MGM Resorts International has entered into a definitive agreement that sees a newly formed joint venture between MGM Growth Properties and Blackstone Real Estate Income Trust acquire the real estate assets of the MGM Grand Las Vegas.
In a transaction valued in the region of $2.5bn, it follows the firm’s previously announced Bellagio and Circus Circus Las Vegas deals that MGM states will provide cash proceeds in the region of $8.2bn.
The joint venture, which will be owned 50.1 per cent by MGP and 49.9 per cent by BREIT, will also acquire the real estate assets of Mandalay Bay from the former, and will lease both properties to MGM Resorts for an initial rent of $292m.
The transactions are a further continuation of the MGM asset-light strategy, which sees the firm strive to become a leader within the global gaming, hospitality and entertainment sectors.
“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,” explained 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.”
According to the firm, the previously completed Bellagio and Circus Circus Las Vegas transactions provided significant proceeds for deleveraging, while the continued execution of its 2020 initiatives are expected to further support balance sheet improvements.
“We are pleased to announce this partnership with BREIT, 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 MGP.
“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.”
The transaction is expected to close in the first quarter of 2020, subject to certain closing conditions.
Tyler Henritze, head of US acquisitions for Blackstone Real Estate, added: “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.”
