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MGM Growth Properties: A Casino REIT

12/14/2017 5:00 am EST

Focus: REITS

Tim Plaehn

Investment Research Analyst, Investors Alley

Sometimes the first glance at a stock can give the wrong impression. For example, consider the case of MGM Growth Properties LLC (MGP), explains Tim Plaehn, editor of Investors Alley The Dividend Hunter.

This REIT owns casino properties, where results can be very volatile, leased to a single tenant: MGM Resorts International (MGM).

That level of concentration looks very risky for a REIT. If fact, the way MGM set up the REIT for the spin-off has turned this stock into an attractive, stable and growing dividend, total return investment. In fact, we consider this a unique REIT for those seeking dividend ssafety.

The biggest strength of the MGP to MGM relationship is that all properties leased by MGM are on a single master lease. MGM pays a single annual lease amount to MGP. This prevents the casino operator from, for example, putting one property into bankruptcy to get out of making lease payment.


The lease is triple net with annual rent escalators. MGM also pays most of the administrative expenses of the REIT. MGM Growth Properties currently owns 13 properties operated by MGM.

MGM Growth Properties is also living up to its name, providing attractive revenue and dividend growth since its IPO in early 2016. At the time of the IPO the annual lease revenue was $550 million.

Now after the last acquisition, revenue will be $757 million, up 38% since the IPO. The dividend rate has grown by 10% compared to the initial planned dividend. I expect another 10% increase in 2018 as the revenues from MGM National Harbor in Maryland kick in.

With a current 5.4% yield and prospects for high single digit dividend growth makes MGP a compelling value when compared to other net-lease REITs. Investors have not yet discovered the quality of this REIT, and when they do, I expect the price to rise and yield to drop below 5%.

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