In an effort to create a stronger balance sheet, MGM Resorts International sold its equity in MGM Growth Properties for $700 million. The company has now strengthened its liquidity position to $5.3 billion.

MGM encashing its positions

MGM is busy actively seeking all avenues to enhance its cash positions while the industry is struggling with the coronavirus pandemic. The operator has a deal secure with MGP under which this real estate company would be redeeming units worth about $1.4 billion. Now the company has about $700 million on that deal which it may encash at a later date.

This transaction will help MGM in strengthening its own balance sheet and deliver a massive accretion to MGP as well. Bill Hornbuckle, the CEO of MGM said.

“We continue to see significant value in our MGP stake and are optimistic that future redemptions will occur at higher prices.”

Despite the sale of their stake, MGM has a 56.7% stake in MGP.

The transaction has brought more cash to its balance sheet. The company said that these funds will be used to pay for a credit revolver it tapped into recently. It will be helpful in reducing the liabilities of the operator while creating a fresh round of liquidity for the company.

Going forward with MGP

MGP is one of the three publicly traded domestic gaming real estate investment trust (REIT) will also be benefitted via this deal. The only tenant on its property is MGM itself. Now that the company has added more cash to its coffers, it has decreased the likelihood of a rent payment interruption for the company as well. This would be an important point for the company as many other companies are struggling to keep their income streams intact because of the shutdowns.

According to MGP, it is a win-win situation, as it has increased its dividend to $1.95 per share. Earlier, it was $1.90. This is the second straight time this year that the company has boosted its payout. MGM is still holding about 172 million MGP units. The higher dividends mean that there will be more cash flowing to MGM as well. This means that MGM will be collecting about $335.4 million from its MGP stake next year if the company doesn’t reduce its position further.

If MGM needs more to raise more levers, it will have plenty of options. The company’s investors are concerned about the $11.8 billion in liabilities. It has investments in MGM China (56%) and CityCenter Las Vegas (50%).