MGM and VICI Properties: Finding Deep Value in Beaten-Down Stocks

During their recent episode of the Acquirers Podcast, Travis and Carlisle discussed MGM and VICI Properties: Finding Deep Value in Beaten-Down Stocks. Here’s an excerpt from the episode:

[Tim] Well, I mean, I think most of us are going to be impacted at some level, but I’ll tell you an interesting one. So on the value options letter, we just released a trade idea on MGM. So MGM was being acquired by People’s Inc, which is Barry Diller’s company.

And they’re the largest shareholder. They own about 27%. And I forget if it was 45 or $48, it was somewhere between 45 and 48 was the acquisition price of MGM.

And I had owned MGM in the past and I sold it into that acquisition because I thought it was fairly priced. And I thought there were some risks. You never know the regulatory environment there.

And the rates went up. And so I think debt costs to finance the acquisition probably got a little overwhelming. And then you combine that, Toby, with just the true misery on consumer spending stocks.

I mean, if you look at all of them, so that stock’s trading at like 28 and change right now. And this all happened in September. The deal blew up in September and then the stock dropped all the way to like it’s at $29, $28.

[Tobias] Where was the bid?

[Tim] It was like 45 or 46. And it was pretty far down in the process. And I mean, what’s interesting is Caesars, I mean, I believe that deal’s approved with Fertitta.
And Caesars has a lot more hair in my opinion, as far as the balance sheet than MGM. MGM generates a tonne of free cash flow and they’ve got Macau. Macau’s been down a little bit.

They also have the development coming in Japan that, I mean, I think it’s going to be like the first casino ever in Japan. I might be wrong on that, but I’m maybe the first of that scale or something like that. So yeah, that’s one where I think you look at it and it’s like, yes, okay, AI has some impact on that and the proliferation of online gambling.

MGM plays that with that MGM and they have another internet suite. But yeah, I think that you look at those and I mean, Vegas stuff’s gotten crushed. I mean, Vici, who we talked about, that’s trading at 10 times cash flow.

So think about this. Just think about you’re buying a company, you’re buying a real estate investment trust with 100% occupancy. And the lease terms are like 40 years and your tenants are Caesars Palace and MGM, and now they’re diversifying into other stuff, but concentration risk is a thing.

And you’re buying it at 10 times cash flow and you’re getting an 8% dividend that’s gone up. It keeps going up. They just raised it again.

It’s just really interesting. I mean, you think of people buying like rental properties and the type of cap rates you’ll get on that and the headaches that can come with it versus buying something like that. I mean, to me, that’s such an obvious undervaluation.

I think if the CEO, I almost want to reach out to him. I think if the CEO said, okay, this is stupid, the best utilisation of cash is to buy back stock. I think you see that stock trade up to 28 again.

It’s illogical.