MGM Analyst Says $400M Springfield Asset Sale Further Strengthens Balance Sheet

MGM Resorts International MGM announced Tuesday the sale of its Springfield, Massachusetts, real estate assets to its REIT MGM Growth Properties LLC MGP for $400 million.

What Happened? The Springfield property is the latest in a series of MGM properties the company has transferred to its REIT. MGM will now lease the property from MGM Growth and continue to operate the facilities. The Master Lease between MGM and its REIT will increase by $30 million annually as a result of the transaction.

MGM also holds a 42% economic interest in MGM Growth.

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Why It’s Important: On Wednesday, Bank of America analyst Shaun Kelley said the deal is the latest step in MGM’s strategy of becoming an asset-light property operator.

“For MGM, this transaction further strengthens the balance sheet at the domestic operating level although immediate avenues to deploy capital remain unclear,” Kelley said.

He said MGM investors should expect MGM to reduce its ownership stake in MGM Growth to around 30% at some point, although that reduction could take some time due to tax efficiency concerns.

The deal will boost MGM’s operating cash balance to around $5.3 billion, which Kelley said provides additional flexibility for shareholder returns and/or investment in MGM’s online gambling business, including potential acquisitions.

For MGM Growth, Kelley said the deal is a positive, but it further highlights the need for the REIT to diversify away from MGM and find additional future growth sources.

Bank of America has a Neutral rating and a $46 price target for MGM. The firm has an Underperform rating and a $38 price target for MGM Growth.

Benzinga’s Take: MGM investors will now be watching to see what the company does with the cash it raised from the Springfield sale. In addition, investors will be monitoring the ongoing recovery in Las Vegas and regional U.S. casinos, as well as the continued rollout of U.S. online and sports gambling in the coming quarters.

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