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MGM swings to Q3 profit, announces plans for REIT

MGM Resorts International (MGM) posted better-than-expected Q3 earnings as strength from its U.S. operations outweighed a 33 percent decline in Macau revenues and announced a plan to set up a real estate investment trust.

While conceding that the REIT plans may take up most of the headlines, Deutsche Bank called the 3Q report “a truly strong result across the board.”

Diluted earnings per share for the third quarter of 2015 were $66.4 million, or $0.12 per share, compared to a loss of $20.2 million or $0.04 in the prior year quarter.

Adjusted for pre-opening expenses and property transactions, EPS was $0.15 compared with a loss of $0.02 a year earlier, way higher than expectations for $0.03, according to Capital IQ.

Revenue fell to $2.28 billion from $2.48 billion a year earlier. Revenue from the casino operations was down to $1.18 billion from $1.42 billion. That's slightly short of the $2.29 billion analysts had been looking for.

MGM China earned net revenue of $529 million, a 33 percent decrease compared to the prior year quarter. Main floor table games revenue decreased 30 percent compared to the prior year quarter, while VIP revenue dropped 39 percent.

Property level EBITDA came in at $128 million versus Deutsche Bank’s $118 million estimate and the StreetAccount consensus of $124.4 million.

“Margins were 210 basis points above our forecast (24.2% versus our 22.1%) and down ~268 basis points versus the 3Q14.”

MGM said its new Cotai project remains on track to open in the fourth quarter of 2016. It said it has reached a milestone with the topping off of its hotel towers. 

"We have completed the structural steel installation on our Spectacle roof structure. Featuring approximately 1,500 hotel rooms and up to 500 gaming tables with over 85% gross floor area of non-gaming element."

The company, which had been under shareholder pressure to unlock value, also said it will create a controlled real estate investment trust to be named MGM Growth Properties. MGM Resorts will contribute the real estate associated with ten of its premier properties and MGP will assume approximately $4 billion of debt, which is expected to be refinanced with the proceeds of debt and equity issuances.

MGM Resorts also announced that it confidentially submitted a draft registration statement on Form S-11 to the SEC relating to MGP's proposed initial public offering. MGM Resorts expects to complete the transaction in the first quarter of 2016, subject to market conditions and required regulatory clearances.

“Moving the rent to MGP along with $4B of debt is not in itself very de-leveraging, but it allows them to lower interest cost on the $4B (assuming they pay down some debt) and to raise some additional equity that MGM itself would likely be unable to raise, so there is likely to be some accretion to value from that transaction of raising equity at a higher multiple to pay down expensive debt,” UBS said in a note on the REIT transaction



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