MGM Growth Properties Could Open Huge Doors In Upcoming IPO

| About: MGM Growth (MGP)

Summary

Hot on the heels of BATS' success comes another large deal; MGP engages in purchasing, owning and leasing casino resort properties in the United States.

In conjunction with the offering, MGP will acquire nine properties from its parent MGM; these properties had a total/weighted average of $3.8B in revenues in 2015.

We suggest investors consider buying in.

Huge syndicate includes BofA, Morgan Stanley, J.P. Morgan, Barclays, Citigroup, and others.

MGM Growth Properties LLC (NYSE: MGP) expects to raise $1.1 billion in its upcoming IPO. Based in Las Vegas, Nevada, MGM Growth Properties engages in purchasing, owning and leasing casino resort properties in the United States.

We highlighted MGP on our IPO Insights platform last week.

MGM Growth Properties will offer 50.0 million shares at an expected price range of $18 to $21. If the underwriters price the IPO at the midpoint of that range, MGP will have a market capitalization of $975 million.

MGP filed for the IPO on March 22, 2016.

Lead Underwriters: BofA Merrill Lynch, Evercore Group, J.P. Morgan, and Morgan Stanley

Underwriters: Barclays Capital, BNP Paribas Securities, Citigroup Global Markets, Credit Agricole Securities, Deutsche Bank Securities, Fifth Third Securities, Oppenheimer & Co., Scotia Capital Markets, SMBC Nikko Securities America, SunTrust Robinson Humphrey, and Union Gaming Securities

Business Summary: REIT Focused on Acquiring, Owning and Leasing Casino Report Properties

MGM Growth Properties LLC focuses on purchasing, owning and leasing casino resort properties in Las Vegas and other areas in the United States. Its resorts offer hotel, casino gaming, dining, entertainment, convention, mixed-use, and retail facilities, along with other resort amenities.

MGP intends to purchase nine destination resorts and one dining and entertainment complex in Las Vegas and elsewhere from MGM. As of December 31, 2015, the properties encompassed 24,466 hotel rooms, 100 retail outlets, approximately 2.5 million square feet of convention space, 200 food and beverage outlets, and approximately 20 entertainment venues.

The REIT bills itself as growth oriented and expects to acquire other properties in the hospitality, entertainment and leisure industries.

Initially, MGM Growth Properties will generate its revenue by leasing them to a subsidiary of MGM (tenant) through a long-term, triple-net master lease contract. Over the first twelve months of operation, the tenant is required to pay $550.0 million in rent. That performance is guaranteed by MGM. In addition, MGM will retain a controlling interest in MGM Growth Properties through ownership of Class B shares, although it will not own any Class A shares.

The properties include Mandalay Bay, The Mirage, New York-New York, The Park, Excalibur, Luxor, and Monte Carlo, all of which are in Las Vegas. Three other regional properties include MGM Grand Detroit, and Beau Rivage and Gold Strike Tunica in Mississippi.

Executive Management Overview

CEO James Stewart has been with MGM since January 2016, and he will become CEO of the Operating Partnership and its parent entity, MGP. His previous experience includes positions at Greenhill & Co., UBS Investment Bank, Morgan Stanley, and Salomon Brothers. Mr. Stewart earned an MBA from the Tuck School of Business at Dartmouth College.

CFO Andy Chien has been with MGM since January 2016, and he will serve as CFO of the Operating Partnership and its parent entity MGP. His previous experience comes from financial positions at Greenhill & Co., UBS Investment Bank, Citigroup/Salomon Smith Barney, Commerce One, and Intel Corporation. Mr. Chien holds an MBA from the Anderson School at UCLA.

Potential Competition: Gaming & Leisure Properties and Host Hotels & Resorts

MGM Growth Properties expects to face competition from other large REITs that focus on resort properties including Gaming & Leisure Properties, Host Hotels & Resorts, Apple Hospitality, Pebblebrook Hotel Trust, RLJ Lodging Trust, Chatham Lodging, and Ashford Hospitality.

Financial Overview (Pre-Acquisition of MGM Properties)

MGM Growth Properties provided the following figures from its financial documents for the year ended December 31:

 

2015

2014

Revenue

$600,422,000 (Pro Forma)

n/a

Net Income

$46,052,000 (Pro Forma)

($246,242,000)

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As of Dec. 31, 2015:

Assets

$7,793,639,000

Total Liabilities

$1,734,680,000

Stockholders' Equity

$6,058,959,000

Click to enlarge

Conclusion: Consider Buying In

We look forward to this enormous deal in the pipeline, bolstered by a big syndicate and hot on the heels of BATS' success last week.

MGP could open doors not only for ARA and SCWX later in the week but a flood of other companies (Uber?), waiting in the wings for a more favorable environment.

We suggest investors consider buying in.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MGP over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.