter of 2021 and help reduce leverage immediately.
With that I can turn it back over to James.
Yeah.
Thank you Andy Sean we'd like to open it up for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time of your question has been addressed and you would like to withdraw your question. Please press Star then two.
The first question today will come from Barry Jonas of with a true Securities. Please go ahead.
Hi, Thanks for taking my questions I'd like to start.
Yes.
It was a substantial transaction for the Venetian wanted to get your thoughts on that deal and the resulting price I think your name had been thrown out there by the media. So curious if you take a look.
Thanks Barry.
Can't comment on any specific deals, but I will comment a generally we are very bullish on Las Vegas, we think that I'm not.
The only while the city get back to normal as I mentioned sort of in my commentary first half of next year, but that.
A combination of pent up demand increased a desire to get out there et cetera, I really think that a much like the regional properties have done so well over the past year of the upcoming year or two years, it's going to be really Las Vegas, it's time to shine. So generally speaking we're bulls on Vegas.
We think stands as a great operator, we think that's a great property I'm sure. It's gonna do great under a pollo as well.
Think that the pricing.
Yeah, you know, which was when that transaction was announced we were not nearly as far along as we are now in the getting out of the COVID-19 situation. A was fantastic in terms of if anything to us it informed us a.
As to what a great value our own shares where that was done for a single property in a single assay at least at a at a multiple higher than our company was trading at the time with multiple properties a across the entire country with less than 50 per cent.
The less than 50 per cent in Las Vegas at a little more in the regions.
All sorts of different customer segments.
The master lease.
With every property that we have cross collateralized cross defaulted, we have a corporate guarantee do that multiple that they got there said to us that there is meaningful upside in the shares of M. G. P and partially informed our decision to purchase some of the MGM units in cash in the last redemption.
Great and then you know what's out of.
As a follow up at the MGM continues to reduce its stake I'm curious how discussions with other parties, including potential tenants had been trending.
Other town or the volumes.
Yeah.
I would say I don't think it's so much related to mgm's, a reduction from 53% to 42%, but the discussions are.
The robust there has been a number a I would say a marked uptick in the past month and a half maybe with just general dialogues and I think it's due to lots of factors one of the success of the lease model over the past year for many operators too.
A cost of capital is reasonably low when people can see their way to a transaction that we can.
By something that's accretive and be value of attractive to them. Three the there are a lot of factors going on in the business, which are generating increased interest in various locations, including desire to get physical properties and sports betting locations, a things like that and a lot of new jurisdictions opening up we of Illinois talking way of Virginia, We haven't.
The brassica, you're talking about expansion all of those things that really cause an uptick in overall discussions and a around deals.
Great. Thanks, Thanks, James Thanks, Andy.
Thanks Barry.
And the next question will come from John Decree with Union Gaming. Please go ahead.
Hey, guys. Thanks for taking my question.
Let me just wanted to dive.
Dive into Las Vegas, a little bit of new.
Last question for Barry was a little bit specific around the Venetian but yeah, we saw some big land sales.
It's a big prices on the rise.
The rumor mill goes off about other possible asset sort of the the Tropicana is changing hands as well.
<unk>.
I wanted to get your thoughts on if you think overall activity picking up if if Las Vegas.
If the activity is ever died down a.
During COVID-19 and we're just seeing stuff get over the finish line now or or if you really think theres a big pickup in interest in Las Vegas because of.
And how quickly the recovery starts to accelerate.
I think that as a result of.
Being a.
Very close to out of the woods with COVID-19.
<unk>.
Along with very low interest rates reasonably high equity valuations for many different entities ourselves and the operators et cetera, and Las Vegas being on the precipice of what will be a <unk>.
Rapid and a strong recovery.
There are a lot of people who.
Wanted to sort of a.
Want to get involved one way or the other I think the sale of two acres for $80 million on the City Center site is also a very informative you look at the amount of acreage that we own and they'll give it the Andy here in a second the comment you know, even a even where we own acreage in the prime locations across the Las Vegas strip just another IND.
The cater to me a gain of sort of the the upside in our own shares.
But I think that those factors of played into increasing discussions in Vegas, but also in the broader space Andy anything else.
Yeah, Yeah, I think that's a great point in terms of the land sales.
<unk> acres from $80 million.
And we own 156 acres on the trip. So I think that's a very informative as to just the underlying values.
Inherent in a portfolio that really underappreciated and look.
Las Vegas is.
You know really on top of this free rent in front of US resurgence of me Theres new properties opening down the street Theres, new attractions being added to the market.
And then the draft that's happening currently it's going to happen. The next year. Yeah. So it's a very exciting time for Las Vegas, We're gonna have riders in person I Hope you know a user.
At the end of this year eight home games. So these are all positive factors the Las Vegas hasn't yet experienced and I think it's really going to rebound.
A very strongly with these added benefits added attractions added.
Properties and that'll benefit the entire market.
Thanks, Andy and James I wanted to ask a question about one of your comments in your prepared remarks.
You know about that and your level of confidence that the industry is going to continue to migrate to the opco propco structure I was wondering if if a stuff you've seen recently, whether it's the recovery that gives you incremental confidence that that the industry is going to go.
Continue to go in that direction as some operators may be still haven't dip their toes into into working with the yourselves or or other re partners just yet.
A it's partially the recovery, but I would say more than that it's just it's that we've had a long enough history now of operators are successfully operating under a lease structure.
As opposed to needing to be owner operator.
Some of the questions that were being knocked around by operators you know a three four or five years ago on whether or not the structure could work, but it worked through a downturn what a fat and this happened what if we I mean, I remember of anyone saying, what if we got shut down due to pandemic, which would have been the most extreme question, but as they look at that as a.
<unk> saw the experience through.
Multiple types of cycles going back in you know of almost 10 years ago and the success of the operators that have had that structure the fab.
That there is almost always a rather sharp multiple enhancement that comes from bifurcation of the cash flows between the real estate owner and operator.
I think that it's not lost on them and I think that.
A there's a reason why most of the deals that are getting done around either requiring new properties or a restructuring.
The restructuring your own portfolio of if you need capital to accomplish some strategic goal are almost all being done in the structure. It just generates a higher overall value for the asset.
By tapping into the real estate Investor Who's looking for you know.
A higher dividends and more stable capital intensive returns and then Lucky and then and as well as the gaming operator of Investor Who's.
Looking at some of the exciting things going on that side of the business.
Thanks, James I appreciate your insights.
Yeah.
And the next question will come from a Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys good morning.
Hum.
Okay.
Whoever wants to kind of take it a.
I would think about.
The stability in the cash flow having come through the pandemic.
As a unscathed as all of you have a.
When you think about kind of of the dividend and how you shape that going forward and you think about the current yield environment that we're in right now in domestic equity markets has your thought process of route.
Perhaps the percentage that you are paying out changed at all or the timing of of increases.
And the levels to which you want to take that dividends in this current climate change much or is it still kind of steady as she goes.
A raise of educate your escalators.
And stick to that kind of a similar percentage of assets all of that you have.
Hey, why don't you take it.
In terms of the dividend and the essence they'll pay out.
We remain pretty consistent in terms of a payout in the low 80 percentage range.
We're confident in the stability of strength of the rental payments and that's the F. F. L. A.
Or a payout ratio I think is market is right in line and we're confident in that level. Obviously these are discussions with our board every quarter.
And they've always agreed with our outlook in terms of payout the pay.
<unk> of.
Of increases as we go in the.
Have a dividend for Q1 that we pay it out.
And yet fully.
Fully contemplate a full rate of the 265 million shares.
Due to the redemptions that we did in March a.
And also it didn't have the benefit of the JV escalator for quarter and also the.
Master lease escalator hasn't yet happened.
And that happened on April 1st and so Q2 is going to have.
A higher run rate.
I think that it gives us another opportunity to discuss with the board.
And I'm thinking of the payout ratio of backup into the Eighty's.
The low Eighty's, that's kind of the past that's a generally how we looked at it and I am I believe it'll be pretty consistent go for it as well.
Great. Thanks, Andy.
[laughter].
And the next question will come from Shaun Kelley with Bank of America. Please go ahead.
Hi, Good morning, everybody I'm James Andy just wondering I think Andy in your prepared remarks, I think you mentioned a little bit about the current leverage ratio of bringing that down a little bit is that just normal course through a the rent escalator and some of the excess cash generated of the business or a what's the mechanism or a path.
To getting there.
Yeah, I think just your normal course.
We have the the existing.
So to get back into that range, you're right the escalator hasn't hit yet hadn't hit yet by the.
Q1 numbers that we.
Posted a in addition, the retained cash the undistributed cash from the dividend a portion of the payout that's retained by the company will also help deleverage the balance sheet over time the wheel.
Also have the other balance sheet tools to the extent, we like to utilize the ATM, we still have north of a.
And over 100 million tons of authorization and it's easy to refresh that is one of them they get through that and.
And to the extent of doing an equity offering with a transaction we can certainly.
The use any kind of upsize or otherwise to bring leverage back into that range per day.
Of the Opportunistically as well.
Great and then the second question is obviously the big of that in the quarter was the the op unit sale and the Springs Mgm's ownership down to 42 per cent.
I know this is always difficult for you to comment on but I just.
Kind of try and ask anyways.
What's sort of the you know the thought process or a pattern from here in terms of a movement.
Moving it forward and possible opportunities around the deconsolidation of what that could mean for you know for.
Good day.
Yeah.
Yeah. It's.
It is a it's not really in our <unk>.
Control since the shares are obviously owned by MGM and they can choose to do with them.
As they will a I know Jonathan Health care had commented on the MGM call that it's a balance between getting value for those shares and progressing down the asset light structure that they have discussed as a longer term goal.
And also then balancing off the high.
Dividend that the received back from us so as they look at their own capital needs a capital allocation plans a desire to be asset light et cetera. Those are the things that they have the balance off as well, but it really is a completely in the sphere of their control.
Thank you both.
Thanks, Sean.
For the next question will come from of John Masako with Ladenburg Thalmann. Please go ahead.
Good morning.
Hey, John at the risk of maybe has got plenty of at.
At the risk of maybe going down.
Another line of kind of questions that are really even more of MTS control I mean, what is the outlook at this point for MGM Springfield, and then maybe you can kind of broadly speaking you talked a lot about the the Las Vegas market and the potential kind of acceleration of the recovery, there, but given where the regional assets are today I mean, how do you.
Think about pricing in a cap rate.
For a potential regional transaction, maybe both MGM Springfield in third party deals.
I'll start and then Andy please feel free to jump in.
So MGM Springfield, a absolutely beautiful brand new property built a greenfield.
<unk> opened up August late late August 2018.
And a operated for that period of time, and then obviously COVID-19 hit.
They were still experimenting and figuring out the best way to operate that property in terms of maximizing a the.
The revenues of cash flows that come out of the come out of the the box when COVID-19 hit in COVID-19. Although you know I would certainly never wish. This on you know the.
Of the world a gain and lets hope it never happens again.
Did provide an opportunity to really start from ground zero of fresh very fresh to figure out what types of staffing marketing programs et cetera, a really work not just for Springfield, but for all of the regional properties, which stayed open many of them stayed open through this as well as for Las Vegas, and I think that.
That property has really hit its stride it appears to be doing great. The margin expansion is great and it's benefiting immensely from a much of the learning since opening so it for.
For us I think given we have the ROFO. It's really a question of okay. It takes two to get a deal done of MGM wanting to have the liquidity and wanting to execute in such a transaction and us.
Likewise on the other side wanting to do it but I think given Mgm's a stated asset light goal it would be a natural to see that one coming around you know I'm not going to predict the time, but I think it's a.
A clear one given the ROFO and given asset light that a word.
Like to get done.
The underwriting regional properties.
We approach underwriting on a very very property specific basis for Springfield. If you think it's brand new it's at a greenfield market.
The fit and finish is extremely high and so on so we would evaluate that one way.
If you looked at a 30 year old property as you know has a little place in front of a river boat in a very very small city.
A very small town of some of the regional properties of our read of evaluate that a very different way. So although I think margin expansion and increased profitability has.
Ben the hallmark of almost every regional property of at least every drive to property.
It really is very very specific as you get into a more competitive markets I think the pressures to have the margins come back down to a more normalized level are going to be higher. However, I think some of the margin improvement will stick.
As the.
Experiences of running from a complete closure and reopening up slowly have allowed the operators to really figure out what exactly works and what doesn't in terms of a.
Enhancing cash flow and we treat each one separately Andy anything else.
Yeah, the only thing I'd add and it just sort of gesture question John in terms of pricing.
I would say the recovery in the region and in the recovery and margin expansion in the higher EBITDA levels that a lot of the regional properties are experiencing.
I don't think that's really affected the pricing so much as people look at or have more confidence and a rent coverage levels on but people aren't pushing the envelope and that the it's a two way its a contract that is two parties and then it has to be willing.
For them to pay a certain level of rent then we have to be willing to accept a certain level of all of them a grant based.
Based on either for looking results or past results and so I think it.
It gets back to a more or less normalized level that people settle on at the end of the day, whether it's regional or a Las Vegas in Las Vegas is still on the way back.
But people still look at normalized levels, two to instruct a rent levels and pricing look there's only so many parties out there.
From that look at these transactions and so now that you can look at the screen and get a fine point on the pricing every day, a really it's driven by a.
And the buyer's willingness and ability to pay.
And to make that transaction line.
Okay, and then I mean.
It seems like there is maybe somewhat of a of a pricing gap or a or a cap rate GAAP. If you will between strip assets in regional assets, but with the potential maybe to put something like MGM Springfield in a.
The master lease.
Does that change maybe the calculus at all in terms of cap rate.
Maybe just broadly speaking I don't want kind of a negotiating against yourself on the call here, but just how should we think about that as a standalone asset versus kind of being in the master lease.
Yes, generally speaking I would say a match.
Master lease provides you the additional credit strength right, having multiple properties cross collateralized versus the single class a property.
And.
You know 10 of an ability tenant history.
The tenant balance sheets.
Those all factor into the.
The strength.
The lease and so to us those are important factors in underwriting any transaction.
And having that strength, that's the ability of tenants.
All of that great balance sheet and added.
Protections of the master lease for a single asset leases.
Those things are important to us and a.
Over the past year I think that's demonstrated.
Is that a creative that safety that a lot of sleep at night that all of that our investors a sleep at night.
Look through to the MGM resorts of the tenant.
Great cash position.
Even greater for cash position today.
Great balance sheet.
Certainly a willingness and ability to pay the desire to pay a given the importance of the properties and the cross collateralization across the master lease of the properties.
That provides the base line for the strength of our company and or at least.
Okay. That's it for me. Thank you both very much.
And the next question will come from a J corn rich with F. N. B C. Please go ahead.
Hey, Thanks, very much I'm, just going back to a previous comment so beyond the mgm's own discretion on redeeming more OPE units, just with the level of ownership and voting rights at a mismatch has there been any recent dialogue between you guys and damn about potential structural changes such as moving the b share early or changing a M. G P for them.
From an LLC structure.
Oh, well I will say on that is anything that we think enhances the value of M. G P shares, which as Andy and mine and the whole management teams here.
Very strong focus and.
What we are all doing here on a day to day basis will be discussed with the would be discussed with them. So anything.
At all that we think enhances our value, which will then in turn enhance their value since day 142 per cent of the shares a we discussed of the dialogue is a robust open friendly and very positive.
Okay Fair enough and then as a follow up.
The New York a proved a referendum for downstate full scale of casinos do you of any thoughts you can give in terms of timing of potential size of the onsite development of MGM could do at Empire City, which you have a ROFO four.
A I think that the.
The bringing of a full casino.
Empire City.
As opposed to strictly slots out of track, which it is right now has immense upside for that location of property.
At a conference once I was sitting in a room.
Inside the Midtown Hilton.
And I worked in between I would look at the distance on the time on Google maps at various points in the day to go from that location to the two Empire.
And many times a day it was 30 minutes. So the fact that we have over 100 acres less 30 minutes, a north of Manhattan, and the ability to put a full scale of casino. There is a immensely positive I think it's very dependent on.
What do you think the overall market is what the tax rate is what the competition environment looks like et cetera, but I think it would be a significant increase over the historical EBITDA for the production out of that space and it could be real upside for us.
Okay. Thank you very much.
Thank you.
And the next question will come from Rich Hightower with Evercore. Please go ahead.
Hi, good morning out there guys.
We've covered a lot of ground today, it's a I've just got one for Andy on the balance sheet, but if a if I think about the context of.
The low interest rates and specifically LIBOR over the past number of years you guys have some a rather uneconomic.
Swaps still sitting out there the vintage of which in some cases goes back to I think 2017. So you know with the passage of time.
And lower interest rates, just maybe walk us through the economics of.
Thinking about breaking some of those the swap agreements and the impact of <unk>. Thanks.
Sure. Thanks, Thanks rich.
Yeah in terms of the philosophy do have a good portion of the swaps rolling off a.
Inside of about six months I'm, just naturally and so those.
Is it much of that we need to do there because those would have a potential upside effect on it that's L. A as a result of just rolling off the accurately we do have some additional for.
For starters that would come back online.
Right after it but not for the same level of that we have currently and so I think there's definitely some potential upside just from savings on paying those interest rate swaps and the the they are in older vintage of LIBOR is much higher than.
And then we since repaid all of our term loan and so there's less utility for them. So.
So we will evaluate the from time to time to see if there is a opportune.
A time and cost to break those and then all of that is seen as a thought to a straight day at that so as we find that type of thing it's not the pizza.
Okay. So.
It is safe to say you would you would call it an economic thing to do where we sit today then.
Yes.
As you know we look at it on a pretty regular basis.
And when we find the right time, I think I think we'll execute on that and it kind of makes sense. There is a somewhat higher cost today. It has improved since last quarter.
And to the extent a.
You know, we see a different looking curve go forward.
There could be a.
Some additional savings of a.
Waiting for some of those haven't started yet so there isn't a cost current cost to them. So we have the time to walk the.
What's the with us.
All right got it thank you.
Yeah.
And the next question will come from Daniel Adam with Loop capital markets. Please go ahead.
Hey, James and Andy Thanks for taking my question I'm, sorry in the U you kind of touched on this already a.
But I'm going to try to ask it another way a so on the M. T M <unk> earnings call.
It was really the first time in a long time, the management didn't explicitly commit a continuing to reduce its stake in M. G. P beyond what they've done already.
I guess is that also the sense that you guys were getting based on your conversations with them and you know.
To the extent that is the case do you still see a path to diluting mgm's ownership the below 30% from 42 per cent today.
Well as I mentioned, it's really exclusively in there a bailiwick of decision, making they can obviously decide the best path for their company and what they want to do with their.
The investment into M. G P, which has been a very attractive on a pace of high yield.
Everything that I of.
<unk> heard from them their desire to be asset light that is sell off their high value capital intensive real estate that they own including the stake in a assortment.
Get to the point, where they can deconsolidation into a nimble.
Higher growth less capital intensive business still is on track I've never heard of any one step back from those comments.
In terms of desire to be asset light timing wise.
A.
I think of I mean, it remains a corporate goal and I think that there's lots of benefits that come to both companies for that happening, but it's.
You know, it's exclusively up the MGM their senior management and their board.
Okay got it that makes sense. Thanks, James and then just as a follow up.
It is hard to believe that it's only been three years. Since you guys made an offer to acquire a beachy I'm just wondering if you know.
Given the.
Other triple net deals that we've seen recently, whether you you guys have regained in the appetite for a horizontal M&A.
Thanks.
Hum.
And I can't comment on any specifics around any type of transaction I would say.
Anything that enhances our share price.
Over the sustainable.
Medium and long term.
Something that we want to execute on one of the.
Characteristics of REIT mergers and I think this industry would be you know the gaming oriented REIT sort of maybe even have this and sharper size is the SG&A compared to the overall revenue line of market cap line is usually very low.
And so you don't get the synergies that result from other transactions in other industries. So.
You know of whereas we look we again anything that will enhance our sharp stock price over the long haul we think is a good idea.
But Ah <unk>.
Some of the juice that you find in other industries like the gaming operator side or whatever just isn't there. So it is typically a little less clear.
Clear as to the benefits of getting significantly larger it makes it a little harder to grow on the other hand, you a much larger more liquid company.
Yeah.
Yeah.
Yeah, Okay, great that's it.
And the next question will come from Smedes Rose with Citi. Please go ahead.
Hi, Thanks, I, just wanted to revert back a little bit to your comments around potentially changing the corporate structure and in the past you've said that.
That prevents you from being included in some indexes, but that it was a matter of time for the board to get comfortable with a potential change there.
Can you just sort of maybe provide any sort of updated sense of timing on that and then speaking of the board is there a point where you would also maybe be a included.
On the board.
A C G P.
Regarding the L. L C. Its a it does prohibit us from are taking a number of indices.
Think it's you know the.
Eventual inclusion to those indices will be a very nice catalyst for M. G P shareholders.
We there hasn't been any status changes I can really talk about specifically on this call other than to say.
We understand the benefits and we highlight both the benefits of negatives and ultimately it's up to the board to decide as it relates to the other question that is.
Dependant on the existing board and I would be I will I'm more than happy to take any rule that a where I can add value and help the M. G P expand grow and increase our share price.
Okay.
Okay. Thank you.
And the next question will come from Robin Farley with UBS. Please go ahead.
I'm a great just wanted to circle back to the topic of Vegas, one as you know you mentioned that the transaction for the.
Two acres at city center for $80 million kind of suggests.
Suggest the value of a lot of room.
Did you have or argue are there conversations to kind of monetize some of that given given the values that you're seeing.
Andy you want to take it since I've talked here for the last few share none of them from let the the values that we saw from the recent trade obviously, a few translated to our entire portfolio would be just the land itself and the things to work more than the company, but like the land.
That we do have throughout the portfolio to the extent there isn't a strategic use.
We in conjunction with.
MGM was certainly evaluate that and because of the triple net lease they do have a strategic use of Citi.
They say they do then I'm the it wouldn't be considered excess land.
But to the extent there isn't a bad land has a value to somebody else.
And it's worth more to them and to both MGM and N. G. P. A M. I think that could you know those are certainly ideas kind of strokes that we're more than happy to discuss with people.
So actually a MGM has the ability to to not allow you to sell acres a P.
Also as some of the sites that you own.
I understand.
Well, it's as you know and it says it's a joint decision right to the extent there you know they are the tenant of the land and.
We wanted to sell the land underneath.
Create a.
That's a separate leases an example, but.
A they're utilizing the land in there now they have the.
A long term lease for it so if there's a transaction the mobile device.
And they have a majority of our board so.
No.
We would have to jointly work on.
That would be decided jointly.
Okay No that's helpful. Thanks.
I think the debt.
You talked about this and I apologize if you did and I had a miss it but the just the potential in general for City Center, a two to be.
For the co owners, there to turn that into a sale and leaseback is there kind of any day.
The new thinking on the type of potential timing for that.
Yeah.
Well there are three parties that would be involved there presumably it would be MGM Dubai World and us a we think generally speaking we got a asset is fantastic.
It's a very new asset on the Las Vegas strip beautiful inside excellent fit and finish.
Really a found its stride in terms of successful operations in attracting the very strong customer and the right customer niche. So it's a deal that we would obviously love to do.
And.
It is the parties come together, we'll see if something eventually happens, but a timing is up to all three parties figuring it out and working at home.
So nothing nothing new there.
And then just the last question.
With the Venetian sale I guess it seems like it could have been worth more to a buyer to a sort of a joint right right and.
Tenant manager and it kind of worth more to somebody that has existing Vegas properties, where there would be really obvious synergies to the handset that a buyer like that would have been able to offer.
The price then you know kind of a single asset and the same thing that you know that in a master lease wood wood would be better as well for them for the the.
A REIT buying the underlying value is theres. Some what why do you think that a I guess you know I don't know if you're from.
On the valuation of it or why why was it not worth more to maybe you and your existing tenants.
A well I can't really comment on any specific deal other than to say, we focus on the real estate real estate side of the business. So you know synergies are of value that comes from.
The other properties cross marketing whatever that's really the bailiwick of the operator.
And a I think it probably would be best directed individually to them to try to figure. It out again, we focus really just on the the real estate side of the business and is it a good solid lease for the good tenants and a accretive without needing to leverage our balance sheet beyond our targets assuming the cause.
As of the Master lease the agreement right at least that part would've theory made it more attractive to you. If it was included in a master lease versus.
The from the real estate owners perspective.
All of our properties are master leases and generally speaking, we think that it's an advantage the habit.
Yeah, I'm thinking that's that's all I'll say there okay alright. Thank you guys. Thanks, Thanks, Robyn Thanks Ryan.
And the next question will come from Nick <unk> with Scotiabank. Please go ahead.
Hey, this is Greg mcginniss on with Nick just one question for a month a some based on the commentary from MGM management regarding the earnings recovery of the regionals in Las Vegas casinos.
Net appear optimistic enough that the rent escalator a might be triggered next year, where do we still need to see kind of a recovery above and beyond that or faster.
In order to trigger that.
Yeah.
Okay.
Sitting here well not quite in may yet, but we still got them you.
You know the.
The majority of the year to go and certainly the the uptick in business both in Las Vegas, as well as of the regionals.
I think a very encouraging and so you know we.
We can't predict the future, but it does seem like the recovery is ahead of a.
What people had expected.
And so we're not you know we havent.
You know made a call and obviously, we cannot make a call until we have the actual results, but a I think things are looking good from here on out and we're hopeful that a we can achieve that that's great.
Alright, Thank you Wendy.
And the next question will come from David Bellinger with Green Street. Please go ahead.
Good morning, Thanks for taking my call with.
With the Realty income acquisition yesterday of a varied.
Obviously going to be a very large triple net company moving forward.
Just given the chunky newness of transactions in the gaming space and how much growth is.
The rewarded by the public market for the traditional net lease companies.
As they turn their attention, possibly the gaming what would be some of the obstacles for a new entrant here maybe.
Maybe speaking to the importance of operator relationships and industry Knowhow.
Yeah.
A for a new entrant to come in it's it's.
It takes a lot of learning you find as a the properties are spread through the country, obviously Las Vegas being the the.
The city of entertainment right the home of the industry, but there's many other properties spreads for various states.
And each state has its own regulatory framework tax framework outlook towards the business, a and all sorts of requirements, which.
You have to thoroughly understand before I think putting down a big bet in terms of dollars.
Understand that the Las Vegas market is given it is very unique given the size of properties size of hotel size of gaming floors, which they have in none of the other properties et cetera, and I think a deep understanding of the industry.
He is very very critical for the other thing is any gaming acquisition for any of the Reits that focus on retail triple net would be I would guess their biggest other than a vertical acquisition like a.
The old buying V Reed would be the biggest property deal they've done by I don't know what a factor of a thousand and would immediately I suspect become their largest tenant in one deal with one property. It really is a counter to the way that all of the retail oriented triple nets have marketed themselves to.
Esters, which is highly diverse set of very tiny tenants spread through the.
The country, so just be completely different licensing being the last one you yet in every state of the Nevada that we operate you have to undergo a licensing process, which is a.
Very significant in terms of the information that one has to provide and so on all of those things play into the analysis of whether or not you want to get into the business and I think that the buildings that we own in our other brethren who are in the the gaming oriented resort business one of.
And the transactions that we're doing in the relative valuation of the company and so on a <unk>.
Very very attractive and I wouldn't be surprised if other people want to if the.
I want to look at it but actually writing a check for a $1 billion for a single asset a.
For the single operator, I mean for example, the smallest deal we've ever done $640 million one asset.
Is very counter to the general thinking of sort of a.
As you know retail oriented triple net lease.
Company.
Yeah.
Right that makes sense. It seems like some of those gating issues. You just mentioned it might be a reason why cap rates it seems.
Higher in the sector than what we would assume on a risk adjusted basis for other sectors.
So it maybe a participation by a say more traditional net lease REIT. If it were to occur would you view that as something that's a.
Validates cap rates in the might get multiples in the gaming sector to.
Be more.
At least closer to the traditional triple net lease space.
I do I think that I think theres a lot of things that will cause that to happen, but I think the just the validation of the space from a group a game, which is market itself to investors for differently for the type of things that we're doing here.
Switching would be should should accelerate the re rate that I think ultimately is coming anyway.
Got it thank you very much.
Okay.
Thank you. This will conclude today's question and answer session as well as the conference. Thank you for attending today's presentation and you may now disconnect.
Okay.
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