Operator News
US – Blackstone to pay $4.6bn for foothold in MGM Grand and Mandalay Bay
By Phil - 15 January 2020
MGM Resorts is offloading a major shareholding in two of its major Las Vegas assets with MGM Grand and Mandalay Bay being sold to growing gaming force Blackstone for $4.6bn following the increasingly popular ‘buy and lease back model.’
The deal between MGM Growth Properties and Blackstone Real Estate Income Trust effectively monetises the real estate of the two properties. It will see the two companies enter into a definitive agreement to form a new joint venture to acquire the Las Vegas real estate assets of the MGM Grand and Mandalay Bay. Blackstone will also purchase $150m in MGM Growth Properties’ Class A shares. MGM will own 50.1 per cent of the joint venture, and Blackstone will own 49.9 per cent.
Once complete, MGM Resorts International will enter into a long-term triple net master lease for both properties and provide a full corporate guarantee of rent payments. MGM Resorts will continue to manage, operate and be responsible for all aspects of the properties on a day-to-day basis, with the joint venture owning the properties and receiving rent payments.
“These announcements represent a key milestone in executing the Company’s previously communicated asset-light strategy, one that enables a best-in-class balance sheet and strong free cash flow generation to provide MGM Resorts with meaningful strategic flexibility to create continued value for our shareholders,” said Jim Murren, Chairman and CEO of MGM Resorts. “As such, we remain determined to prudently pursue accretive opportunities related to our remaining owned real estate assets including MGM Springfield, our 50 per cent stake in CityCenter and our 55 per cent economic ownership in MGP (pro forma for the potential $1.4bn redemption). Our corporate objective remains crystal clear, we will continue to monetise our owned real estate assets, which facilitates our strong focus on returning capital to our shareholders, while also retaining significant flexibility to pursue our visible growth initiatives, including Japan and sports betting.”
The previously completed Bellagio and Circus Circus Las Vegas transactions provided significant proceeds for deleveraging and the continued execution of the company’s 2020 initiatives are expected to further support improvements to the company’s balance sheet. The company remains confident in achieving its previously stated net domestic financial leverage target, excluding MGP, of approximately 1x by end of 2020. The company anticipates that a substantial portion of proceeds from this transaction, along with near-term cash proceeds from the operating partnership unit redemptions, will be used to return capital to shareholders through share repurchases and dividends. The company intends to provide a more specific update on its capital allocation plan in connection with its earnings release for the fourth quarter of 2019.
“The valuation levels achieved on the Bellagio and MGM Grand Las Vegas transactions are a testament to MGM Resorts as a high-quality tenant and our overall asset quality. The robust interest in our recent transactions further validates the Company’s conviction on being able to unlock value for our shareholders through its asset light strategy” said Paul Salem, Chairman of the Real Estate Committee of the company’s Board of Directors. “The transaction represents another key phase of our ongoing review of the Company’s assets and is in-line with all of the Real Estate Committee’s principal objectives of enhancing free cash flow per share, maximising the value of our owned real estate and equity holdings, highlighting the strength of our operating business, and strengthening the Company’s financial position.”
“We are pleased to announce this partnership with Blackstone Real Estate Income Trust, which illustrates the numerous opportunities available to grow our business and emphasises the strong institutional demand for gaming real estate assets,” said James Stewart, CEO of MGM Growth Properties. “Along with the contemplated cash redemption of $1.4bn of MGM’s operating partnership units as announced by MGM, we expect this transaction to be accretive to AFFO while allowing us to maintain pro rata net leverage of 5.6x.”
Jon Gray, Blackstone President & COO, said: “This transaction reflects our continuing strong conviction in Las Vegas. We are pleased to once again partner with MGM Resorts, a world-class operator, as well as MGM Growth Properties.”
Tyler Henritze, Head of US Acquisitions for Blackstone Real Estate, said: “Similar to the Bellagio, owning these two premier Las Vegas assets under a long-term lease with MGM provides stable cash flow and excellent downside protection for our BREIT investors. We look forward to growing our partnership with MGM Resorts and MGM Growth Properties, a best-in-class company.”
Together, the MGM Grand and Mandalay Bay comprise 9,743 rooms, approximately three million square feet of meeting space and approximately 300,000 square feet of casino space across 226 acres on the Las Vegas Strip. MGM Resorts’ initial annual rent will be $292m. MGP currently owns the Mandalay Bay real estate, and MGM Resorts currently owns the MGM Grand real estate.
MGP is a REIT focused on the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts. Blackstone Real Estate has a deep history and expertise in the Las Vegas real estate market across office, hospitality and residential asset classes, including BREIT’s recent acquisition of the Bellagio for $4.25bn.
