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Late last month, MGM Growth Properties (NYSE: MGP) went public in an IPO that was a little unusual simply because it failed to either live up to investors’ greatest hopes, or dash them.
Rather, shares of the casino REIT, which was projected to begin trading in the $18 to $21 range, opened just slightly above that level, at $22.75 per share. Shares have been pretty much range-bound ever since. MGM Growth Properties stock closed Friday at $22.20 per share. It failed to deliver the “boom scenario” that investors dream of.
But does that mean the MGM Growth Properties IPO was a bust? Not at all. The trust, which contains assets of many of MGM Resorts International’s (NYSE: MGM) best casino properties, raised more than $1 billion for its parent company, and you could argue that it contains the least risky part of the gaming sector. That is, the real estate properties.
Prime Real Estate in Vegas
As part of a plan to pay down debt, MGM Resorts spun off some of the real estate assets of several of its prime casino properties, including Mandalay Bay, The Mirage, New York-New York and Excalibur. The spunoff assets were set up as a real estate investment trust, or REIT, a structure that gives investors a way to invest in a collection of real estate holdings.
Since most of the real estate in the MGM Growth Properties REIT is located on the Las Vegas strip, it is prime real estate. While these assets are not without risk, the MGM Growth Properties IPO offers investors a rare opportunity to buy into a different aspect of the casino business.
With every company that goes public, there is substantial analysis about what the pricing and the follow-on interest says about the IPO market. But we’d all probably be better off looking at the merits of the individual stock.
Stable Pricing Is a Good Sign
The MGM Growth Properties IPO was significantly larger than many of the companies that have gone public recently, and as a REIT, it has little in common with any of them. But it does have a stable of valuable assets, and investors should be encouraged by the fact that it has held onto its IPO price in a period of lackluster IPO activity.
While hope springs eternal among investors for getting in on the ground floor of a stock that will show meteoric growth, the fact is that such IPOs have become quite rare. The best thing about the MGM Growth Properties IPO could be its stable pricing, which not only suggests the market is comfortable with its initial valuation, but also that there is still time for investors to get a piece of the action.
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