MGP offers a compelling risk / reward at current levels featuring dividend yield of just under 6%,
consistent rent escalators, significant and highly probable lumpy growth opportunities and net rent
coverage of over 6x primarily with its main tenant, MGM Resorts.
Company Description: MGP is real estate investment trust which was spun out of MGM Resorts in 2016.
The company is engaged in the acquisition, ownership and leasing of large-scale destination
entertainment and leisure resorts, whose diverse amenities include casino gaming, hotel, convention,
dining, entertainment and retail offerings. MGP currently owns a portfolio of properties, consisting of 11
premier destination resorts in Las Vegas and elsewhere across the United States, MGM Northfield Park
in Northfield, OH, Empire Resort Casino in Yonkers, NY, as well as a retail and entertainment district, The
Park in Las Vegas. As of December 31, 2018, our destination resorts, the Park, and MGM Northfield Park
collectively comprise approximately 27,400 hotel rooms, 2.7 million convention square footage, 150
retail outlets, 300 food and beverage outlets and 20 entertainment venues.
Strong Dividend Yield: MGP offers a compelling dividend yield in both relative and absolute terms. At
current trading, the yield is 5.8%. This is nearly 200 bps higher than general triple net lease companies
like National Retail Properties and Realty Income. While those companies have far less asset and tenant
concentration they also have lower rent coverage and the financials into their tenants’ credit are
extremely opaque unlike with MGM Resorts which is an easy to follow and analyze public company. In
addition, it trades at a discount to VICI Properties which I believe has inferior gaming assets with
generally lower rent escalators.
Tenant Credit Profile Offers Downside Protection: I believe that MGP’s rent coverage of over 6x gives
an investment in the company significant downside protection. The company’s portfolio is currently 55%
regional properties and 45% Las Vegas. According to MGP, if Las Vegas specifically and the regional
economies generally experienced another recession like the 2008-2009 financial crisis, MGP would still
have underlying rent coverage of 3.9x. This is likely conservative even given that there was significant
supply coming on in Las Vegas when the previous recession hit. In short, absent a MUCH WORSE
recession than the one that began in 2008, it’s very difficult to see how the company’s rent payments or
dividends could be at risk. In addition, per the terms of the company’s master lease agreement with
MGM Resorts and it’s other tenants, the company has no tenant renewals to deal with for decades
which is also an important feature of the downside protection here.
Growth: The company has a large number of growth opportunities many of which feature ROFOs (rights
of first refusal). At some point MGM Resorts is likely to sell to MGP partial or full interests in a number
of the properties that MGP does not already own. These include attractive, fully owned assets such as