MGM Growth Properties LLC
Q3 2019 Earnings Call Transcript

Published: 5 Nov 2019

[Operator:]

Good morning, and welcome to the MGM Growth Properties’ Third Quarter 2019 Earnings Conference Call. Joining the call from the Company today are James Stewart, Chief Executive Officer; Andy Chien, Chief Financial Officer. Participants are in a listen-only mode. After the Company’s remarks, there will be a question-and-answer session. Please note this event is being recorded.

[Andrew Chien:]

Thank you, operator. Good morning and welcome to the MGM Growth Properties third quarter 2019 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 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 when talking about our performance. You can find the 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.

[James Stewart:]

Thank you, Andy. I'd like to welcome everyone to MGP's third quarter 2019 conference call. First, we are happy to report that the third quarter reflected yet another opportunity for us to execute on our strategy of sustainably growing our dividend to create long-term value for our shareholders. This quarter, we increased our dividend for the ninth time, representing a 32% increase since our IPO. We are proud to report that current total shareholder return since our IPO in April of 2016 is 87%, which continues to exceed the return one would have earned in the NASDAQ 100, the S&P 500 or the RMZ over the same period. Second, I'd like to comment on what we're seeing in the M&A markets. I believe there continues to be a significant amount of potential real estate transaction volume residing in the gaming industry, and the broader leisure entertainment and hospitality sectors. During the quarter, we've continued to actively explore transaction opportunities and have had a number of conversations with potential sellers and third-party operators. We remain committed to our growth strategy and a disciplined allocation of resources and capital. Our priority remains identifying and executing on accretive transactions that will enhance our ability to return value to our shareholders and increase our AFFO and dividend over the long-term. I'd now like to discuss the recently announced sale and leaseback of the real property of Bellagio with Blackstone. This transaction was announced at the lowest cap rate ever paid for an integrated gaming resort of 5.78%. Since we went public 3.5 years ago, our belief has been that our 13 well-diversified integrated resorts and market-leading regional assets would benefit from cap rate compression and draw interest from institutional real estate capital sources for this type of asset.

[Andrew Chien:]

Thanks, James. I will now provide some highlights for few items in our third quarter financial results. We recognized $219.8 million of rental revenue on a GAAP basis or $236.5 million on a cash basis. Net income was $68.6 million. AFFO was $173.1 million or $0.59 per diluted operating partnership unit. Adjusted EBITDA was $232.6 million. G&A expenses for the quarter were $4.5 million. Also in the third quarter, our dividend increased to $0.47 per share, which represents $1.88 on an annualized basis and its ninth dividend increase since our IPO.

[James Stewart:]

Thank you, Andy. Operator, we'd like to now open it up for questions.

[Operator:]

We will now begin the question-and-answer session. The first question comes from Joe Greff of JPMorgan. Please go ahead.

[Unidentified Analyst:]

Hey. Good afternoon. I’m on for Joe. Thanks for taking the question.

[James Stewart:]

Yes, good morning.

[Unidentified Analyst:]

You had $9.9 million in property transaction targeted in the 3Q relatively sizable amount. Can you talk about this? Presumably, this relates to deal flow in your due diligence. Specifically, how much of what you’re looking for in the 3Q relating to this $9.9 million is still warm in the 4Q. I guess in other words, how much of this relates to Bellagio and Circus Circus versus MGM Grand and other transactions? And how much of this is away from MGM Resorts?

[Andrew Chien:]

As far as property transactions, that’s a non-cash charge as we go through the property portfolio from an accounting standpoint. It's not related to any expenses that we incur during the quarter, it's really just an accounting charge. And so it's not really transaction activity or like at all.

[Unidentified Analyst:]

Okay. And then in general, I guess, for acquisitions. Can you remind us the minimum AFFO per share accretion? And how perceived asset quality factors into this map? I guess, would you buy something that is barely accretive, if you like the quality of the real estate?

[Andrew Chien:]

We don't provide a target as far as dollar or percentage accretion for any given deal. What we do say is we like those transactions to be accretive. And every transaction is different. Our balance sheet is different at any point in time and each transaction needed to be look in isolation.

[Unidentified Analyst:]

[Operator:]

The next question comes from Nick Yulico of Scotiabank. Please go ahead.

[Greg McGinniss:]

Hey, good morning. This is Greg McGinniss on with Nick. James, how should we be reading into comments from the MGM call, but it's apparently more than likely MGP is going to participate in MGM Grand deal. Does this mean like a 100% ownership of propco? Or is it possible that a deal could be split among multiple investors? Could you also maybe comment on timing of a potential deal? I know that might be difficult, but thank you.

[James Stewart:]

Thanks Greg. Well as you know, we are – our policy is not to comment on specific transactions. And I think the MGM call outline pretty clearly sort of how things are progressing along. In terms of structure, one of the great skill sets that resides within MGP is an ability to creatively structure and analyze multiple different transaction types and quickly. And so as we think through optimal structures in any transaction, whether we – how exactly we fund the deal, how exactly we bring it in, what the specific terms around it. We're always looking for creative ideas around how that can be structured, such that it's the most possible enhancement to our AFFO, dividend stream and shareholder value. So I would say not just with a deal – potential deal around the MGM Grand, but around any transaction, we're always open and looking for ways to transact in such a way that maximizes value.

[Greg McGinniss:]

So is it fair to say that how you maybe got propco's in the past is not necessarily, how you'll be funding deals in the future?

[James Stewart:]

No, I would say, that has always been the philosophy of the company and it's dependent on many things that are – to a large degree outside our control, such as interest rates, debt, environment, stock valuation, receptivity of stock investors to issuance and so on and so forth. So to-date, we have done them in a particular structure that we think makes the most sense for our shareholders, and that maybe the structure going forward or it may not, depending on what the specifics are of the deal.

[Greg McGinniss:]

All right, that's fair. Thanks. And then just to follow-up here, could you talk about any other particular investments you're looking at, either casino or otherwise? We're particularly thinking about the Cosmopolitan, which seems like a nice opportunity to work with MGM and solidify control is two miles of the Las Vegas Strip?

[James Stewart:]

Greg, I think you're going to have to jump from research onto the banking side. It's a very, very active time in the market in both the gaming resort business as well as the non-gaming resort and leisure business. So we are busy. We are looking at a lot of different types of opportunities and anything that fits our general criteria and is accretive to AFFO and value. That's something we want to do.

[Greg McGinniss:]

All right. Thank you.

[Operator:]

The next question comes from Carlo Santarelli of Deutsche Bank. Please go ahead.

[Carlo Santarelli:]

Hey guys. Good afternoon. Good morning. Andy, James, whoever wants to kind of take a shot at this, but obviously the Bellagio transaction and the Blackstone structure, the lease structure and some of the terms in tenants that went with that was different than I think what we've seen in some other transactions, obviously your relationship with MGM, some of your peers with their tenants. Was there anything in the structure of the lease and how it was set up that you guys feel like is something we could see you incorporate going forward in transactions?

[James Stewart:]

Yes, I would say there are certain things that we liked about that lease or certain things that we would prefer within our own type of lease. And again, any transaction that we do is so subject to the property, the timing, the seller, the operator and so on. It's hard to say with specifics exactly what we would do or not, but there are definitely certain components of that lease that I found attractive, but I'm not going to go into any details about them, but things that we thought would create a good ideas that could be beneficial for us to look at in the future.

[Carlo Santarelli:]

Great. That's very helpful. And then just Andy, in terms of your remarks earlier, you talked a little bit about gaming and broader leisure and hospitality as being two avenues, not entirely different than comments you've made in the past. But have you noticed anything in the non-gaming arena that's kind of changed in terms of how you've looked at it historically or how others in this industry have looked at kind of outside of the gaming sphere historically?

[Andrew Chien:]

I would say in terms of the non-gaming assets, it's been pretty consistent. Obviously, we stay in touch with the bankers, the brokers, et cetera. They're all looking at potential transactions like sales leaseback to us. From a lodging standpoint, there's still a larger management fee lodging REIT structure out there, but leased assets are in the market and we have seen those. So I think it's been pretty consistent and we continue to evaluate those opportunities.

[James Stewart:]

Just to jump in with one last thought on that, Carlo is, I would say starting maybe nine months to a year-ago, there has been a consistently increasing tempo with other potential real estate owners, asset owners, operators wanting to talk with us about potential transactions across a consistently widening circle of type of opportunities.

[Carlo Santarelli:]

Great, James. And just to kind of tie-up, you're saying the reverse inquiry aspect has kind of increased, meaning you are being approached more frequently by those non-gaming partners?

[James Stewart:]

Yes, definitely.

[Carlo Santarelli:]

Great. Thank you guys both very much.

[James Stewart:]

Thank you.

[Operator:]

The next question comes from Daniel Adam of Nomura Instinet. Please go ahead.

[Daniel Adam:]

Hey guys. Thanks for taking my questions. So last week, MGM seem pretty convinced that you guys would really only be interested in acquiring quality assets. Of course, we could all debate what they meant by quality, but reading between the lines, their comments seem to suggest your pipeline was skewed maybe more towards Strip assets. I guess, would you agree with that characterization? Or are there also maybe some regional assets perhaps that don't involve MGM that are also in the pipeline?

[James Stewart:]

Quality of assets is certainly not limited to Strip assets in any way, not even that by no means is that how we view things. That said there are a number of quality Strip assets, but if you look at the five large transactions we've done, three of which came from outside sellers and two of which came from within MGM. The three assets that we bought from outside sellers have all been really the powerhouses in that market. And for us, quality is a combination of building quality, fit and finish such that the asset has an enduring value that will go to the full 30 years of our lease and have a meaningful value after that. The ability to offer multiple types of activities within the resort, which gives you a broader, more diverse customer base than if you're just offering one activity. One thing that we have generally shied away from is just smaller properties that are primarily offering a slot machine experience. We'd prefer something that offers many more types of activities inside. It brings more people, brings more sources of revenue, more sources of profit and becomes iconic and critical to the city within which it operates. So we have purposely focused on what we think are those types of assets, market leaders, very high quality, very great fit and finish. And we think that over time we're going to be consistently rewarded for that because those types of assets are always in demand. So it's not just Strip, but it certainly isn't ruling out Strip. It remains as it is, but we like to focus on more of the higher quality stuff.

[Daniel Adam:]

Okay. That's super helpful. And then I guess my other one. Also last week – so Jim alluded to a half a dozen or so bidders on the Bellagio real estate deal, a half dozen would mean that that'd be two more players that are currently – that we know in the gaming REIT space, including Blackstone were interested in that deal. And so I guess my question is, are you seeing any changes in the competitive landscape versus say what you were seeing three months ago? Thanks.

[James Stewart:]

I've thought for a long time, we've thought for a long time that the market will come to appreciate more and more and more as time goes on the strength of the cash flow generating power of these assets and their value over time. And I'm not at all surprised that we have brought in more competitors and frankly for one, welcome the added interest in the space because we are sitting on more luxury integrated resort real estate, gaming resort real estate than any company arguably in the world. And we think it's going to bode very well for us as time goes on.

[Daniel Adam:]

Okay, great. Thanks guys.

[Operator:]

The next question comes from Jordan Bender of Macquarie. Please go ahead.

[Jordan Bender:]

Thanks for taking my question. So last week MGM noted that the 17.3x is something that they probably couldn't have got earlier in the year or even last year, and you mentioned that your real estate will hopefully pass that 17.3x eventually. In the conversations that you've been having, have you seen the multiples start to increase maybe towards that 17.3x over the last couple of months?

[James Stewart:]

I would say that if you go back to our IPO to now and then you can even go back to earlier times when you had really only GLPI focusing on resorts such as these, there has been a consistent increase in the value. The multiple paid for the real estate, but also commensurate increase, even greater, increased in the trading valuations of these stocks. So it's not so much. It's almost impossible to call a trend over like a three-month period. But I think if you look over the longer haul as these – the valuations of our own companies have increased, the valuations of the private market have also increased. So yes, there's been a consistent increase in value.

[Jordan Bender:]

Awesome. Thank you.

[Operator:]

The next question comes from Rich Hightower of Evercore. Please go ahead.

[Richard Hightower:]

Hey. Good morning out there guys.

[James Stewart:]

Hey, Rich.

[Andrew Chien:]

Hey, Rich.

[Richard Hightower:]

So I couldn't help, but observe the commentary on the pipeline and the breadth and the quality sort of available that's out there and potentially on the comp – the commentary sounds pretty similar to kind of what you guys said last quarter. So I'm wondering is there anything in particular that seems to be holding up timing on some of those announcements. Is it sort of a funding gap among the gaming rates? Is it something else that that relates to the timing there and anything that we should be aware of?

[James Stewart:]

No. I would say that, these transactions take a long time. They're big transactions. They have financing negotiations, just negotiating between buyer and seller, lease negotiations, et cetera. They just take a long time. So there's nothing in particular that I'd point out that any different than any other quarter for us.

[Richard Hightower:]

Okay. That's helpful. And then Andy, I want to go back to maybe some of your quick comments in the prepared commentary on MGP's cost of debt. And I'm just wondering, as we look at the credit statistics for MGM going forward and their leverage targets and so forth. How much of that improvement do you think eventually will be imputed to MGP's cost of debt sort of in this virtuous circle way of thinking about things? Is that a realistic expectation for the way we think about MGP going forward as well?

[Andrew Chien:]

I certainly think so I certainly hope so. In terms of to the extent, there's credit rating improvements for any tenant, there should be improvements, then to the least quality. As we look across the space, at all companies – all net lease companies, right, credit quality's important aspect, get the asset back for a number of years and that payments in between are dependent on the company that's paying it. So, if there's an improvement there on an MGM front, and they communicated at a target of one-time financial, everybody in the next year, that credit rating improvement, it should flow through to us and the value of the cash flows that's being paid as cash rent on a monthly basis improves as well. So we think that that would enter to our benefit.

[Richard Hightower:]

Okay. But specifically you wouldn't say there's any sort of tangible evidence of that so far?

[Andrew Chien:]

Well, transaction has to close. And then I think the agencies will do their work from just a rating standpoint. But just over the past, I mean it's really been a week. Shares have done well. Debt has traded well. So yes, for a small sample set. Yes.

[Richard Hightower:]

Got it. All right. Thanks.

[Operator:]

The next question comes from Thomas Allen of Morgan Stanley. Please go ahead.

[Thomas Allen:]

Hey, most of my questions have been answered. Just a quick question, did you tap into the ATM in the quarter? Thanks.

[Andrew Chien:]

Yes, we did. There was – we utilize the ATM during the quarter. Our Q will be posted in a couple of hours here, so you have the details in there.

[Thomas Allen:]

Okay. Thank you.

[James Stewart:]

Thanks, Thomas.

[Operator:]

The next question comes from John DeCree of Union Gaming. Please go ahead.

[John DeCree:]

Good morning, guys. Thanks for taking the questions. James, I think in response to an earlier question, you talked about the quality of real estate, casino assets both on the Las Vegas Strip and outside of Las Vegas. And I was curious if you had a view on valuation or cap rate compression between Las Vegas Strip and some of the stuff you might own in the regional markets specifically Bellagio Center Strip, iconic asset? Do you ultimately see kind of valuation for high quality assets regardless of location converging or do you have a view of the strip or regional would be a preference for additional investors, institutional investors?

[James Stewart:]

It's really interesting question, John, and I would say, one of the unique characteristics of the gaming resort business in general is the unique nature of each individual market. You have a market in Las Vegas, which obviously is the world famous draws a huge number of customers, daily flights every day, frequently from multiple cities in China, daily flights from Oslo, daily flights from London, et cetera, et cetera. So you have that characteristic, sort of the corner Main & Main here, right? However, as you go through, the United States and you look individually at each individual market, there are also absolutely fantastic jurisdictions in large, multifaceted cities with lots of different types of industries and growing populations, which have casino resorts as well. Now there's some markets that are less vibrant and exciting to us. But as we look across the whole landscape, we think that there are many, many regional assets, where we think the cap rate should not only be the equivalent of a Luxury Las Vegas, resort like a Bellagio, but could potentially exceed it. And I think if you look at – I mean I'll say one that was stated earlier, but if you at National Harbor, which sits on the edge of the Potomac and overlooks a number of the monuments right in the midst of a Washington DC, that is something that is a really unique asset that is going to be one of the gems for the whole, Washington DC area for dozens and dozens of years. I would say the same thing with MGM Grand Detroit, there's no asset like it. It's absolutely fantastic. It's the site of choice if you have something going on in that city and has shares many of those same characteristics. So as it relates to cap rates between Vegas and the regions, I think it is too blunt to view them in that isolated format. It's really market-by-market, city-by-city, jurisdiction-by-jurisdiction given the number of regulations tax rate changes et cetera, that all for tax rate regimes, et cetera. Then overlay the operating environment that anyone region. But I see no…

[John DeCree:]

Asset-by-asset and tenant-by-tenant too?

[James Stewart:]

Right. I see no impediment at all to regional assets are moving down to the same kind of cap rates that we're talking about for Luxury Las Vegas real estate.

[John DeCree:]

That's helpful. James, appreciate your thoughts on that subject and then perhaps a quick follow-up, if there was some type of a third-party interest in one of your assets, you own some of the probably most robust regional gaming assets in the U.S. right now. Now you've mentioned National Harbor and Detroit. If there was interest from a party like Blackstone, would you be willing and able to sell one of your properties out of the master lease, if it was that valuation metrics significantly attractive enough to you?

[James Stewart:]

We certainly can. And we're in the ultimate goals are to drive AFFO, dividend and shareholder value. So if it's something that makes sense. We are more than able and would be very willing to transact like that. With the caveat, it has to make sense for our shareholders over the long-term and grow value sustainably.

[John DeCree:]

Right. Thanks again for all the commentary and the questions.

[James Stewart:]

Thank you.

[Operator:]

The next question from comes from Robin Farley of UBS. Please go ahead.

[Robin Farley:]

Great, thanks. I just wanted to get your take on – when we look at the 17x rent stream that Bellagio rent sold for? Do you think that the MGM Grand asset is the similar quality given the size and location? Just wanting to get your take on that?

[Andrew Chien:]

Robin, look every transaction is different. Every tenant, every lease is different. It's hard to comment and something like that. And if you just look at where we trade, where other assets trade or other transactions traded, they all have their own characteristics in terms of the aspects that I talked about. So each one will get priced accordingly and we don't comment on transactions that we'd potentially be working on or not.

[Robin Farley:]

Is it reasonable to conclude that since MGP wasn’t all involved in the Bellagio transaction that that you weren't willing to pay a multiple that high for Bellagio? I mean, I guess we can – that's a reasonable to conclude?

[Andrew Chien:]

We don't comment on transactions that we didn't do per se. So I'm just going to leave it at that.

[Robin Farley:]

Okay. I'm just trying to think about – this will be my last attempt to get some color on, on what you're talking about features of the transaction, right, there are things that you liked about that structure and didn't like or I think you said a comment similar to that at the beginning of the call. Is there – I don't know if you would have assign some value in terms of like how many turns of rent to, if a seller is guaranteeing the loan for the buyer or anything like that where you would say like when you look at the multiple, some of this is could be due to those factors versus purely rent stream?

[Andrew Chien:]

We look at all aspects of the transaction. And certain things have value, some of them to track some value. But we're going to hold those cost the best because we're going to be on one side of negotiation table and somebody else can be on the other, and we'd like to keep those ourselves.

[Robin Farley:]

Okay. All right. Great. Well, thanks very much. Thank you.

[James Stewart:]

Thanks Robin.

[Operator:]

The next question comes from John Massocca of Ladenburg Thalmann. Please go ahead.

[John Massocca:]

Good morning.

[James Stewart:]

Hi, John. Good morning.

[John Massocca:]

So there've been some recent transactions that had been completed kind of on a same buyer opco or propco basis that have had more of an angle towards maybe a redevelopment or repositioning of certain gaming properties. Kind of in light of that at what point would you feel comfortable maybe purchasing properties that are undergoing, say repositioning or have kind of a significant CapEx element to them on a near-term going forward basis?

[Andrew Chien:]

For transactions for assets that haven't yet stabilized, to the extent the seller is looking for some kind of monetization, we can evaluate it. It probably isn't the top choice for seller, nor for us, just because nobody knows the eventual run rate cash flows to maximize proceeds for them or maximize the transaction size for us. But to the extent there's a unique situation like that we can certainly evaluate it and underwrite something, but obviously not our top choice.

[John Massocca:]

Okay. And then how does MGM’s kind of stated intention to pursue an asset-light model impact you’re thinking about doing additional deals with them? I'm kind of thinking in let's say a post MGM Grand, post MGM Springfield world, doing something similar to like the Park NoMad transaction, but given the other transactions that are potentially in places MGM goes to asset-light might impact corporate coverage.

[James Stewart:]

Well, one of the things that I think people have maybe not focused on quite enough is the superior credit that comes from that strategy. And this is what I mean. They're going to run them sort of, as I think of an asset-light strategy through to its end game, the amount of capital that's going to come into the organization is going to be very, very significant. And they've already stated they're going to have a 1x financial leverage target. Lease obligations in my own opinion are much, much better for an operator to have than interest, amortization and repayment obligations. The lease last for 30 years, which is a very long time, and the coverages are such that I think the operators are pretty safe in being able to pay it. And most of the entities that have gotten into trouble in the gaming operating side have found themselves in trouble, not due to an inability to pay sort of their ongoing quarterly payments to fund the business, but when they have a large debt maturity come due and the market has not – if not in their favor. So many of the very well-known troubled times in the business have come from the decline of business due to recession combined with a lack of capital flow, which is almost inevitable, occurs in a recession, such that they can't get a refinancing by putting themselves into a position of increasing lease obligations and decreasing financial obligations. The credit is much, much stronger.

[John Massocca:]

Okay. Appreciate the color. That's it for me. Thank you very much.

[James Stewart:]

Thanks.

[Operator:]

The next question comes from Shaun Kelley of Bank of America. Please go ahead.

[Shaun Kelley:]

Hey guys. Good morning. Just wanted to ask briefly. You touched upfront on both sort of Blackstone and then a little bit about sort of deal creativity and some of one of the things you bring to the table. There's sort of this prototypical transaction out there where you do a deal, you go out to the capital markets raise, debt and equity to finance it. But when you kind of start to play with the idea of private equity, my question is, are there sort of third-party equity partners out there that you think whether it's Blackstone themselves or other people that maybe awoken by these sizeable cash flows in a low yield environment. Do you think there's an appetite out there for potential minority stakes in sort of public companies as a possible financing vehicle? And is that something that MGP would look at?

[James Stewart:]

I think there has been – there's been a lot of interest and a consistently increasing interest in the industry from capital sources going back to even a decade ago. If you go back to the – when we were in the mid-2000s, MGM Resorts itself brought in Dubai World as a partner both as a shareholder of the company as well as 50% partner in City Center. So that was sort of the start of sovereign capital entering the business, and it's only increased from there. And I think the Blackstone transaction, it's high profile, and we're in a fast news dissemination world, will continue that whole progression along. That said, as Andy mentioned, these transactions are big and complex and there are many, many different decision factors that have to be worked out before when gets done. So one has hit the tape and it's highlighted, but it's not to say that there hasn't been, again, I would say consistent drum beat of increasing interest in the industry that we've talked about certainly on these earnings calls for 3.5 years and before that. So the industry is getting attention and its unique positive characteristics are – going to continue to drive that.

[Shaun Kelley:]

Got it. Thanks James. And then the – like we've touched on this or in a few different ways throughout the Q&A here, but just to be sort of more direct when we think about transaction criteria, I think Andy, specifically, you said you like transactions to be accretive, but that doesn't mean they specifically have to be. So maybe to put you guys on the spot a little bit as it relates to a bit of a red line, can you do or are you willing to do a deal based on, let's say the merits of whatever the transaction maybe, the least features, et cetera, the quality of the real estate relative to your portfolio that is actually dilutive upfront with the idea that look, it's enhancing to the overall portfolio and/or better real estate and/or a better fee stream the way it's structured or does it have to be accretive to dividend and AFFO to kind of do that deal?

[Andrew Chien:]

Well, there's not – I mean, the devil is always in the detail. So I mean, if you had something that was accretive within six months, but not initially, would that count as accretive, I mean, there's little stretching techniques that one can do to make cash flow as higher later or higher now or whatever. But generally speaking, we don't see a lot of advantage doing a transaction that isn't accretive to our shareholders. We have very long-term leases in accretion to AFFO and ultimately to dividend is one of the core things that we focus on. So I think it'd be pretty unlikely to see us do some sort of stretch deal that hampers the income statement.

[Shaun Kelley:]

Got it. Thank you for that. And then last question would be, you kind of talked about playing out the MGM kind of view to its end game. We think about the same a lot given our coverage of both sides here. And one thing we're trying to think about is the potential eventual deconsolidation of MGP. Obviously, I think there's a threshold of 30% as it stands today where MGM would de consolidated. Is there anything in structuring terms? Is this a negotiable element that could change that? Where that threshold would actually go up, meaning, they could reconsolidate earlier than dropping to 30%?

[James Stewart:]

The B share that they own is something that can always be opened up and discuss between the two parties. But I would caveat that with saying the two parties have to agree to transact. So it's just a contractual deal that we have. And just like any transaction like that, anything can be opened up. One of the things that I also would just mentioned on the deconsolidation angle is deconsolidation is an accounting provision. It doesn't make a difference to the economics of the business. And so I think although one can – things about such things, it's really just a portrayal of the cash flows that flow in and out of each entity, et cetera, and what the liabilities are as opposed to any real change the economics.

[Shaun Kelley:]

Thank you very much.

[James Stewart:]

Thank you, Shaun.

[Operator:]

The next question comes from Barry Jonas of SunTrust. Please go ahead.

[Barry Jonas:]

Hey guys. So look clearly MGM Grand is in play, but curious how discussions around Springfield are progressing, given where that property is in its ramp? Thanks.

[Andrew Chien:]

Yes, Springfield was the remaining ROFO along with Empire City. The ROFOs are things that we will be discussing jointly with MGM to the extent it make sense. And timing wise, obviously with their own real estate committee overlay, there's many things to evaluate there. So we'll throw it into the mix and see what transactions come out. It all kind of depends on all parties come to the table.

[Barry Jonas:]

Helpful. Okay. And then just the second question, I want to make sure I've got this correct. It is the right way to think about MGM's real estate committee analysis. Did that essentially put you in a holding pattern or create an overhang to get deals done with third parties, and if so, is that now I mean I would assume that's now removed?

[Andrew Chien:]

No, I wouldn't say so. Discussions with third parties continue, transactions we evaluate continue. These things take a long time. So there's no point putting it to something in a holding pattern to weigh on some other transaction. So we continue to work on those.

[Barry Jonas:]

Great. Thank you so much.

[Andrew Chien:]

Thanks, Barry.

[Operator:]

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

[James Stewart:]

Thank you. I would like to leave you with some final thoughts. We continued to progress on executing our long-term business strategy and remain focused on creating a stable and growing income stream that we could enhance our disciplined acquisitions of quality assets. Our rank continues to be protected by our MGM parent guarantee and their superior and improving credit profile. Our priority is to sustainably grow our dividend and create long-term value for our shareholders. We actively monitor the M&A market to identify assets to meet our criteria and we are committed to being thoughtful with our allocation of resources and capital as we continue to explore opportunities both within and outside of the gaming sector. We believe that our iconic Las Vegas Strip real estate, our market-leading regional portfolio and the value of our diversified cross-collateralized pool of assets backed by our parent guarantee, our industry-leading that rent coverage, attractive annual escalators and a 6% yield. MGP is a very attractive investment opportunity and in my opinion, the most attractive real estate stock that is available in the public markets today period. Thank you for continued support of the Company. We look forward to our next call with you all for our fourth quarter and year-end results.

[Operator:]

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