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Edited Transcript of MGP earnings conference call or presentation 14-Feb-19 5:30pm GMT

Q4 2018 MGM Growth Properties LLC Earnings Call

Las Vegas Feb 19, 2019 (Thomson StreetEvents) -- Edited Transcript of MGM Growth Properties LLC earnings conference call or presentation Thursday, February 14, 2019 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andy H. Chien

MGM Growth Properties LLC - CFO & Treasurer

* James C. Stewart

MGM Growth Properties LLC - CEO

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Conference Call Participants

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* Barry Jonathan Jonas

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Cameron Philip Sean McKnight

Crédit Suisse AG, Research Division - Research Analyst

* Daniel Scott Adam

Nomura Securities Co. Ltd., Research Division - Research Analyst

* David Richard Hargreaves

Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst

* John G. DeCree

Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research

* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Richard Allen Hightower

Evercore ISI Institutional Equities, Research Division - MD & Research Analyst

* Richard Jon Milligan

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Robin Margaret Farley

UBS Investment Bank, Research Division - MD and Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Fourth Quarter and Full Year 2018 Financial Results for MGM Growth Properties. (Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Andy Chien, Chief Financial Officer. Please go ahead.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [2]

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Thank you, Andrew.

Good morning or good afternoon, and welcome to the MGM Growth Properties Fourth Quarter and Full Year 2018 Earnings Call. This call is being broadcast live on the Internet at mgmgrowthproperties.com, and we have furnished our press release on Form 8-K to the SEC this morning.

On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC.

During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find a reconciliation to GAAP financial measures in the press release, which is also available on our website.

Finally, please note this presentation is being recorded. I will now turn it over to James.

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James C. Stewart, MGM Growth Properties LLC - CEO [3]

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Thank you, Andy. I'd like to welcome everyone to MGP's Fourth Quarter and Full Year 2018 Conference Call.

Over the past year, we successfully executed on all aspects of our business strategy, and we are thrilled to share our results for 2018 as we look forward to 2019.

A number of properties within the MGP portfolio set all-time fourth quarter revenue and EBITDA records, including MGM Grand Detroit, MGM National Harbor, Beau Rivage, Gold Strike Tunica and the Hard Rock Rocksino Northfield Park in Ohio.

In 2018, we announced over $2.3 billion of acquisitions. Since our IPO in April 2016, we've announced acquisitions totaling over $4.7 billion. Both figures are amongst the highest acquisition volumes of any company in the entire triple-net REIT place over the equivalent time period.

On July 6, 2018, we completed the acquisition of both the real estate and the operations of the Hard Rock Rocksino Northfield Park just outside of Cleveland. We held this asset and its actual REIT subsidiary. On September 19, we entered into an agreement to sell the operations to MGM Resorts and add the property into our existing master lease. We believe this path will result in the best combination of security and growth for this asset. We anticipate that the transaction will close in the first half of 2019 and will increase rental revenues by $60 million. Until then, we will continue to collect the interim cash flows generated by the entire facility. Northfield Park is a perfect fit into our premier portfolio given its market-leading performance as the #1 property in all of Ohio in gross gaming revenues.

On December 20, we announced that MGP entered into an agreement to pay MGM Resorts $637.5 million for investments made to reposition the former Monte Carlo into Park MGM and NoMad Las Vegas. As part of this agreement, the annual rent into the master lease will increase by $50 million. This is another example of our tenants' commitment to maintaining asset quality and the power of our partnership with MGM. This transaction is expected to close in the first quarter of 2019.

Subsequent to the quarter's end, on January 29, 2019, we completed the acquisition of Empire City Casino's real estate assets for $625 million. This transaction increased rental revenues under the master lease by $50 million and provided us with an additional Right of First Offer opportunity on future gaming developments at the property. Gaming access to the high-density New York metropolitan gaming market further diversifies our portfolio. In addition, this rent will also be included in the calculation of our third base rent escalator, and this increase in rent will go into effect on April 1, 2019.

These 3 transactions will increase rental revenues by approximately 21% or $160 million to $930 million annually on a pro forma basis, amongst the highest rental revenue figures in the entire triple-net lease space. This represents a 69% increase since our IPO from our initial cash rent of $550 million. All 3 transactions are expected to be immediately accretive to AFFO.

Our third consecutive rent escalator will go into effect on April 1, 2019, which will result in our annual cash rental revenue increasing to over $946 million.

Our top priority remains to sustainably grow our dividend and create long-term, sustainable value for our shareholders. Based on the results that MGM Resorts reported yesterday, our net rent coverage currently stands at an industry leading 6.2x. In 2018, we paid total dividends of $1.74 per share for the year. In 2018, our board approved 3 increases to the dividend from $1.68 per share at the beginning of the year to $1.79 per share at year's end, a growth rate of 6.5% year-over-year and 25% since our IPO in April 2016.

On the acquisition front, the M&A landscape remains attractive, and we continue to analyze multiple opportunities that fit within our criteria.

I will now turn it over to Andy to discuss our financial results.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [4]

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Thanks, James.

In 2018, we continued to strengthen our balance sheet for future growth. In the first quarter, we repriced our term loan B facility to LIBOR plus 200 from LIBOR plus 225 and extended maturity by 2 years to March 2025.

In the second quarter, we completed a repricing, extension and increase of our revolver and term loan A facilities. The maturities of both the revolver and term loan A were extended to 2023. Our revolver capacity was increased to $1.35 billion, and we added $200 million to our term loan A. In addition, the term loan A revolver were repriced based on net leverage grid and is currently at LIBOR plus 200.

In 2018, we also received a BB+ issuer rating from Fitch, with our senior secured credit facility receiving a BBB- rating, the first time an MGP security received an investment-grade rating.

And finally in 2018, we entered into a $400 million forward interest rate swap that will become effective at the end of the year and mature in 2024 with respect to debt outstanding under our term loan B facility. Once effective, the average LIBOR rate we pay on our total of $1.6 billion of interest rate swaps will be approximately 2%.

Subsequent to year-end, we also opportunistically accessed the debt and equity markets. We successfully raised $750 million of senior notes at 5.75%, which was upsized from $500 million. This issuance was well oversubscribed and improves our debt maturity profile by adding a maturity tranche in 2027.

Together with the interest rate swaps, our pro forma fixed-rate debt improves to 86% of our total debt outstanding.

We also successfully completed a second follow-on offering of 19.55 million shares, which included the underwriters' exercise of their overallotment option for the additional 2.55 million shares. Net proceeds were approximately $548.3 million. The 17 million shares prior to the exercise of the overallotment option was upsized from the originally announced offering size of 14.5 million shares. The equity offering increased our public float by over 27%. These proceeds, along with proceeds from the senior notes offering, were used to fund the Empire City transaction, pay down the revolver borrowings from the Northfield Park acquisition and will also be used to fund the Park MGM transaction.

Pro forma for the announced transactions and capital markets activity, our pro forma net leverage will be at the low end of our previously communicated target range of 5 to 5.5x, and we'll have over $1 billion of availability. These transactions have strengthened our portfolio and our balance sheet and provide us with significant flexibility for future accretive acquisitions.

I'll now provide a few highlights of some of our fourth quarter results.

For the quarter, we recognized $186.6 million of rental revenue on a GAAP basis or $192.6 million on a cash basis.

Net income was $68.6 million for the quarter.

G&A expenses were $6.1 million, which included $2.9 million of costs incurred for transactions that did not sign or close.

As a result, adjusted EBITDA and AFFO were $209.7 million and $152.4 million, respectively. AFFO per share for the quarter was $0.57 per share.

Our TRS earned $22.6 million of EBITDA, which takes into account the $1.7 million of management and license fees.

For the fourth quarter, our dividend increased to $0.4475 per share, which represents $1.79 on an annualized basis.

Our well-positioned balance sheet will allow us to continue to execute on our long-term strategies of growing the dividend, completing accretive acquisitions and expanding our best-in-class portfolio of premier real estate assets.

With that, I'd like to turn it back over to James.

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James C. Stewart, MGM Growth Properties LLC - CEO [5]

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Thank you, Andy.

I'd like to take this time to thank all of our investors for their continued support through the year. And Andrew, we'd like to now open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Rich Hightower of Evercore ISI.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [2]

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So I want to ask a question about MGM's ad hoc real estate committee and as they kind of go through their process. Is there a scenario there where you think it might not make sense for MGP to be involved as we think about the additional drop-downs? Just help us understand maybe what the mentality is on this kind of coming from the outside and what different scenario analysis might look like?

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James C. Stewart, MGM Growth Properties LLC - CEO [3]

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Well, I guess, first, I'd say I'd refer you to MGM's releases and their commentary on this topic. They are a separate public company with their own Board of Directors, and the committee is part of their board.

I view this as a positive. I think, as they stated yesterday on their call, it demonstrates the seriousness with which they are looking at alternatives to maximize shareholder value with the real estate that they own. MGP is the natural home, in my view, for the real estate of MGM. And overall, I think it's positive.

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Richard Allen Hightower, Evercore ISI Institutional Equities, Research Division - MD & Research Analyst [4]

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Okay, that's helpful, James. And then maybe, let's assume that MGP does participate in some of those future deals. Do you think that the bias is up, down or kind of sideways as we think about cap rates on future deals now that MGP's cost of capital has had time to kind of settle out in the market on the debt and equity side and so forth, especially compared to the sort of the high 7s or 8% cap rate deals you guys have done recently?

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James C. Stewart, MGM Growth Properties LLC - CEO [5]

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Yes, it's hard to say because it's very, very asset specific and transaction specific. And each transaction that we review has so many different angles to it that drive the overall cap rate that I would say it's just impossible to really give any kind of meaningful guidance or impressions on that front.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [6]

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And Rich, from a cost of capital standpoint on the debt and equity side, we have to underwrite to a certain sensitivity, plus or minus, on any transaction to make sure that it works and it's accretive for our shareholders. And that can change at any point in time.

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Operator [7]

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The next question comes from Robin Farley of UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [8]

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I wonder if -- your press release mentioned $3 million that were spent in 2018 for deals that sort of didn't come to fruition or at least haven't yet. So I guess I just wondered if you can comment a little bit on whether that's something that's active and still potential -- potentially likely to come to fruition. And I'm assuming that, that $3 million means it's a non-MGM operator given that you probably would have to spend that kind of money to get familiar with MGM's properties. So just kind of wondering what the timing or likelihood of that might be.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [9]

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Sure. We're always working on potential deals, and the $2.9 million was just in Q4. It was an elevated amount. It was a significant amount of time and expense, and it's for a meaningful transaction. We had these expenses in other quarters, but not to this magnitude or profile. And to your direct question, we're not really able to comment on the pace or status of any specific deal, but we believe that the marketplace remains active, and we'll have meaningful activity over the course of the year. The $2.9 million was for transaction costs paid for a deal that did not sign or close in the quarter. And for an MGM deal, we did sign a deal in the quarter in Park MGM. So those would have -- fell into the acquisition-related expense for something that did sign. And for everything else like Empire, Rocksino, et cetera, those would all fall into the acquisition-related expense and not into this line item.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [10]

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And then yesterday, someone else, again, in REIT space commented that with market volatility that started in December, that maybe it's not as active a space that maybe seller expectations haven't been adjusted the way they need to for that volatility. It's -- I don't know if that's sort of a contrast to what you're saying. It sounded like you're saying things still remain quite active or I don't know if you have any thoughts on how things have changed in the last 2 months or so.

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James C. Stewart, MGM Growth Properties LLC - CEO [11]

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It's -- well, you can imagine it's hard for us to comment on someone else's views. But I would say for -- just for our own view, and I think that, that fourth quarter overage expense is sort of an -- is very indicative of this. It's very active, and there's a lot of potential for transactions. And we really haven't seen much of a change from what was a pretty high level throughout the year last year.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [12]

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Okay, that's great. And just one final question and then I'll yield the floor. Just looking at MGM's results yesterday, Springfield results, the EBITDA maybe is a little bit light of expectations. And I'm just wondering whether your thought is to give it more than 2019 to ramp up. Maybe that was a transaction that maybe we expected to happen in 2019. So does it make sense to wait, see if it ramps up next year? Or at a certain point you just say, this is it, and the rent from that is going to be lower than what we thought?

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James C. Stewart, MGM Growth Properties LLC - CEO [13]

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It's hard to predict exactly where things go. But I think that for now, we are continuing to closely monitor what's going along with our colleagues at MGM. And once it hits a level where we feel comfortable with the ultimate stabilized EBITDA production, would we then, I think, jointly -- we'd obviously have to both agree -- jointly want to go forward? I think it's still in the time frame with which we're talking to the second half '19. But such things are unpredictable and the ramps are unpredictable, so there's no absolute assurance. But I think things are still on track there.

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Operator [14]

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The next question comes from Daniel Adam of Nomura Instinet.

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Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [15]

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I guess my first question is, to what extent -- and are there any circumstances under which you might be willing to do a non-accretive deal assuming it involved a trophy asset from Strip?

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James C. Stewart, MGM Growth Properties LLC - CEO [16]

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Well, one of our primary criteria is that it'd be accretive to AFFO. For us, the trophy asset angle is not as important perhaps for other REITs and, broadly, similar spaces. I'm not really thinking of the gaming space so much just because, ultimately, we have to be able to generate AFFO increases and dividend increases. So one of our key criteria is that the transaction will have to be accretive on a basis that fit within our leverage restrictions, which is a long-term 5 to 5.5x debt-to-EBITDA.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [17]

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Yes. And just an asset being a "trophy" doesn't mean that you pay up for. What you pay for is the durability of the cash flow stream, durability of the rental stream that you put in place, the durability of how the rental stream is structured, whether it's in the master lease and what kind of tenant comes with that master lease. So those are the important things, not a trophy quality of any given asset.

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James C. Stewart, MGM Growth Properties LLC - CEO [18]

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(inaudible)

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Daniel Scott Adam, Nomura Securities Co. Ltd., Research Division - Research Analyst [19]

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Great, that's helpful. And then just one follow-up. So I'm wondering if you see any other opportunities within the existing portfolio to do a renovation-backed deal similar to the recently amended Park MGM transaction.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [20]

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I think the most front and center would be on Empire to the extent that MGM chooses to expand that property with additional gaming development in time, and we have our ROFO on that. Other assets, I'd probably refer you to MGM management to see where they might put their next dollars.

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Operator [21]

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(Operator Instructions) The next question comes from Barry Jonas of SunTrust.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [22]

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So we've covered a lot of base, but just wanted to clarify. In terms of the pipeline for deals right now, would you say seller expectations have changed at all given some of the volatility in the market? Just curious on your thoughts on some of the bid-ask spreads out there.

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James C. Stewart, MGM Growth Properties LLC - CEO [23]

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Well, it's -- I would again say it's very, very property and management team specific around what expectations are for any one particular asset or transaction. Stocks in the REIT space have not been nearly as volatile as the stocks in the operator space. And if anything, the relative benefit of doing a transaction with someone like MGP has increased versus decreased given the multiple changes amongst the operator space. So for us, again, I'd -- it feels just as busy now as it did sort of any time during last year.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [24]

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Got it. And then maybe just a high-level question. Look, you guys have had an amazing -- you have had amazing growth relative to the wider triple-net lease space as well as a great pipeline of growth. But you really don't trade at a premium multiple just yet. Maybe in your words, what do you think needs to happen to get credit in valuation?

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James C. Stewart, MGM Growth Properties LLC - CEO [25]

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I think a lot of it is just going to be time. We've only been in existence since April 2016. In our case, the entire space has really only been in existence a few years before that, whereas these other triple nets have been around for 20, 30 years. They have a very long and loyal -- or long-holding and loyal shareholder base. Getting to a -- having the multiples compressed, which I am convinced will happen over time. Just a matter of educating and getting people over any concerns that come around something new in a space such as this. So I am a very, very big personal believer that you are going to see significant multiple compression between what I would call sort of the retail triple nets and the entire gaming triple-net space because I think pound for pound, these types of -- our type of investment is a much better investment. That said, it takes time and a leap of faith from some of these other investors to get there, and we're still in early innings in terms of the education process.

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Operator [26]

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The next question comes from John Massocca of Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [27]

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With regards to leverage, with the recent raise, is there maybe a conscious effort on your end to operate at the low end of your kind of stated leverage band just given the flexibility that gives you with regards to the acquisition market?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [28]

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So 5 to 5.5x is the range that we're comfortable operating in. And in any given point of time, we may be at the high end or low end. And when we get to the low end, we have, like you mentioned, that flexibility to execute transactions quickly and effectively and have significant capacity to do so, as I mentioned in the prepared remarks. And then once we execute on that transaction, then we can opportunistically term out that revolver drawn and just kind of keep repeating that cycle is kind of the plan. So like you see the other net lease -- traditional net lease do, and it has worked for them, it's something that we'll follow.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [29]

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Understood. And then maybe switching gears more to kind of the actual transaction front. I know you've talked in the past about kind of a floor on the size of acquisitions where you've maybe kind of sharpened the pencil on. Would that be mitigated by doing a larger portfolio transaction or smaller asset? I just want to make sure it's not a commentary on your thoughts on the viability of smaller kind of lower EBITDA-ing assets.

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James C. Stewart, MGM Growth Properties LLC - CEO [30]

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Well, it partially is a commentary on that. I think our belief is when you see these smaller assets that they are almost, by definition, drawing from a customer base that is not as big and as robust, and our -- I believe that, that will yield greater risk to those individual assets. Now that said, with a larger portfolio deal -- and we got comfortable with the -- that the cross-collateralization impact of a transaction would mitigate that. We'd want to look at something that is accretive within our leverage targets and has the enduring value such that it can pay the rent over the entire life of the 30-year lease. If we're confident that the assets can do that, that's something that we would want to do. We don't -- we have a belief that if you have the -- a large asset that has proven through time that it has staying power and is drawing from a big customer base, those will ultimately inure to the benefit of our shareholders through the increased security that comes from owning such an asset.

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Operator [31]

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The next question comes from Cameron McKnight of Crédit Suisse.

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Cameron Philip Sean McKnight, Crédit Suisse AG, Research Division - Research Analyst [32]

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First of all, on Springfield. Can you give some thoughts on the supply outlook and -- especially given the back and forth that's occurring on the Connecticut side of the border?

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James C. Stewart, MGM Growth Properties LLC - CEO [33]

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Well, I -- I'll say this around that point. If you have been out there, you'll see that it is the best asset in that entire region, meaning the most beautifully built, has the most activities within it and is the place that I think people who are the customers you would most want to draw will most want to go. So we're just going to be the class of that region, there already is, and I think it will stay that way. And when you have that kind of asset, that is the type of asset that is able to withstand the ebbs and flows of the marketplace. So I would -- like I said, I would refer you to MGM's comments around -- public statements around that as well. But from our perspective, we are not concerned about that asset's ability to come into the master lease and pay the rent for 30 solid years and be valuable at the end of that time.

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Cameron Philip Sean McKnight, Crédit Suisse AG, Research Division - Research Analyst [34]

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Okay, got it. And then as far as MGM's intentions and their desire to dilute themselves down over time, does that mean they might? Or might that imply perhaps a greater preference for external equity in funding future transactions?

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James C. Stewart, MGM Growth Properties LLC - CEO [35]

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It could, since if we acquire things from within the MGM portfolio for cash, that would likely mean that the dilution to their ownership comes from sort of equity offerings of the type that we did recently as well as from third-party transactions where either other sellers take units or equity as part of their consideration or if we buy those for cash. I think the only way that, that doesn't happen is if they take meaningful partnership units back as consideration for one of the MGM assets. So I think the likely path would be the first 2 that I mentioned.

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Cameron Philip Sean McKnight, Crédit Suisse AG, Research Division - Research Analyst [36]

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Got it. That makes perfect sense providing the accretion stacks up.

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James C. Stewart, MGM Growth Properties LLC - CEO [37]

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Yes.

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Operator [38]

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The next question comes from John DeCree of Union Gaming.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [39]

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I guess to follow up on the previous question a little bit more. As you think about doing third-party transactions away from MGM, I think we have this conversation a little bit around Northfield Park when you were acquiring that asset. But how are you thinking about identifying additional partners and some of the criteria you consider for taking on a second tenant? What opportunities might make sense for you? And what parameters might you kind of consider at a high level?

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James C. Stewart, MGM Growth Properties LLC - CEO [40]

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So I'll start, then Andy can follow in with his thoughts as well. But I think, first and foremost, any transaction has to meet the criteria that I outlined earlier in terms of being accretive within our leverage targets and being of a size that it has an impact on our FFO line and has enduring value such that it can pay the rent over the entire life of the lease. Given that, that plays into how we view an operator partner. To the extent that they are enhancing to the security of those cash flows, then that's someone that we want to partner with. To the extent that we become concerned over the viability in a downturn, for example, of an operator and their ability to pay the rate and maintain the property, that's someone who we would shy away from. So companies whereby we can ensure our own shareholders are protected in terms of they will, at the most basic level, pay the rent and maintain the property are the ones who we want to partner with. There's also an angle of trust that comes into it in terms of you don't want to be reliant on the courts or any kind of venue like that to try to enforce your lease rights. It's really important that you know and trust the other partners -- the other operator partners such that they're going to want to partner on future deals and pay the rent and maintain the property.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [41]

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In addition to that, I'll just add that for the partners that we do talk to, there's more than just this transaction that we're thinking about, right? And there could be a future relationship, a future partnership for their strategic goals and their strategic growth thereafter or the license for funding purposes if they want to do a sale-leaseback. So striking one deal is not the end game, it's the beginning. And those are the partners that we look for.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [42]

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That's helpful. I appreciate the color on that, guys. One last question as it relates to MGM and what plans they may come up with their real estate. As we think about what that means for you in terms of a logical pipeline source, and also you've commented earlier in the call, James, about your industry-leading rent coverage, which is a very strong attribute of your equity, how do you think about participating in opportunities, as MGM may or may not look to monetize its real estate with you and as you kind of balance your growth trajectory as well as that security that you get from the master lease?

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James C. Stewart, MGM Growth Properties LLC - CEO [43]

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Ensuring that the rent is paid through rainy weather and sunny weather and everything else is obviously critical to us. Our coverage is very, very high right now, which is a positive, although I'm not sure we're getting completely compensated by the market for that very high level of coverage. The other thing that I would point to is not only are we secured by cash flows that come in from the assets, but we're also secured by things such as stakes in joint ventures like China and ARIA and so on. So the security of rent flow is very high. We -- both MGM and MGP are very cognizant of the importance of maintaining a stable and thriving rental payment and rental coverage scenario. So certainly not lost on us. And it's something that we have to balance off, as we always do, in terms of growth versus coverage, which we focus on a great deal.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [44]

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And John, just to add one point there. Not all of our peers have reported yet, but based on our coverage this quarter, we're 2 times better than the next guy. So doing additional transactions still won't even get us close to the next person.

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Operator [45]

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And we have a follow-up from Robin Farley of UBS.

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Robin Margaret Farley, UBS Investment Bank, Research Division - MD and Research Analyst [46]

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Okay. I just wanted to circle back to -- in terms of when you think about potential new acquisitions. You talked about not overpaying for something you don't care about having a trophy on Strip. But you don't have any particular objection to just having more Las Vegas cash flow exposure. And I know you're already heavily weighted towards Vegas, but just wanted to see -- just sort of clarify that. And then also, what if it were an asset that had sort of $300 million to $400 million in EBITDA where -- so it may end up being something that costs in the $2 billion to $3 billion range for half of that? Is that -- is there anything about a size -- that size that would be either too big a transaction for what you're looking for right now or too much additional Vegas exposure?

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James C. Stewart, MGM Growth Properties LLC - CEO [47]

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So I'll start, then, Andy, if you have any comments, please feel free. But we have -- well, first, I guess I would say our Las Vegas Strip versus other region mix in terms of percentage contribution to the rent is actually less than 50% Las Vegas. So we're not particularly skewed to Las Vegas. That was approximately 70% of IPO. It's come down pretty sharply over the past 3 years. Second, we have no issue at all with taking on a large -- or another Strip property. We analyze each transaction under the lens of its ability to grow our AFFO accretively and endure through the entire term of the lease. So if you believe that those things will occur with the transaction, whether it be on the Las Vegas Strip or in Ohio or in New Jersey, that's a transaction that we want to do. In terms of size, the only thing that we need to be cognizant of is not doing something that is just so large that we either overweight the portfolio to that asset, which I cannot think of a single one that would do that. And I think if you have a transaction that's attractive to our shareholders, i.e. accretive and -- on a non-leveraging basis, the demand for providing the capital for such a deal will be there. So we're not really concerned about the size at this point.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [48]

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And then the only thing I'd add is from a master lease and corporate guarantee standpoint, the Las Vegas regional mix actually hasn't changed since IPO. We're still getting paid by the same tenants. Their profile has expanded regionally, so that's permanent. And so the Las Vegas regional mix, when it comes down to the credit that's paying, is rather static even if we buy additional Vegas assets.

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Operator [49]

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The next question comes from Dave Hargreaves of Stifel.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [50]

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When I consider the Empire asset that you've acquired versus the Northfield asset, I think the acreage was pretty much similar, if I'm not mistaken. And so if I look at the different price paid, sort of the value per acre would appear to value Northfield higher. I'm just wondering how you think about that and how we should think about that.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [51]

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So -- this is Andy. So in terms of Empire City, the parcels that we acquired were approximately 60 of the total in terms of acreage.

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James C. Stewart, MGM Growth Properties LLC - CEO [52]

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60 acres.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [53]

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60 acres out of the total. In Ohio, you're right, it's over 100 or thereabouts. Look, Empire City real estate, the land, 15 miles north of Midtown Manhattan, I think that's a great transaction for New York City real estate at an 8% cap. And we have a ROFO on any future development. From an acreage standpoint, we do think about it. That is one of the pillars of our valuation. But also, the cash flow generation capability, the tenant, the structure of the lease, the durability of that cash flow, that all factors into what we look at when we underwrite these transactions. And having that great base of land and its location really gives us additional comfort.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [54]

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I mean, I agree it's a fantastic parcel of land. I would assume that you guys are going to develop that. It's overlooking the Manhattan skyline. I think it's got great potential. So far, it sounds like there aren't big plans, so I'm just wondering.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [55]

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Yes. In terms of future development, yes, clearly that's a great opportunity. Those would be MGM decisions, initially MGM dollars. And then once transact -- once complete, that could be a potential transaction for us as we start talking about a potential ROFO there.

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James C. Stewart, MGM Growth Properties LLC - CEO [56]

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We have a ROFO.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [57]

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Yes, well, taking that ROFO and turning it into a transaction...

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James C. Stewart, MGM Growth Properties LLC - CEO [58]

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Right.

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [59]

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And talking about what kind of lease it could support, who are going to pay for that, et cetera.

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James C. Stewart, MGM Growth Properties LLC - CEO [60]

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Right. So the initial development dollars wouldn't come from us, they would be MGM dollars. We would that potentially, through our ROFO, acquire the improvements, similar to what we did with Park MGM.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [61]

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Okay. I apologize if I missed this in the release, but you -- in the rent coverage that you gave us, were the -- the different components of that, was not included in the release? If not, would you mind just walking us through that real quick how you came to the 6.2?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [62]

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Sure. So it was not in the release, and we will be updating that over the next couple of weeks in our investor presentations and the like. And so we will provide some of that detail forthcoming.

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Operator [63]

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The next question comes from R.J. Milligan of Baird.

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Richard Jon Milligan, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [64]

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I just want to follow up on John's leverage question. You guys announced the Park MGM acquisition in December. The equity wasn't attractive at that time. You guys waited a month and then tapped the equity market at a much more attractive price. So I'm curious if that's going to be the funding strategy for additional acquisitions, not necessarily match-funding equity with announcements? Clearly, there wasn't an overhang in -- this time around, but how do you think about that potential issue for future acquisitions?

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Andy H. Chien, MGM Growth Properties LLC - CFO & Treasurer [65]

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Yes, R.J. So in terms of timing and the funding, we had the flexibility between the 5 and 5.5x, and we had the capacity to close on Park MGM with or without the equity offering. And so in terms of equity, we will be opportunistic to issue when it's attractive. We want to make sure that we fund -- keep the balance sheet flexible but also protect the shareholdings of our existing shareholders along the way. And so we're very cognizant of that and ensure that we had the capacity to close and then pick our spots as far as terming that out, whether in the bond market or the equity markets or both in this case.

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Richard Jon Milligan, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [66]

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So as long as it's within the sort of the leverage constraints you guys put on yourselves, you're willing to do additional acquisitions and not necessarily fund it until the market might be more attractive?

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James C. Stewart, MGM Growth Properties LLC - CEO [67]

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Well, we -- I mean, we would prefer to be able to do it sort of on announcement. In that situation, given we had ample capacity to close and we had a very good sense of where the debt markets were, we're willing to sort of wait on that front. Generally speaking, we want to do it concurrently if we can.

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Operator [68]

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This concludes our question-and-answer session. I would like to turn the conference back over to James Stewart, Chief Executive Officer, for any closing remarks.

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James C. Stewart, MGM Growth Properties LLC - CEO [69]

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Thank you, everybody, for your continued support. We look forward to talking to you again next quarter.

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Operator [70]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.