MGM’s new REIT makes entrance with Borgata buy
MGM’s new REIT makes entrance with Borgata buy
08 AUGUST 2016 8:34 AM

MGM Resorts International executives offered little color on the company’s REIT plans but expect MGM’s Borgata buy to open doors. 

LAS VEGAS—MGM Resorts International is coming out of the gate with a major buy for its public real estate investment trust spinoff MGM Growth Properties.

On 1 August, the REIT closed on its first purchase—a 50% interest in the Borgata Hotel Casino & Spa in Atlantic City, New Jersey—for an all-in price of $900 million.

“With this transaction, we've added another premier asset to our portfolio and increased our rent by $100 million to $650 million on an annual basis,” said James Stewart, CEO of MGM Growth Properties.

Stewart said the REIT has additional growth planned.

“We are actively involved in a number of different dialogues,” he said. “I think they are very interesting. People seem receptive, and we’re working hard to move them forward.”

Banking on Las Vegas
MGM Resorts International Chairman and CEO Jim Murren said he expects Las Vegas to play an important role in the company’s third-quarter performance.

“We're forecasting our Las Vegas Strip resorts' revenue per available room to grow by 7% in the third quarter,” Murren said during the company’s second-quarter earnings call. “This we believe is an indication of the continued strength of Las Vegas markets certainly doing better than U.S. as a whole, and of course we're responsible for over 40,000 of the rooms here.”

During the second quarter, RevPAR at the company’s Las Vegas Strip resorts increased 3%, while rooms revenue at MGM Resorts’ domestic resorts increased 2%, according to the company’s earnings release.

Domestic resorts cash flows increased 12% year over year, with five consecutive quarters of double-digit earnings before interest, taxes, depreciation and amortization growth. The company’s Las Vegas Strip resorts cash flows increased 13%.

“We had an extraordinary May last year (in Las Vegas), that included most notably the Mayweather-Pacquiao fight,” Murren said. “We also had a couple of major music festivals, and of course it made for really tough second quarter comp.”

The company’s profit growth plan that was announced a year ago has made “tremendous” progress year-to-date, Murren said. During the quarter, the plan drove the company’s domestic resorts adjusted EBITDA to grow 12% and adjusted property EBITDA margins to improve by more than 350 basis points, despite a record-breaking May last year.

As of press time, MGM Resorts’ stock price was up 7.6% year to date.

Leisure and convention business
The company’s leisure and convention business continues to be strong, Murren said.

“In the third quarter alone, we already have on the books, for MGM Resorts, 150,000 incremental convention roomnights versus last year,” he said, adding that historically this time period has been a shoulder period for the sales team.

“We're going to have the strongest convention mix in the third quarter in our history,” Murren said.

He said convention momentum will carry over into the fourth quarter and beyond.

According to COO Corey Sanders, group roomnights on the books are up 8% year-over-year.

“As it gets into next year, we think we're going to have a record in terms of our group business,” Murren added.

It’s also been a remarkable summer is Las Vegas for leisure business, Murren said.

“We're seeing more consumer activities than we've ever seen in a summer,” he said. “And that has resulted in a very good spending across the entire portfolio of what we have to offer, food and beverage, entertainment, hotel and gaming.”

The company is seeing a resurgence in high-end gaming business to Las Vegas, and a lot of those customers are coming from Asia, both mainland China and a variety of other markets in the Far East.

MGM pipeline update
MGM Resorts is entering the final stages of the construction of MGM Cotai, the company’s second casino resort in Macau.

“We've been working really well and closely with our contractor, China State Construction, to get this one over the finish line,” Murren said about the flow of the 1,600-room project. “We are going to be absolutely sure we make this resort the best it possibly can be, and it will meet our high standards and the high standards of China State. We're going to get it right the first time.”

The MGM Cotai was originally scheduled to open in March 2016, but the company decided to push back the date into the second quarter of 2017.

“This will give us just a little bit more time,” Murren said. “It does increase the budget slightly by 1% to $3.1 billion, but we think the time is worth it, and both MGM and China State are committed and working well toward that time frame.”

The company also expects to get a big boost in 2017 from the opening of MGM National Harbor in Prince George’s County, Maryland, near Washington D.C. The resort is expected to open by the end of the year.

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