LAS VEGAS—MGM Growth Properties LLC (MGP) has redeemed 30.3 million of MGM Resorts International’s operating partnership units for $700 million. Following the redemption, MGM Resorts has $700 million remaining under its agreement with MGP to purchase up to $1.4 billion of MGM Resorts’ units for cash through February 2022.
“Today’s announcement is another example of our efforts to bolster our already strong liquidity position during the COVID-19 pandemic,” said Bill Hornbuckle, acting CEO and president of MGM Resorts. “As we gear up to reopen and safely welcome our guests once again at our properties across the U.S., maintaining a strong balance sheet and preserving our financial flexibility remain critical pillars of long-term success. This transaction both strengthens MGM’s balance sheet and delivers significant accretion to MGP. We continue to see significant value in our MGP stake and are optimistic that future redemptions will occur at higher prices.”
MGM Resorts intends to use the $700 million in proceeds to repay amounts drawn under its revolving credit facility. As of March 31, 2020, excluding MGM China and MGP, and after giving effect to the redemption and MGM Resorts’ recent bond offering, MGM Resorts had liquidity of approximately $5.3 billion.
Upon completion of the transaction, MGM Resorts will have approximately 172 million units, representing a 56.7% economic ownership in MGP. In addition, MGM Resorts continues to hold significant real estate assets, including its ownership of MGM Springfield, its 50% interest in CityCenter in Las Vegas and its 56% interest in MGM China.
“We are pleased with the benefits this transaction brings to MGP and our shareholders,” said James Stewart, CEO of MGM Growth Properties. “The redemption is double digit accretive to our current run-rate AFFO per share while maintaining low financial leverage, and the remaining $700 million unit redemption agreement provides a clear path for future accretion. This transaction also creates an even stronger liquidity position for our tenant, MGM Resorts, reinforcing our confidence in the stability of our revenue stream and the strength of our business model. As a result, we believe this should allow us to increase our next quarterly dividend, which would be the eleventh time in four years.”
MGP utilized cash on hand to fund the redemption. As a result of the accretion realized by this transaction, MGP expects that its next quarterly dividend will be increased to $1.95 per share on an annualized basis, a $0.05 increase from its prior rate of $1.90 per share. In addition, following the transaction, MGP will continue to have more than $1 billion of liquidity between cash and cash equivalents and its revolving credit facility with adjusted annualized pro rata net leverage of 4.7x.