MGM Resorts Got Itself $700 Million Through Redeeming Operating Partnership Units

Article by : Helen Dec 15, 2020

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MGM Resorts, together with its real estate investment trust, MGM Growth Properties, has announced on December 2 that the latter company redeemed approximately 23.5 million of MGM Resorts’ operating partnership units in pursuit of improving its liquidity. The redeemed units amounted to an income of $700 million.

This is the final stroke in completing MGM Resorts’ agreement with the real estate investment fund, which revolved around the latter purchasing $1.4 billion of MGM Resorts’ operating partnership units. As a result of the transaction, MGM Resorts can now boast $5.9 billion in liquidity (without counting MGM China’s and MGP’s assets) – i.e., current assets minus the company’s liabilities.

As the press release stated, MGM Resorts plans to use the raised cash for “general corporate purposes,” without specifying what those could be. As another result of completing the agreement between the two companies, MGM Resorts will end up with a 53% “economic ownership” in MGM Growth Properties.

To make sure we’re on the same page, here’s a bit of context on what operating partnership units are. They are a form of currency companies use to purchase real estate assets without running into tax-related issues. In fact, the units are limited partnership shares that could be exchanged for common shares later on.

Our recent capital raise will allow us to fully fund this final redemption under the waiver agreement with cash on hand while still maintaining a balance sheet positioned for future growth. The redemption is expected to be single-digit accretive to our current AFFO per share while allowing us to maintain pro rata net leverage of 5.3x, which is within our targeted range of 5.0 to 5.5 times.

“Today’s announcement reflects our continued focus on enhancing our balance sheet to strengthen our financial flexibility,” said Bill Hornbuckle, CEO and President of MGM Resorts. “As the pandemic continues to impact operations at our properties across the U.S., we believe the opportunistic exercise of our redemption right as well as our recent senior notes offering allow us to continue pursuing our strategic goals while navigating the crisis.” There is hardly any surprise MGM Resorts decided to boost up its liquidity. The company reported an operating loss of $495 million in the third quarter of 2020, with the net loss amounting to $535 million. Even though, as of the end date of the quarter (September 30), all of MGM Resorts’ properties were open, the coronavirus pandemic clearly affected its bottom line. The company’s consolidated adjusted EBITDAR was a loss of $49 million in the third quarter.

Bill Hornbuckle, CEO of MGM Resorts International, had this to say about the 3Q2020 financial results: “We remain focused on responding to the pandemic with effective health and safety protocols. We have modified our operating model to adapt to the current environment and we are executing on our long-term growth initiatives, particularly in U.S. sports betting and iGaming, where BetMGM has gained significant momentum.”

MGM Resorts is a casino mogul that operates 29 hotel and entertainment properties in the United States and Macau, including the famous Bellagio and MGM Grand. It also has a 50% share in BetMGM, an online gambling venture, a controlling share in MGM Growth Resorts and MGM China, and it continues to own MGM Springfield. MGM Growth Properties was founded in 2015 as a public company specializing in casino real estate. It owns 12 properties across the United States, all of which are leased back to MGM Resorts and operated by it.