Almost a decade ago, MGM Resorts International owned much of the Las Vegas Strip.
The company controlled more than 800 acres along the resort corridor, much of which housed 10 strip resorts, the 67-acre CityCenter complex, a 33-acre concert hall, and 23 acres leading to dining and retail space and to The Park T-Mobile Arena.
“It’s a good time to be the biggest landowner on the Strip,” said then MGM Chairman and CEO Jim Murren during a conference call on the 2014 quarterly numbers. He responded to news that empty land across the street from Wynn Las Vegas, the former location of The New Frontier, had sold between $ 9 million and $ 15 million an acre.
Murren told investors that the value attributed to Strip properties is a number that “we really like”.
From 2016 the company changed its strategy.
If two recently announced transactions with CityCenter, valued at more than $ 6 billion in total, close later this year, MGM Resorts’ land holdings on the Strip will be just 15 acres. The outdoor festival site across from Luxor and Mandalay Bay – the site of the October 1, 2017 mass shootings – is the final piece of the company’s strip property puzzle. Much of this area is to be used as a parking lot for the nearby Allegiant Stadium.
“We expect to continue to implement our asset-light strategy and use the proceeds from our real estate transactions to improve our financial flexibility and secure new growth opportunities,” said Bill Hornbuckle, CEO of MGM Resorts, on July 1st.
Analysts believe that MGM Resorts, which owns a 50 percent stake in BetMGM, the company’s sports betting and online gaming company, would like to acquire the other half by buying British betting giant Entain PLC. MGM made a takeover bid of US $ 11 billion to the company in January, but it was rejected because it was “undervalued”.
Under UK law, MGM was barred from submitting another offer for six months.
“We believe MGM is still interested in owning the BetMGM business, given its long-term ambitions in this space,” said Chad Beynon, gaming analyst for Macquarie Securities, noting that the cool-down ended this month.
Beynon said the company’s real estate transactions put approximately $ 8 billion in cash on the balance sheet, “which could make a takeover more palatable.”
Tech giant IAC / InterActiveCorp, which spent more than $ 1 billion last summer to acquire a 12 percent stake in MGM Resorts and is the company’s largest shareholder, should also take part in the January Entain- Deals through another investment in MGM.
IAC is controlled by media mogul Barry Diller, who joined the MGM board last summer. He said at the time that MGM Resort’s potential from its online gaming business drove his investment thesis.
In a presentation to investors in April, Adam Greenblatt, CEO of BetMGM, predicted the company – which operates in 10 states and Washington DC – will double its jurisdictions and generate more than $ 1 billion in net revenue by the end of 2022.
MGM Resorts could discuss ongoing interest in Enttain and the expansion of BetMGM when the company releases its second quarter results on August 4th.
Exterior view of the Vdara Hotel and the Aria Casino Resort in the CityCenter. (File photo)
REITs on the strip
MGM Resorts began winding down its strip properties when it spun off MGM Growth Properties in 2016 as a publicly traded real estate investment trust. Subsequent deals with Blackstone Real Estate Investment Trust over the past two years transformed MGM Resorts from the Strip’s largest landowner into a company that operates nine resorts on behalf of the two REITs.
MGM Growth owns all or part of seven MGM-operated strip resorts – MGM Grand Las Vegas, Mandalay Bay, The Mirage, Park MGM, Luxor, Excalibur, and New York-New York. MGM Growth also owns The Park and T-Mobile Arena, as well as the casino company’s seven regional casinos.
MGM Resorts controlled 73 percent of MGM Growth after the REIT went public. The proportion has been reduced in the last five years. In March, the stake fell to 42 percent after the casino company redeemed $ 1.2 billion in ownership.
MGM Resorts isn’t the only strip casino operator selling real estate to REITs. Las Vegas Sands announced in March a sale of the Venetian, Palazzo and Sands Expo for $ 6.25 billion to VICI Properties, which is paying $ 4 billion for the real estate and buildings. Apollo Global Management pays $ 2.25 billion to control operations.
New York-based VICI Properties, which was spun off from Caesars Entertainment in 2017 as part of the company’s bankruptcy reorganization, owns the land and buildings associated with Caesars Palace, Harrah’s Las Vegas and the Caesars Forum Convention Center. In Las Vegas, VICI also has the right of first refusal should Caesars Entertainment sell Flamingo Las Vegas, Linq Hotel, Bally’s Las Vegas, Paris Las Vegas and Planet Hollywood. VICI also owns 27 acres of undeveloped land behind Bally’s, Paris and Planet Hollywood.
Outside of Las Vegas, VICI has leases with five different casino operators in 11 states.
“We believe (VICI) is a name that will continue to demonstrate its ability to grow with its existing tenant base and attract new tenants in both gaming and non-gaming,” said Jordan Bender, Gaming- Macquarie Securities analyst.
Pennsylvania-based REIT Gaming and Leisure Properties, founded in 2013 through a spin-off with regional casino operator Penn National Gaming, owns a property on the Strip – Tropicana Las Vegas – managed by Penn. Gaming and Leisure is in the process of transferring operations to Bally’s Corp. under an agreement announced in April. to lease.
By law, REITs do not pay federal income taxes. With real estate as their main source of income, REITs must distribute at least 90 percent of their taxable profits to shareholders. Investors are taxed at their individual tax rate for the ordinary income portion of the dividend.
A couple is seated in front of the Bellagio Fountain on Thursday June 4, 2020 with a sign that reads “Thank you for practicing social distancing”. (Mikayla Whitmore / The Nevada Independent)
REIT offers from MGM Resorts
CityCenter is the last of the MGM Resorts Strip properties to be owned by REITs.
MGM Resorts announced on July 1 that it is paying $ 2.125 billion to purchase a 50 percent stake in Infinity World, the United Arab Emirates’ investment arm and the company’s long-term partner in CityCenter.
The company then announced that it would sell the underlying properties to Blackstone Real Estate Investment Trust for $ 3.89 billion. MGM Resorts will then lease the operation back from the landowner.
CityCenter’s holdings include the 4,000-room Aria Resort and Casino and 1,200-room Vdara Hotel, which does not include games. Other developments on the property, including the Crystals luxury retail center, an empty two-acre lot, and the non-game Waldorf Astoria, were previously sold to new owners.
Aria and Vdara are leased to MGM Resorts for an annual rent of $ 215 million.
“Bringing CityCenter together under MGM Resorts’ corporate structure and strategy will allow us to consolidate financial results, build on efforts to strengthen our operating model and guest experience, and our vision of becoming the global leader in gaming entertainment. to move forward, ”Hornbuckle said in a statement announcing the transactions.
Beynon said the CityCenter deal turned MGM into a “100 percent operating company.”
Deutsche Bank gaming analyst Carlo Santarelli added: “We believe that the fact that the transaction improves MGM’s liquidity position while further simplifying the company’s organizational structure is clearly positive.”
Santarelli said MGM Resorts will earn $ 1.8 billion in cash after the two transactions. He suggested the funds could be used to reduce the company’s long-term debt, which stood at $ 13.4 billion at the end of March. Regardless, the CityCenter’s debt at the end of March was $ 1.73 billion.
Deals in 2019 and 2020 drove the company’s transformation. MGM Resorts sold Bellagio to Blackstone for $ 4.25 billion. MGM pays the REIT an annual rent of $ 245 million, but the casino operator retained a 5 percent stake in the resort.
A few months later, MGM sold Grand Las Vegas and Mandalay Bay for $ 4.6 billion to a joint venture between Blackstone and MGM Growth. MGM Resorts pays $ 292 million annually to lease back the casinos.
Also in 2019, MGM Resorts sold Circus Circus Las Vegas and its 25 acre site along with three adjacent parcels totaling 78 acres to Treasure Island owner Phil Ruffin for $ 825 million.
MGM’s sale leasebacks are having a positive impact on the market, said JP Morgan gaming analyst Joe Greff. There are still buyers for Las Vegas strip resorts.
“We think this is a good sign for other operators looking to monetize strip assets,” said Greff. He was alluding to Caesars, whose management team said the company was planning to sell one or two of its eight Strip properties.
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