MGP WACC - Weighted Average Cost of Capital
The WACC of MGM Growth Properties LLC (MGP) is 8.5%.
| Range | Selected | |
| Cost of equity | 8.6% - 11.1% | 9.85% |
| Tax rate | 2.8% - 2.9% | 2.85% |
| Cost of debt | 5.0% - 8.0% | 6.5% |
| WACC | 7.1% - 9.8% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.27 | 1.32 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.6% | 11.1% |
| Tax rate | 2.8% | 2.9% |
| Debt/Equity ratio | 0.65 | 0.65 |
| Cost of debt | 5.0% | 8.0% |
| After-tax WACC | 7.1% | 9.8% |
| Selected WACC | 8.5% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| MGP | MGM Growth Properties LLC | 0.65 | 0.9 | 0.55 |
| APLE | Apple Hospitality REIT Inc | 0.56 | 0.81 | 0.53 |
| DRH | Diamondrock Hospitality Co | 0.7 | 0.92 | 0.55 |
| HST | Host Hotels & Resorts Inc | 0.46 | 0.99 | 0.68 |
| PEB | Pebblebrook Hotel Trust | 1.92 | 1.41 | 0.49 |
| PK | Park Hotels & Resorts Inc | 2.17 | 1 | 0.32 |
| RHP | Ryman Hospitality Properties Inc | 0.54 | 0 | 0 |
| RLJ | RLJ Lodging Trust | 1.95 | 1.01 | 0.35 |
| SHO | Sunstone Hotel Investors Inc | 0.47 | 1 | 0.68 |
| XHR | Xenia Hotels & Resorts Inc | 1.06 | 1.32 | 0.65 |
| Low | High | |
| Unlevered beta | 0.51 | 0.55 |
| Relevered beta | 1.4 | 1.48 |
| Adjusted relevered beta | 1.27 | 1.32 |
MGP's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for MGP:
cost_of_equity (9.85%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (1.27) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.