MGM real estate subsidiary files for initial public offering

An exterior view of the Mandalay Bay on July 24, 2015.

MGM Resorts International’s new real estate subsidiary, which will own 10 of the company's properties, filed a registration statement for an initial public offering today.

MGM Growth Properties LLC said in its filing with the Securities and Exchange Commission that it planned to raise as much as $100 million from the proposed offering of shares, but that’s likely a placeholder figure for an IPO that could raise $1 billion, according to Renaissance Capital. Shares of MGM Growth Properties will be traded on the New York Stock Exchange under the symbol MGP.

Once up and running, MGM Growth Properties will own seven properties on the Strip — six resorts plus the Park dining and entertainment district — and three regional resorts. MGM Resorts will lease back all of the properties and should own a majority of the new subsidiary, which plans to be organized as a real estate investment trust, or REIT.

The real estate owned by MGM Growth Properties will encompass a collective 24,466 hotel rooms, about 2.5 million square feet of convention space, more than 100 retail outlets, more than 200 food and beverage outlets and about 20 entertainment venues, according to today’s SEC filing.

At first, MGM Resorts will pay $550 million in annual rent under its master lease with the REIT. The lease covers an initial term of 10 years, with options for extensions after that, and has a triple-net structure that requires MGM Resorts to “pay substantially all costs associated with each property,” the SEC filing said.

The Las Vegas properties owned by MGM Growth Properties will be Mandalay Bay, the Mirage, New York-New York, Monte Carlo, Luxor, Excalibur and the Park. The REIT will also own MGM Grand Detroit, the Beau Rivage in Biloxi, Miss., and the Gold Strike in Tunica, Miss.

Today’s SEC filing said MGM Resorts created the new REIT “in order to optimize (its) real estate holdings and establish a growth-oriented public real estate entity that will benefit from its relationship with MGM and is expected to generate reliable and growing quarterly cash distributions on a tax-efficient basis.”

The filing also touted the positives of all the real estate that the REIT will own in the Las Vegas area. It called the Strip properties “well positioned” and said they “collectively have a leading share in a strong Las Vegas market” that is benefitting from such positive trends as record visitation levels, strong convention attendance, hotel room occupancy and average daily room rates.

The filing said 72 percent of those properties’ overall net revenue came from nongaming sources in 2015 and that they accounted for about 24 percent of all hotel rooms on the Strip. Last year, the properties boasted an average occupancy rate of 94 percent, an average daily rate of $136 and revenue per available room of $128 — all higher than Strip averages, according to the SEC filing.

MGM Growth Properties will be able to expand its real estate portfolio beyond the Strip and the three regional locations in the future.

“In addition to the gaming and gaming-related properties we may acquire from MGM from time to time in the future, we will also actively seek to identify additional entertainment and gaming-related properties for potential acquisition from non-MGM entities,” the SEC filing said. “We intend to selectively grow our portfolio of gaming properties through the acquisition of assets that contribute to our tenant and geographic diversification, can be leased subject to long-term leases with tenants with established operating histories, have low operating risks and provide stable cash flows, consistent with our properties.”

MGM Growth Properties said it believed that “a number of gaming operators” would be open to sale-leaseback transactions that would be “designed to monetize their real estate assets.”

Today’s filing comes after Nevada gaming regulators last week approved a series of corporate moves related to the creation of the new REIT. MGM Resorts has already named the top executives and board members for the REIT.

Shares of MGM Resorts rose 1.29 percent to close at $21.24 today.