Casino giant MGM Resorts International has offloaded two more Las Vegas properties as part of its strategy to become an asset-light company and as it seeks to strengthen its balance sheet.
The gambling company said Tuesday that its real estate investment trust, MGM Growth Properties (MGP), has entered into a definitive agreement with Blackstone Real Estate Income Trust (BREIT) to form a joint venture and acquire the real estate assets of MGM Grand and Mandalay Bay.
MGP spun off from MGM in 2015, while BREIT is an entity of New York financial giant The Blackstone Group.
Under the terms of the recently agreed acquisition, MGP and BREITs joint venture will take over the real estate assets of premier Las Vegas Strip resorts MGM Grand and Mandalay Bay in a deal that values the two properties at $4.6 billion. MGP will own 50.1% of the joint venture, while BREIT will own the remaining 49.9%.
The transaction is expected to close by the end of this quarter, subject to certain customary conditions. Once the deal is finalized, MGM will enter into a long-term triple net master lease for the two major casino resorts and will remain responsible for their day-to-day operations and will provide their new owners with annual rent payments.
The initial annual rent will be $292 million. Together, MGM Grand and Mandalay Bay feature 9,743 hotel rooms and suites, more than three million square feet of meeting space, and approximately 300,000 square feet of casino space with diverse gambling options.
Deal Not a Surprise
The sale of MGM Grand and Mandalay Bay did not come as a surprise as MGM revealed last year that it was in talks with suitors who were interested to purchase the two marquee properties. It emerged this past November that MGM and its REIT were looking to channel interest from companies that have been historically interested in Strip resorts and that a buyer for MGM Grand and Mandalay Bay could be announced by the end of 2019.
It should also be noted that Blackstone emerging as the buyer of the two casino resorts did not come as a big surprise, as well. The financial group last fall purchased MGM’s Bellagio in a deal that valued the iconic property at $4.2 billion.
In a similar manner, MGM and the property’s new owner entered into an agreement that enabled the casino operator to remain responsible for the day-to-day operations of the resort in exchange for an initial annual rent of $245 million.
MGM’s REIT focuses on the acquisition, ownership, and leasing of large-scale resorts. Its portfolio currently includes The Mirage, Excalibur, Luxor, New York-New York, and Park MGM. It also owns Mandalay Bay’s real estate. As for MGM Grand’s real estate, it is currently owned by MGM itself.
Management Comments
Of the latest transaction involving an MGM-operated property, MGP Chief Executive James Stewart said that the deal “illustrates the numerous opportunities available to grow our business and emphasizes the strong institutional demand for gaming real estate assets.”
Jon Gray, President and COO of Blackstone, added that the deal “reflects our continuing strong conviction in Las Vegas.”
Blackstone has been buying both gaming and non-gaming assets around Las Vegas since the city’s economy imploded. According to recent company data, it owns just under $13 billion in real estate in Nevada.
The company acquired The Cosmopolitan of Las Vegas hotel and casino resort for more than $1.7 billion in 2014. It also owns the Hughes Center office park not far from the Strip and the 5.4-million-square-foot World Market Center furniture showroom in downtown Vegas. Blackstone has also spent hundreds of millions of dollars on apartment complexes around the Las Vegas Valley in recent years.
Tyler Henritze, Head of US Acquisitions for Blackstone Real Estate, said that similar to the Bellagio, owning MGM Grand and Mandalay Bay under a lease with MGM “provides stable cash flow and excellent downside protection for our BREIT investors.”
Following the sale of MGM Grand and Mandalay Bay, MGM’s US real estate assets now include MGM Springfield and a 50% ownership in CityCenter, including the ARIA Las Vegas hotel-casino. Analysts believe that the two properties could be the next MGM would seek to divest as part of its strategy.
The company has said that it plans to use the money from the sale of properties to boost its balance sheet, reduce debt, and fund the development of an integrated resort in Japan.
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