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MGM Growth Properties LLC (MGP) Q4 2019 Earnings Call Transcript

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MGM Growth Properties LLC (NYSE: MGP)
Q4 2019 Earnings Call
Feb 14, 2020, 12:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

Now, I would like to turn the call over to Mr. Andy Chien.

Andy Chien -- Chief Financial Officer

Thank you. Good morning and welcome to the MGM Growth Properties' fourth quarter and full year 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 to 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 in 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 -- Chief Executive Officer

Thank you, Andy. I'd like to welcome everyone to MGP's fourth quarter and full year 2019 conference call. As I'm sure you are all aware, our Chairman and the Chairman and CEO of MGM Resorts. Mr. Jim Murren, announced that he would step down from his positions at MGM Resorts prior to the expiration of his contract.

I'd like to say on a personal level, I've known Jim for over 20 years and have the utmost respect for the man and what he has accomplished in his career. When he arrived at MGM in 1998, the company had 1.5 properties and a market cap of $800 million. Think about that compared to today. MGM consisted of the MGM Grand and 50% of New York-New York. Since then, Jim has definitely guided the company through the gaming expansion in Las Vegas and across the country, the acquisition of Mirage Resorts and the acquisition to Mandalay Resort Group. He then successfully weathered the great financial crisis to bring the company to its current state as a world-renowned gaming, entertainment and hospitality juggernaut. It has been a remarkable business story. And throughout his career, Jim has always been a man of the highest integrity, intelligence, compassion and resolve. Jim is both a great friend and a great leader at MGM, MGP in the industry, and he will be missed. However, I'm sure he will not be a stranger as he moves on to the next phase of his legacy.

Now, I'll turn to the potential impact of this development on MGP. As discussed on MGM's earnings call, their goal is to deconsolidate MGP, which we see as an opportunity and meaningful valuation catalyst for our current and future shareholders. We've entered into an agreement with MGM to deliver cash for up to $1.4 billion of MGM's units, which, if exercised, will reduce their ownership to around 55%. We're always exploring initiatives to further MGP's evolution to become just premier REIT in the entire triple net space.

Now, I'll turn to a brief recap of 2019, which was a year of significant growth for MGM Growth Properties. We added $160 million of annual rental revenue to our Master Lease with MGM. Through the acquisition of the real estate of Empire City Casino, the sale of MGM Northfield Park's operations, and the monetization of the Park MGM improvements. These transactions led to three dividend increases resulting in an annualized dividend rate of $1.88, which represents a $0.09 increase per share year-over-year.

We remain disciplined in our investment strategy to pursue accretive acquisitions with strategic significance. Northfield Park and Empire City are great examples of our ability to successfully identify and execute on accretive transactions with third-party sellers, and we'll continue to pursue these kinds of transactions in the future.

2020 is off to a tremendous start as well. As we just announced, we have closed and completed the venture with Blackstone to acquire a majority ownership of the MGM Grand Las Vegas, and we couldn't be more excited about this innovative transaction. The joint venture, which also will acquire -- as acquired the real estate assets at Mandalay Bay, enter into a long-term triple net lease with MGM Resorts, fighting [Phonetic] for an initial rent of $292 million with fixed annual escalators, robust minimum capex requirements. The joint venture acquired the properties for aggregate debt to consideration, representing a multiple of 15.75x times rent or a cap rate of 6.35%.

In addition, Blackstone invested $150 million directly into MGP common stock, highlighting their confidence in the value of our shares and our growth story. This transaction further illustrates the strong institutional demand for gaming real estate and is another example of the attractiveness in value inherent in MGP's assets. We believe that this combination of transactions will lead to meaningful cap rate compression for MGP and ultimately the entire gaming net lease route space. As the owner of the largest portfolio of premier integrated casino resort assets across the United States, we will be the biggest beneficiary of this natural evolution of our real estate vertical.

MGM Resorts has also reaffirmed its domestic net financial leverage target of approximately 1 times. This underscores their commitment to a fortress balance sheet, which only strengthens the value of our Master Lease guarantee. We also could not be prouder of the performance that MGM reported at a number of MGP-owned properties. Specifically, Northfield Park and New York-New York both had record quarters and Gold Strike had a record quarter and a record year.

We believe we have the best assets with the best leases from the best operator that will have one of the best balance sheets in the entire leisure industry, all of the elements that generate premium valuations for net lease REITs. We continue to actively explore transaction opportunities and had many conversations with potential sellers of third-party operators in and out of gaming. We remain committed to our growth strategy in a disciplined allocation of resources and capital. Our priority remains identifying and executing accretive transactions that will enhance our ability to return shareholder value, increase our AFFO and dividend over the long-term.

I will now turn it over to Andy to discuss our financial results.

Andy Chien -- Chief Financial Officer

Thank you, James. 2019 was a great year for MGP's balance sheet with a number of well executed capital markets transactions, including two follow-on equity offerings resulting in gross proceeds of approximately $1.5 billion and $750 million senior unsecured notes offering. With the closing of the joint venture transaction, we finalized on a highly attractive CMBS financing, Blackstone's equity investment in the JV, and our direct investment in MGP through the purchase of 150 million Class A shares. This is a testament to the confidence and quality of our assets, the joint venture structure, MGP's growth prospects and the strategy.

I'll now provide some highlights for a few items in our fourth 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 $72.9 million, AFFO was $177.5 million or $0.58 per diluted Operating Partnership unit. Adjusted EBITDA was $233 million. G&A expenses for the quarter were $4.2 million.

For the fourth quarter, our dividend was $0.47 per share, which represents $1.88 on an annualized basis. Our net leverage at year end was 4.5 times, subsequent to year-end with the settling of our forward equity contracts this week and the just announced closing of the joint venture. Our Term Loan A and B, have been fully repaid. In addition, we have an additional $200 million of cash on balance sheet with the closing of the joint venture in Blackstone's MGP investment.

With that, I'd like to turn it back over to James.

James Stewart -- Chief Executive Officer

Thank you, Andy. We'd like to thank all of our investors for their continued support. And operator, now we'd like to turn it over to you for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Joseph Greff at JPMorgan. Please go ahead.

Dan Politzer -- JPMorgan -- Analyst

Hey, guys. This is actually Dan Politzer on for Joe. Good afternoon and thank you for taking my questions. So, first, given Jim's recent news that he is stepping down MGM, presumably you will [Phonetic] at MGP, our question is this, do you think this accelerates the increased independence of MGP as it relates to MGM's influence there? And I guess, how do you see this playing out with respect to the Board composition and MGM stake in MGP? Thanks.

James Stewart -- Chief Executive Officer

Yeah. All of this is very new to us obviously. And where things go from here is just something we're not prepared to comment on at this time other than what's already been out there from the MGM Resorts side, so we'll see.

Dan Politzer -- JPMorgan -- Analyst

Okay. And I guess this relates to this is -- so might be a similar answer, but I guess how quickly do you think about redeeming the $1.4 billion of MGP OP units that MGM owns and is it presumable that this will be soon given MGM's capital markets activities?

James Stewart -- Chief Executive Officer

Well, you're going to unfortunately get kind of a similar answer. They -- as part of the agreement, they have two years basically to make that request for up to $1.4 billion. So, I would just have to say, we'll just have to wait and see when that occurs.

Andy Chien -- Chief Financial Officer

I think, in other MGM releases, they have talked about it in the early part of that window.

Dan Politzer -- JPMorgan -- Analyst

Yeah. All right. Okay. And then, just the last one, changing gears a little bit. Do you think you need some time to digest the recent transactions before you could reasonably do another one?

Andy Chien -- Chief Financial Officer

No, I don't think so. We have our balance sheet in a great spot. We are always out looking for things that will enhance shareholder value. And I don't think that will come into things at all.

Dan Politzer -- JPMorgan -- Analyst

All right. Thanks so much guys. I appreciate it.

James Stewart -- Chief Executive Officer

Thanks, Dan.

Operator

And our next question today comes from Spenser Allaway of Green Street Advisors. Please go ahead.

Spenser Allaway -- Green Street Advisors -- Analyst

Hi. Thank you. Can you maybe just talk about the decision to use debt as opposed to equity as it relates to the forthcoming OP unit redemption?

Andy Chien -- Chief Financial Officer

Sure. In terms of the capital markets activity for the upcoming redemption, having the debt capacity to do so provides us the flexibility to do so when the request comes in. We do have a certain amount of time to deliver the cash upon the request, but this gives us balance sheet flexibility, the ability to do it quickly and efficiently.

James Stewart -- Chief Executive Officer

The other thing I'd add to that Spencer is, this really let's us control how this gets done to a much greater degree, because as you know, debt in today's world is very inexpensive and permits us to basically eliminate any kind of market risk to ourselves out of such a transaction, so we -- and we have very significant capacity compared to where our targets are for leverage. So all those things we just got to make the most sense to do it.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. And then, as it relates to MGM's commentary to eventually deconsolidate MGP, can you walk us through how the mechanics of retiring the B shares would work? Do you suspect that MGM would simply forgo these shares or are they going to expect to be economically compensated for them?

James Stewart -- Chief Executive Officer

Well, it's a -- that is certainly an unknown at this time. They have stated their goal is to deconsolidate, and the B share, there is no physical share, it's just a contractual arrangement between the two companies. So...

Andy Chien -- Chief Financial Officer

And contractually speaking, once their ownership represents 30% or less, it would go away...

James Stewart -- Chief Executive Officer

Automatically falls away. So, we look forward to working with them on these done [Phonetic] such decisions, again, not to repeat the last answer, but time will tell.

Spenser Allaway -- Green Street Advisors -- Analyst

Okay. Thank you.

James Stewart -- Chief Executive Officer

Thanks, Spencer.

Operator

And our next question today comes from Carlo Cantero, Deutsche Bank. Please go ahead.

Carlo Cantero -- Deutsche Bank -- Analyst

Hey, guys. Good afternoon. Good morning. Thank you. Andy. just in terms of the contribution of the debt to the joint venture, could you talk a little bit about what the joint venture debt looks like as of today and maybe provide a little bit of color on kind of the CMBS financing and kind of what the rate is on that?

Andy Chien -- Chief Financial Officer

So, in terms of the capital structure, it's just the $3 billion of the CMBS debt. The term loans that we contributed were paid off with the closing of the transaction in a literally couple of minutes ago. And in terms of the details of the loan, we'll have to get into that in later stage when some of those things become public, but just the $3 billion of debt at the joint venture. That's it.

Carlo Cantero -- Deutsche Bank -- Analyst

Okay. And then, in terms of obviously staying active and coming out of this process and kind of -- with a fresh slate, obviously your funding position and your liquidity position is strong at present. Is there -- I guess, knowing that you have kind of the $1.4 billion potential OP unit redemption kind of sitting out there, is it possible that you would do potentially a smaller deal, kind of in the near-term that doesn't require any kind of financing and you can kind of go with what you currently have, while still leaving the dry powder for their unit redemptions?

Andy Chien -- Chief Financial Officer

I think what we showed in the presentation upon the announcement, I think, is a guide post in terms of where we are in terms of leverage and our capacity to do a transaction between now and the redemption, and there is capacity. And so, we're comfortable continuing to chase down some of the transactions we're looking at,knowing that we can fund it between now and before or after or during the redemption.

James Stewart -- Chief Executive Officer

Yeah. And I would say also, it's certainly not limited to small deals because of this at all. We are in an excellent balance sheet position, even pro forma for the redemption debt raise. So, we are -- we're in a very good spot, and I wouldn't even limit to that. We're on the hunt as always for things that we think will be long-term beneficial for our shareholders.

Carlo Cantero -- Deutsche Bank -- Analyst

Understood. And then, just one last housekeeping one in terms of the venture. Have you guys -- I'm assuming you have, but in terms of the accounting and kind of reporting of the joint venture equity method, kind of do you have any clarity as to how you will account for it going forward?

Andy Chien -- Chief Financial Officer

I think the preliminary view is, it's likely equity method. I think MGM posted something in their presentation on that, but obviously we'll continue to work with our auditors to finalize that when we reported in Q1.

Carlo Cantero -- Deutsche Bank -- Analyst

Great. Thank you, guys.

James Stewart -- Chief Executive Officer

Thanks, Carlo.

Operator

And our next question today comes from Dan Dolev at Nomura Instinet. Please go ahead.

Dan Dolev -- Nomura Instinet -- Analyst

Hey, guys. Thanks for taking my questions. And for the second year in a row, Happy Valentine's Day.

James Stewart -- Chief Executive Officer

Yeah, thank you.

Dan Dolev -- Nomura Instinet -- Analyst

So, my first question is -- I know you guys still have plenty of cushion, but does MGM withdrawing its 2020 EBITDA guidance and the near-term cash burn at MGM China, does it concern you at all from a coverage standpoint?

Andy Chien -- Chief Financial Officer

No, the MGM China is, as I'm sure you all know, a completely separate entity with its own capital structure and public stock that trades on the Hong Kong Exchange. So, I'm convinced they will get incredibly great liquidity position there, and I'm convinced they get through this and end up very strong. But for us, it's not really, one, we don't own any assets there; two, it's a separate public company that does contribute dividends now and then to MGM, but really doesn't impact our coverage and safety of our own cash flow.

Dan Dolev -- Nomura Instinet -- Analyst

Okay, got it. That makes sense. My second question is, growing forward, what do you see as the primary acquisition vehicle for MGP? Is it MGP stand-alone or the Blackstone joint venture or both? And are there any meaningful differences between your cost of capital -- MGP's cost of capital and that as a JV? Thanks.

James Stewart -- Chief Executive Officer

We -- one of the hallmarks of our company is the ability to be creative and thoughtful around all the different sources of capital that are available to us. We're able to bring the grand into the fold with a fantastic partner through what I think is a pretty innovative structure that demonstrates the ability to get capital at some very attractive cap rate fundings and in size [Phonetic]. It is hard to predict with any kind of reliability exactly what structure we use in the future what capital sources will tap, because again our guiding path or guiding star is to increase sustainably the dividend and increase sustainably our share price. And so, how one accomplishes that and how -- what capital pools we think are most efficient to sort of bring an asset into the fold that we want, we'll do whatever we need that accomplishes those two goals ultimately. Andy?

Andy Chien -- Chief Financial Officer

I'd agree with that. And I think what this transaction shows is that our access to capital is expanded beyond just public equity, public debt, bank debt, etc, but there is JV equity, CMBS debt, direct equity placements into MGP, so the pool of capital -- the different pockets of capital, we've proven out additional paths and creates opportunity to go forward. And we can evaluate each funding source as transactions come.

Dan Dolev -- Nomura Instinet -- Analyst

Great. That's very helpful. Thank you.

Operator

And our next question today comes from Nick Yulico with Scotiabank. Please go ahead.

Nick Yulico -- Scotiabank -- Analyst

Thanks. Just going back to the CMBS financing, I know you haven't given all the details of it, but presumably it's going to be a very attractive rate similar to what already came out with Blackstone doing Bellagio. So, I guess, what I'm wondering is, based on your term loan, your existing capital structure, may you able to put more CMBS debt on your balance sheet assets as a way to fund acquisitions, let's say, if they were outside of Vegas, which seems like that's a little bit more difficult to get CMBS financing.

Andy Chien -- Chief Financial Officer

Look, in terms of go-forward funding of transactions as well as our own balance sheet, I think we will evaluate all possible avenues, and we can find the most efficient financing as we go forward. We don't have any big maturities coming up. The nearest bond is still five, six years away. But as we look at transactions, and if that is most attractive funding source, we can evaluate it. You're right. In terms of a regional asset in that structure has been proven out, but certainly the Las Vegas assets have proven they can tap the market.

James Stewart -- Chief Executive Officer

Yeah. And I would say, one thing that I think it's fair to say with that market is that they are most attracted to very high quality, high fit and finish types of properties. And as I look across our portfolio, basically every one of them would be fit that category. Look, it gives us some nice flexibility.

Nick Yulico -- Scotiabank -- Analyst

Okay. And that's helpful. And then, just one of the question on the relationship with Blackstone, they now own the stock. And I guess I'm wondering, I mean, how did the conversation go with the ultimate amount of stock they ended up purchasing, where they willing to do more? Do you guys want to place a certain limit on that? How did those conversations go?

James Stewart -- Chief Executive Officer

All I will say, Nick is, we couldn't be happier to have them both as partner in the JV and an investor in our equity, and I'll leave it at that.

Nick Yulico -- Scotiabank -- Analyst

Okay. But there was no like size constraints that you were putting on from your end, saying, hey, we don't want -- yeah, we can't do more than this.

James Stewart -- Chief Executive Officer

Other than just limitations, etc, that certainly is a upper limit, but that will -- I stick by my prior, we'll leave it at that.

Nick Yulico -- Scotiabank -- Analyst

Okay, all right. It's a fair point. I guess, just one last question is on the pipeline of acquisitions that you're looking at outside traditional gaming. I mean, can you just give us a feel for what that's looking like? And as we're thinking about cap rates, all right, where cap rates seem like they've now compressed in Vegas and maybe in other aspects of gaming, would these be higher? Would you be pursuing higher cap rate deals if you're going outside of gaming and what are some potentials there?

James Stewart -- Chief Executive Officer

Each class has obviously its own general sort of range of cap rates at which deals transact. And I think, to a degree, you kind of -- you get what you pay for. So one of the things that we have been very, very focused on, and I think ultimately we'll -- and you were [Phonetic] to the great benefit of all our shareholders a high quality portfolio of assets always garner people who want to be part of that system. And so, we look at -- we look at all sorts of different deals, some of web have different levels of attractiveness in different risk-reward trade-offs but always want to maintain a lens of, again, very high quality for whatever we do. So, we're certainly not going to chase a little bit of extra return for something that we think could hamper that component of our company or ultimately hamper the ability to have it contribute its fair share of dividend, will stick with high-quality assets in any deal that we pursue.

Nick Yulico -- Scotiabank -- Analyst

All right. Thanks, guys.

Operator

And our next question today comes from Robin Farley at UBS. Please go ahead.

Analyst

Hi. Thank you. This is actually Artina [Phonetic] for UBS. We heard MGM talk about a real estate transaction by year-end. Should we assume you aren't interested in Springfield at these levels of run rate EBITDA? And if so, how would a potential City Center transaction work? Thank you.

James Stewart -- Chief Executive Officer

I would not assume the former, it's an asset on which we have a right of first offer. And still in it's ramping up stage and we'll see ultimately where it goes. Obviously a beautiful facility. And I think longer-term, it will start to demonstrate its power within the market. That will take some ramping up time, it's still in that zone. And City Center is, I think, you know is a joint venture between MGM Resorts and Dubai World, very, very attractive asset, or is one of the most beautiful assets in certainly, I would view, all of Las Vegas, all of United States, and I would argue one of the best integrated resorts in the entire world. And we're not -- there is nothing that I can really say regarding any potential deal there other than it would obviously be something that would certainly fit our quality of lands. And I think it's just a fantastic and gorgeous asset.

Analyst

Okay. And could you -- are you -- could you comment on how that transaction could potentially work and whether the partner has shown any interest down the road or at this moment. It's not that easy for you to comment on it?

James Stewart -- Chief Executive Officer

Not going to comment on any hypotheticals.

Analyst

Okay, fair enough. Thank you.

James Stewart -- Chief Executive Officer

Thanks.

Operator

And our next question today comes from Barry Jonas of SunTrust. Please go ahead.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. Just for starters, with MGM, talking about lowering their percentage, are you fairly agnostic as to how low that could go or is there a floor that you'd prefer?

Andy Chien -- Chief Financial Officer

From our perspective, I would say it's the former. I think they are -- well, as you know, they are the best gaming company in the world, the best array of assets, the best tenant, we love them as an investor, we love the balance sheet strength the company has, and we had some -- want to, it's not really up to us, right. It's at MGM decision. And whatever percentage they own, we love to have them and we are -- it isn't up to us. We love all our investors and we love MGM. And it's Valentine's Day, Barry. So, message of love.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Fair enough. Okay. And then, look, there's clearly checks in place now for conflicts with the Board. But I'm curious to get any perspective from you what a change in the Board composition potentially starting with more management representation, what that might mean for the company and because of that [Phonetic] strategy?

James Stewart -- Chief Executive Officer

Well, at this point, I don't think there is anything really to comment on. But I'll leave it to say, we'll work it out in the future. And one of the things that we as a company I think would be valuable is continuing to have the best-in-class governance, given that we have a very large shareholder who has a very meaningful stake for minority shareholders until those minority shareholders ultimately become majority shareholders. And our goal is to have the absolute best governance for all scenarios to help the minority or ultimately majority shareholders.

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks so much, guys.

James Stewart -- Chief Executive Officer

Thanks, Barry.

Operator

[Operator Instructions] Today's next question comes from John DeCree, Union Gaming. Please go ahead.

John DeCree -- Union Gaming -- Analyst

Hi, James. Hi Andy. Thanks for all the color so far. I think you've answered most of my questions about the quarter and the transaction. So maybe just a conceptual question for you guys. We've talked in the past about your discussions with -- would be sellers of assets, and we get feedback from a lot of the casino operators that have kind of indicated to us, they look to reach as a financing tool for additional M&A but curious what your thoughts on what if anything has changed, given the cap rate compressions we've seen or sellers looking for exits and more willing to do an outright sale to you and to reach or is it still kind of the focus on looking at the financing tool as a growth engine. I was curious if there has been any shift given where valuation has gone?

Andy Chien -- Chief Financial Officer

It's been a very interesting market over the past, say, year-and-a-half. And I would -- I think a combination of a continued decline in interest rate, which I think the general view of pundits is that they don't see that reversing anytime soon. Along with some gyrations in the valuation of various operator stocks and our own ability to raise money at lower and lower cost of capital have fueled an extremely attractive environment for us and for people looking to monetize assets, and the cap rate compression is an expression of that I think there is a long, long, long way to go in terms of where those cap rates will ultimately end up. Although we've had compression from historical rates, the attractiveness of this asset class is only in inning one of where I think ultimately institutional investors will see the safety, security -- safety and security of not just the cash flows, but the fundamental facility itself.

So, all of those things have contributed to a very, very attractive environment on all of the fronts that you mentioned. And I think it will only continue to move in that direction as bigger and bigger pockets of capital understand how safe and how secure the investment into these assets, especially the highest quality ones that weather ups and downs through [Indecipherable] really are. And I'd just add to that, John, look, in terms of the rationale for transaction with the REIT, right, the financing for M&A, that's one thing that you talked about, but also just positioning company's balance sheets. And I think one thing that people are seeing and seeing MGM do is, getting that financial leverage down to a point that's very safe. It's something that's attractive for some of these companies. In addition, just to get leverage down to a level where they can distribute dividends to their own shareholders, it's something that's attractive to them. So doing a sale leaseback is on track to mechanism and not only for M&A but also just positioning balance sheet for whatever corporate reasons that those companies might have.

John DeCree -- Union Gaming -- Analyst

That's helpful. Maybe a follow-up to that, to circle back to some of your comments. James, when you look at some of the interest of capital like a Blackstone behind the Las Vegas Strip, and then we look at some of the assets in the regional markets and particularly some of your assets like a National Harbor that's very high-caliber. Where have you seen -- have you see the market has additional kind of course of capital started to look at some of the regional markets and regional assets in a similar capacity as they did Las Vegas. I mean, it's quite obviously level of interest on the Las Vegas Strip, I think, given just the scarcity there of how many buildings. But just curious to get your thoughts on whether you've seen the same level of interest or are seeing the same level of interest for those regional assets?

James Stewart -- Chief Executive Officer

Well, as you can imagine, we have many, many conversations with all sorts of different potential partners, investors and so on, just as a regular course of our business. And I think that beyond sort of a regional or Las Vegas Split, the most attractive thing that seems to be the magnet that attracts this type of capital is fit and finish and the proven ability to earn free cash sort of through thick and thin. And different people get their different ways, but high-value big properties in metropolitan areas really seem to get -- seem to be the sort of magnet that attracts people. And so, I don't view it so much along a regional Vegas Split as a initial build cost, fit and finish, ability to draw customers that are -- that's the best for whatever customer you're targeting, whether it be a mid-level person, the high level spend or etc. When you have that kind of building, it's just -- it's very, very attractive to many different funds who are willing to pay for the fit and finish and the cash flows that come out of those. So that's really how we split it down. It's very much, my own view, quality versus lesser quality lens, even though, when it gets to -- I think one of the questions maybe Nick had asked, even though you can get better values for lesser quality properties, you just don't find -- people aren't chasing the last little bit of yield so much as wanting something that [Indecipherable] lots of different customer draws lots of different activities, has lots of activities in it, and sits in a good area.

Andy Chien -- Chief Financial Officer

And John, I'd add to that, just either mature real estate markets, right, that provides this financing. And if you look at just pure real estate value, and can pick your measure, whether it's gross book value, replacement value. When you look at our assets, you look at our balance sheet with a gross book value of our assets, it's about equal to the market value of the company. When you look at any other portfolio, and there is -- the public market is putting premium or pay more for the gross book value assets because of the net lease aspect, right. And so, I think, in our company, there is significant upside and that you're getting the book value of the real estate, but the premium value for the quality of the tenant, the quality of the credit, the quality of the one-time financial levered entity being your tenant, that's value over and above the real estate. That's not being reflected in the market today.

John DeCree -- Union Gaming -- Analyst

Agree, Andy.That's really helpful insight, guys. Thanks again and congratulations on another successful year.

James Stewart -- Chief Executive Officer

Thanks, John.

Operator

And our next question today comes from Jay Cohen [Phonetic] of SMBC. Please go ahead.

Analyst

Hey, guys. Thanks for taking the question. As you look at the JV lease with Blackstone, there are some new features in it with 50-year lease with the extensions and locked in annual rent growth. Is this kind of the new form that we should expect this is to take with new acquisitions?

James Stewart -- Chief Executive Officer

Every transaction is unique, right. And buyers and sellers have different goals and prospects for the next 10, 20, 30, 50 years, right. And so, I think it reflects what those goals are, those prospects are for those companies to accept various types of lease escalators, and market continues to evolve. Since our IPO days till now, there has been different forms of leases look like and each transaction is unique. But we certainly like what we've structured with Blackstone here on this joint venture lease, and I think it's attractive for all our shareholders.

Analyst

Got it. Thanks for that. And then, just one follow-on, as you look toward diversification and the external growth just beyond MGM and even the gaming industry, are there any opportunities for you to purchase real estate directly from Blackstone from any other ongoing projects or investments?

James Stewart -- Chief Executive Officer

I think, when you work -- when you have developed a partnership like this, which I think is very positive set of feelings on all sides, my own experiences say that frequently just other opportunities come from that, whether it's buying things together, looking at things together, whatever it is, getting through all of the negotiations and finalizing documents and all of that stuff generates an understanding and the closeness between parties. So, we'll see where it all goes.

Analyst

Okay. Thanks so much. That's all from me.

James Stewart -- Chief Executive Officer

Thank you.

Operator

And our next question today comes from Shaun Kelley of Bank of America. Please go ahead.

Shaun Kelley -- Bank of America -- Analyst

Hi. Good morning, everyone. So, just wanted to go back and you may or may not really be able to answer, but just figured I'll try anyways. On the deconsolidation point, we just wanted to go back to wondering, I mean, I think the question was asked around sort of the B shares and how that would work. But my question is a little bit more specific, with anything else have to take place other than, I guess, changing the structure of the B shares or eliminating them in order to move the party ownership or the deconsolidation threshold from 30% up close to more of an accounting driven 49% or 50%?

James Stewart -- Chief Executive Officer

Well, the structure of the B share, again, is just an agreement between MGP and MGM, which was constructed prior to the IPO. And all of it is subject among agreements of the parties for a moment or change or whatever. So, there is, to the extent the two parties get together, which obviously we have a very good relationship with MGM, and we talk all the time. We can talk with them, proposed anything, they can proposed anything to us, but it's really just coming to agreement among the two parties to the extent that something you want it to be changed or whatever. Yeah.

Shaun Kelley -- Bank of America -- Analyst

Okay. So there is no other, I guess, gating factor that couldn't -- that wouldn't be subject to negotiation or discussion as it relate to those agreements. Am I understanding that right?

James Stewart -- Chief Executive Officer

Yeah. Correct.

Shaun Kelley -- Bank of America -- Analyst

Great. Thanks for that, James. And then, the other question I have is just specifically on Springfield, to go back to that one. I think obviously we do know the assets performance has been not kind of quite up to what was anticipated. But overall, you mentioned the quality of the property, and I think some of us have been there and seen it, know the asset to be a very good one. So, the question for that one is a little bit more, can you just help us think about how you think about that versus the kind of broader Master Lease, and let's call it the broader corporate coverage. Could you could contemplate doing something there that might be at a coverage ratio that might be kind of on the ramp-up or on a different trajectory than perhaps normal, but with the confidence of knowing that the tenant in the Master Lease kind of sit there, just how would you -- how do you balance those two pieces?

James Stewart -- Chief Executive Officer

To the extent that the transaction was completed where it went into the Master Lease, the one thing that I think sometimes gets lost is, there is no individual lease against any property within the Master Lease. So we have one comes in, and just knocks the cover off the ball and another one is in and it doesn't do as well. Rent payment is a rent payment, and you have to pay either all of it or you lose all those assets. So it's really the cross-collateralization of all the assets in the Master Lease. I mean, you never are looking to one property that necessarily perform and pay us rent share, it's just a pool of properties. So, to the extent that an asset comes into the Master Lease that is not contributing as allocated fair share, whatever you think, I don't want to say it doesn't matter because obviously you want all the assets very well. But the other -- the cash flow that is coming from the other assets in the Master Lease, we just have to shore up their part of the rent. And above and beyond that, the assets that are not leased to us or as a result of the corporate guarantee also have to come up with -- it would have to come up with the ability to pay the rent.

So, we don't -- it is an asset that is of a size that I think certainly at this point in the company with just a tick under $1 billion of revenue. It is a gorgeous asset with the best operator. It is taking long time to ramp, a lot longer than people thought, but we are not restricted by the sole performance of that asset, because to the extent it comes into the Master Lease because there is no -- there never is a lease against any one property in the Master Lease. That's the whole point of it.

Shaun Kelley -- Bank of America -- Analyst

Got it. I think that's very helpful. Thank you very much.

James Stewart -- Chief Executive Officer

Thanks, Shaun.

Operator

And our next question today comes from Smedes Rose of Citi. Please go ahead.

Smedes Rose -- Citigroup -- Analyst

All right, thanks. You've answered most of our questions or unable to answer some of them, but I wanted to just follow up on something you said about you feel that there is sort of an under-appreciation in the stock relative to the quality of MGM as your core tenant. So, I mean, is it your view that maybe that there'll be more appreciation as MGM's ownership declines or what do you think kind of creates more appreciation and better value in the stock as you see it?

James Stewart -- Chief Executive Officer

When we went public, many of the investors who we met with had, we're not in the mode of needing or particularly wanting to understand the performance of the various operators cash flows that underlay their rent. The coverage number and who they were, etc, if you're having and I'm comparing it to a retail triple-net, if you have 3,000 tenants that each contribute 3,000 to your revenue line and you're making $800 million of revenue, the ability to analyze that is zero, right? And any one tenant's contribution is so small after you're done with that one, it's like paying Golden Gate Bridge [Phonetic]. If you get to one, you have to restart the beginning just immediately again. And so, they became -- there is just a view that like no one did it. And their way of looking at things of risk was how much leverage was on the REIT, and things like this.

As we came around, which was a pretty different model for them to analyze, understanding the underlying performance of the tenant is a key component of understanding how safe the cash flows were that came to us. So it takes time for people to get over the hump that they have to understand a big entertainment, integrated resort company and figure out whether or not they like those assets, etc, versus just relying on theory that we have thousands of tenants that should hope they all do well without really having any knowledge of anything that they're doing. But as time has progressed and people understand that having a $15 billion market cap multi-faceted entertainment company with assets all over the country in the world that generate massive amounts of EBITDA as they've gotten comfortable with how to analyze that and think about it, to think about the different balance sheets and buildings and so on, it has really generated the change of view. So much as anything, it's just the time and the sort of acceptance that one has to kind of do that work in order to understand the company at least to some degree. Look, if you don't want to do it by getting case in Q2, of course MGM is a public filer there's probably 40 research reports out at any one time in the company and that research and so on.

So, therefore people analyze, it's not the hardest thing to see it if you think the credit is safe or not. We just have very different path for investors, and one that took some time and still is taking people time to really get their head around, which is one of the reasons why I think as time goes on in the analyze it. There's no question that we take the spot of the much, much -- take the spot in the market at a much tighter cap rate than we currently are.

Smedes Rose -- Citigroup -- Analyst

Let me just ask you, do you think that with Jim, you're leaving and some upcoming changes to your own Board. I mean this is -- it seems like this might be an opportunity to really sit down with MGM and talk about an accelerated path to lower ownership, because I know you're getting to 55%, but it just seems like the non-MGM holders want to see that number go down more, and it seems like MGM continues to want to raise cash. I mean, wouldn't this be kind of the opportunity now to kind of set forth that plan or how do you think about that?

James Stewart -- Chief Executive Officer

Well, it's only been a day, so...

Smedes Rose -- Citigroup -- Analyst

Well, I'm not asking you to give me the ADC, I'm saying and I think generally like big picture. Is this an opportunity for you to step out of the MGM mothership, I guess. I don't know, I mean, this is all sort of in line with questions you've sort of get every quarter, but I'm just sort of wondering your views on it.Thank you.

James Stewart -- Chief Executive Officer

Sure. So, we hear frequently from our investors and from analysts and so on. About what their views are as to pass that we could take and so on. And some of the commentary that you've made is certainly not lost but also not lost on MGM's own investors. Right. And so, I think both parties are very incented to do whatever we can to try to increase and enhance the share value of MGP and how one accomplishes that and what works or may fall by the wayside is something we'll go after, kind of figure out, but it is the biggest stakeholder. The biggest economic stake or that we have to MGM Resorts. They are sitting on a rough number of $6 billion stake even more $7 billion stake. So, nobody is more incentive in them to want to see an increase in this value. And so, I would say that it is, again, it's something we talk with about plenty with them and are both very much on the same page as we always have been about trying to maximize that value.

Smedes Rose -- Citigroup -- Analyst

Okay, thank you.

Operator

And our next question today comes from John Massocca of Ladenburg Thalmann. Please go ahead.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

James Stewart -- Chief Executive Officer

Yeah.

John Massocca -- Ladenburg Thalmann -- Analyst

So as we think maybe about longer term with regards to the CMBS debt. Does that impact your ability at all to become an investment grade issuer or just having that in the JV in somewhat remote mitigate any impact that might have with how the ratings agencies might look at you guys?

James Stewart -- Chief Executive Officer

I don't think that's an impediment John, obviously on the other side of the capital structure, as I talked about in prepared remarks, we only have our unsecured bonds in our revolver with the term loans paid down. And so, those are things that the agencies will look at, as well as just with the leverages, the raw leverage on the traditional capital structure side. All of those things factor, excuse me, factor into their analysis. And I don't believe preclude us from having that sort of outcome at some point in the future, and that's something that we continue to look at to see, if there are things that we can do to help with that outcome, as well.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then as kind of maybe potential acquisitions outside of gaming become more important as you move through the MGM's on balance sheet real estate here. How do you structure those kind of transactions that are outside of gaming, in a way that kind of makes I guess our investment thesis differentiated just given how many guys that are in the REIT space investing kind of more traditional net lease assets. How do you kind of, I guess maybe allay concerns the investors might potentially have that you're buying potentially assets that you don't have an expertise in that theoretically at least another net lease investor passed on for some reason.

Andy Chien -- Chief Financial Officer

Okay. James and I, we weren't just pure gaming bankers in our careers. We were gaming, lodging, leisure bankers I was covering REITs since early 2000s...

James Stewart -- Chief Executive Officer

We were in the real estate group, I mean --

Andy Chien -- Chief Financial Officer

Right from office, industrial, healthcare, net lease, we worked on deals for all those types of companies and so gaming, while we have been investing in gaming real estate assets for the last four years, but we also continue to get the relationships in the lodging, leisure industries, keep those relationships very close to our best and continue to talk through transactions on those fronts as well. We've done transactions for those types of companies we study those companies and are very familiar and comfortable investing in the industries broadly speaking.

James Stewart -- Chief Executive Officer

If you look at what's going on inside National Harbor, the Borgata, MGM Grand Detroit, Beau Rivage, Luxor, the MGM Grand, etc. There is a casino floor, there is a day club, there is a nightclub, there is a restaurant company within each building that will put it among the largest restaurant companies in the world. There is a ticket service that would be among the largest ticket providers in the world. There is a show that goes on in all every one of those buildings, where you'd be one of the biggest purveyors of live entertainment. There are sports arenas, there are retail malls, which have garnered incredibly high cap rates, it is going to be low cap rates in sales. So we're not running a box in a city that's 100,000 people outside of a cornfield with slot machines in it. It is a global entertainment company with lots of things that go on inside the building and so I would say the idea, I wouldn't look at it was such a narrow lens in terms of both experience and sort of knowledge of these basis.

I mean the knowledge level both within our own firm, and within our partners at MGM is extraordinarily deep and extraordinarily broad.

John Massocca -- Ladenburg Thalmann -- Analyst

Would it be fair then maybe you assume that if non-gaming acquisitions with a focus on these kind of categories that essentially incur -- occur inside the casino. But maybe or you have those kind of entertainment type of facilities outside of a casino would be kind of your primary targets and into that extent too, are there other kind of potential real estate categories that just aren't being addressed by traditional net lease investors that maybe you think are attractive.

James Stewart -- Chief Executive Officer

Every transaction we look at individually irrespective of sort of categories and expands on its own or it doesn't. And if we think that it is accretive, it doesn't impair, it doesn't harm -- accretive without raising our leverage above our targets and we'll pay the rent for the life of the lease without keeping anybody up. That's a deal we want to look at. If it fails on any one of those metrics, probably a deal, we don't want to look at. And the other component of looking at that metric is, yes, it has to be of a high enough quality and fit and finish, such that we're not concerned about it paying the rent or diminishing the overall value of the portfolio and each one has to stand on its own in the respective space. We don't look at it alike.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay that makes sense. That's it from me. Thank you very much.

Operator

And our next question comes from Felicia Hendrix of Barclays. Please go ahead. Hello, Ms. Hendrix, your line is open. So this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Stewart for any closing remarks.

James Stewart -- Chief Executive Officer

Thank you all for listening to today's conference call. I'd like to end with the following. We continue to execute our long-term business strategy and focus on creating a stable and growing income stream that we can enhance disciplined acquisitions of quality assets. Our rent continues to be protected by our superior assets, master lease structure and parent level guarantee. We believe our portfolio of properties is the highest quality collection that integrated resorts ever assembled and in addition to the quality of our assets, we also have the highest net coverage in the industry. I believe there is significant upside to a relative trading levels and the underlying value of our real estate, which over time. I'm confident will continue to be reflected in our stock price. Thank you very much. We'll talk to you all next quarter.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Andy Chien -- Chief Financial Officer

James Stewart -- Chief Executive Officer

Dan Politzer -- JPMorgan -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Carlo Cantero -- Deutsche Bank -- Analyst

Dan Dolev -- Nomura Instinet -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Analyst

Barry Jonas -- SunTrust Robinson Humphrey -- Analyst

John DeCree -- Union Gaming -- Analyst

Shaun Kelley -- Bank of America -- Analyst

Smedes Rose -- Citigroup -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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