MGM Resorts International begins 2020 much as it ended 2019—with another blockbuster deal aimed at monetizing its Las Vegas real estate holdings and continuing its asset-light strategy with a sale-leaseback of the MGM Grand and Mandalay Bay. In the latest transaction, private equity giant Blackstone’s REIT and MGM Growth Properties formed a joint venture to acquire the casinos and resorts for $4.6 billion and execute a long-term lease with MGM Resorts to operate both Las Vegas Strip properties.
Once this deal closes by late March and MGM Resorts also redeems about $1.4 billion in operating partnership units, MGM Resorts is expected to have $8.2 billion in cash from its recent sales spree. The MGM Grand and Mandalay Bay definitive agreement comes about two weeks after MGM Resorts closed on the sale of the Circus Circus Las Vegas hotel and casino and a 37-acre site to an affiliate of billionaire Phil Ruffin for $825 million and more than a month after MGM Resorts sold the Bellagio in a sale-leaseback deal with Blackstone Real Estate Income Trust for $4.25 billion. In that deal, MGM Resorts took a 5 percent stake in BREIT and leased the property back from the joint venture to continue managing it.
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The new joint venture agreement between BREIT and MGP calls for BREIT to purchase $150 million in MGP Class A shares. MGP will own 50.1 percent of the JV and BREIT will own 49.9 percent. MGM Resorts split off MGP as a REIT in April 2016. Mandalay Bay is one of 11 properties MGP currently owns. Under the joint venture, BREIT will also acquire the real estate assets of Mandalay Bay from MGP and lease both properties to MGM Resorts for an initial rent of $292 million, according to MGM Resorts. The deal values the real estate assets of the MGM Grand at about $2.5 billion. MGM Grand, the largest of the MGM Resorts assets by square footage, and Mandalay Bay have a combined 9,743 rooms; approximately 3 million square feet of meeting space and 300,000 square feet of casino space across 226 acres on the Las Vegas Strip.
James Stewart, MGM Growth Properties CEO, said in a prepared statement the partnership with BREIT shows the numerous opportunities to grow its business and emphasizes the strong institutional demand for gaming real estate assets.
Tyler Henritze, head of U.S. acquisitions for Blackstone Real Estate, said in prepared remarks the new deal was similar to the Bellagio transaction. He added that the long-term leases for two premier Las Vegas assets will provide stable cash flow and excellent downside protection for BREIT investors.
Jim Murren, chairman & CEO of MGM Resorts, said in a prepared statement the MGM Grand and Mandalay Bay deal represents a key milestone in executing the company’s asset light strategy. He said the transaction will enable the company to have a fortress balance sheet and strong free cash flow to provide MGM Resorts with strategic flexibility to create continued shareholder value. Murren also noted the cash received for its Las Vegas real estate assets will enable it to pursue growth opportunities like sports betting and a resort in Japan.
Alan Tantleff, a senior managing director for FTI Consulting based in New York, told Commercial Property Executive the asset-light strategy was adopted many years ago by hotel companies. “While this is nothing new to the hospitality industry, it is a somewhat new phenomenon in gaming whereby the old model was to own and operate your real estate,” Tantleff told CPE.
PJT Partners and J.P. Morgan are serving as financial advisors to MGM Resorts and the Real Estate Committee of the Board of Directors of MGM Resorts. Weil, Gotshal & Manges LLP is serving as MGM Resorts’ legal counsel.
Morgan Stanley & Co. LLC and Evercore served as financial advisors and Hogan Lovells US LLP served as legal counsel to MGP. Rockefeller Capital Management acted as financial advisor and Potter Anderson & Corroon LLP served as legal counsel to the conflicts committee of the MGP Board of Directors. Citigroup Global Markets Inc. served as financial advisor to BREIT. Citigroup Global Markets Inc., Barclays Capital Real Estate Inc., Deutsche Bank AG and Societe General served as BREIT’s financing advisors. Simpson Thacher & Bartlett LLP served as legal counsel to BREIT.