Las Vegas casino and hospitality operator MGM Resorts International is exploring sale or leaseback of marquee properties such as Bellagio and MGM Grand, Bloomberg reported Friday citing people with knowledge of the matter.
It is understood that the company formed a committee in January to assess ways to extract value from its portfolio of real estate assets.
Over the past several years, casino companies have often opted to offload properties, as the sales release cash to enable them expand and manage their existing resorts. According to industry experts, any transactions MGM may engage in would be structured in a similar manner.
Macquarie Group analyst Chad Beynon told Bloomberg that MGM could take in between $6 billion and $7 billion from a sale-leaseback of Bellagio and MGM Grand alone.
News about MGM potentially seeking to sell the above-mentioned two major properties arrive shortly after rivals Caesars and Eldorado Resorts announced a $17.3 billion combination that would create the largest casino company in the US with approximately 60 properties around a number of states.
There have been suggestions that regulators could ask Caesars to sell a Strip property in order to be able to complete the transaction. And at least one casino owner has shown appetite for a property of this kind.
Treasure Island boss Phil Ruffin has expressed interest in buying a Strip property from Caesars. Mr. Ruffin as well as other interested investors can now direct their attention to MGM’s Bellagio and MGM Grand, which too are located on the legendary stretch of land that is lined with upscale casino resorts.
Working With An Adviser
Sources familiar with the ongoing discussions revealed that MGM has tapped an adviser to solicit interest from potential buyers of two of its most iconic properties – Bellagio and MGM Grand. It is also understood that the gambling powerhouse is open to the sale and leaseback of resorts either on their own or bundled together. A spokesperson for the company denied comment.
In January, MGM formed a committee composed of three independent directors – Paul Salem, John B. Kilroy Jr., and Keith A. Meister. The three directors were tasked with evaluating ways to extract value from the sale of properties.
As Bloomberg reported that same month, activist fund Starboard Value had purchased a 0.54% stake in MGM and planned to pressure the company to restructure.
Macquarie’s Chad Beynon told Bloomberg that “on an after tax basis, we believe MGM could repurchase over 150 million shares” from a sale-leaseback of its marquee properties.
MGM recently initiated the so-called MGM 2020 strategy for reducing costs and cutting debt. Part of the plan involves massive layoffs, which have already kicked off. Around 2,000 employees are planned to be laid off as part of the initiative and some of them will be replaced by robots. MGM expects to uplift its EBITDA by $300 million by 2021 under its MGM 2020 program.
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