Shares of MGM Resorts International’s new real estate subsidiary were up 4.8 percent today at the close of their first day of public trading on the New York Stock Exchange.
The Las Vegas-based casino operator announced on Tuesday that the initial public offering of the subsidiary, MGM Growth Properties LLC, was priced at $21 per share, raising $1.05 billion on the sale of 50 million shares. The pricing put the offering at the high end of expectations, as a previous securities filing said the subsidiary expected the IPO to price between $18 and $21 per share.
Shares began trading publicly today under the symbol MGP, opening more than 8 percent higher at $22.75 and closing at $22.01.
MGM Growth Properties was formed largely as a vehicle to unlock value in the real estate of MGM Resorts. The subsidiary, a real estate investment trust, owns 10 MGM Resorts properties, including six casinos on the Strip plus the Park dining and entertainment district. MGM Resorts is leasing back all of the properties and continues to manage them.
“The real estate value that exists inside MGM Resorts was never fully appreciated or understood by a number of stock investors,” James Stewart, the chief executive of MGM Growth Properties, said in an interview today.
“Having this offering, where now an investor can choose to invest into the company that owns the majority of that special, iconic real estate, is really attractive to a lot of people and (has) opened up a new potential group of investors,” Stewart said.
The Las Vegas properties owned by MGM Growth Properties are Mandalay Bay, the Mirage, Monte Carlo, New York-New York, Luxor, Excalibur and the Park. Elsewhere, the subsidiary owns MGM Grand Detroit, the Beau Rivage in Biloxi, Miss., and the Gold Strike in Tunica, Miss.
Moving forward, MGM Growth Properties will be able to buy more real estate, including other properties owned by MGM Resorts.
The subsidiary has the option to acquire MGM National Harbor, set to open this year near Washington, D.C., and the planned MGM Springfield in Massachusetts, should MGM Resorts decide to sell them.
A filing with the Securities and Exchange Commission indicated that MGM Growth Properties was interested in acquiring real estate owned by other entities, too.
“I would say we are going to clearly focus on gaming assets, of course, given the DNA of the company, but we also want to be a little more broad than that and want to look at entertainment, leisure and hospitality assets as well,” Stewart said.
MGM Resorts holds a 76 percent economic interest in the operating partnership between it and MGM Growth Properties. Accordingly, most of the members of the MGM Growth Properties board are affiliated with MGM Resorts, including Chairman and CEO Jim Murren.
The close relationship between the two entities has drawn criticism from Jonathan Litt, the founder and chief investment officer of Land and Buildings Investment Management LLC. He tried unsuccessfully to get MGM Resorts to adopt a different plan for a real estate investment trust last year.
Litt wrote in an April 12 letter to shareholders that MGM Growth Properties was “problematic on numerous levels” from a corporate governance perspective.
But Stewart dismissed those concerns today, saying he was comfortable with the controls MGM Growth Properties had in place.
“I think it’s just unwarranted criticism,” Stewart said of Litt’s letter. “Anything where there is even a whiff of a potential misalignment of interests between (MGM Resorts) and (MGM Growth Properties), you have best-in-class governance to address such a thing.”
Stewart joined other officials from MGM Growth Properties and MGM Resorts in New York this morning to ring the opening bell of the stock exchange.