Citi Thinks MGM Growth Properties Has An Attractive Yield

Citi has initiated coverage of MGM Growth Properties LLC MGP with a Neutral rating and $22.50 price target, citing attractive and sustainable dividend yield. While the reasons cited sound more positive than a Neutral rating, the analysts justified it by stating that most of the positives are priced into the shares.

MGM Growth Properties offers a dividend yield of about 6.1 percent and the brokerage said only Las Vegas Sands Corp. LVS and Sands China are expected to pay more than the company.

"We like the fact that most of its properties are located in Las Vegas, where we expect a recovery in both RevPAR and gaming revenue to continue," analyst Anil Daswani wrote in a note.

Daswani also favors the REIT's growth prospects, as it has a Right of First Offer (ROFO) to casino resorts MGM National Harbor and MGM Springfield, should MGM decides to sell them both after they open in late-2016 and late-2018, respectively.

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"Based on our analysis, we estimate the two potential acquisitions could enhance MGP's value by ~US$1.45/Class A share or ~6.5 percent on current share price," Daswani highlighted.

The analyst expects both properties to generate an EBITDA of "about $170 million and about $130 million respectively, after a ramp-up period of two years and assume(s) the rent to be set at 50 percent of EBITDA generated".

However, Daswani said single-tenant occupancy, geographic concentration, corporate governance and inherent conflicts of interest could limit valuation upside.

In Tuesday's pre-market, MGM Growth Properties was up 2.17 percent; the REIT closed Monday's regular trading session at $22.99.