MGM Resorts International has confirmed that it will be divesting real estate assets worth $5 billion after securing new agreements with Blackstone Group and Treasure Island owner Phil Ruffin.
The agreements come as MGM moves to pursue an ‘asset-light strategy’, marking a new era for the largest operator of casinos on the Las Vegas Strip.
The Las Vegas-based casino company has agreed to sell its Bellagio resort in Las Vegas to Blackstone Group in a ‘landmark transaction’, which sees each company represented 95 per cent to five per cent, valued at $4.25 billion. MGM will then continue to operate the property under a lease arrangement for initial annual rent of $245 million.
Jim Murren, Chairman and CEO of MGM Resorts International commented: “This transaction confirms the premium value of our owned real estate assets, highlights the unique value of Bellagio as a premier asset in gaming and solidifies our status as a premier operator of gaming and entertainment properties.
“We will use the proceeds from this transaction, together with the proceeds from the pending sale of Circus Circus Las Vegas, to build a fortress balance sheet and return capital to shareholders. By the end of 2020 we intend to have domestic net financial leverage at our operating properties of approximately 1x.
“These transactions enhance the Company’s strategic and operational flexibility and reinforce its commitment to targeted new growth opportunities, including securing and investing in one of the integrated resort licenses in Japan and becoming an industry leader in sports betting in the U.S. We remain committed to delivering on our 2020 goals and continue to be on track to achieve our previously announced targets.”
Jon Gray, Blackstone President & COO, added: “As big believers in MGM Resorts and Las Vegas, we are thrilled to partner with MGM to acquire the Bellagio on behalf of our BREIT investors. We look forward to a long and productive partnership with this world-class company.”
MGM also confirmed that it has agreed to sell the Circus Circus property on the Strip, along with 19 adjoining hectares, to real estate mogul Phil Ruffin for $825 million. The Company acquired Circus Circus Las Vegas in connection with its acquisition of Mandalay Resort Group in 2005.
“MGM Resorts has engaged in an exhaustive process to evaluate its owned real estate and remains committed to executing its asset-light strategy in a measured way that maximizes value for its shareholders,” said Murren. “The Company expects to utilize the proceeds from this transaction to enhance its capital allocation strategy and complement its strategic and operational flexibility.”
Ruffin added, “Circus Circus has anchored the north end of the Las Vegas Strip for over 50 years, and I am excited to add it to my casino portfolio. I have tremendous respect for Jim Murren and the MGM team, and my relationship with them goes back to my friendship with Kirk Kerkorian and continues to this day.”
“On behalf of the entire MGM Resorts family, we would like to thank our dedicated employees who have worked diligently to ensure the long-term success of this iconic property,” said Ann Hoff, President and COO of Legacy Portfolio Properties.
The $825 million purchase price of Circus Circus will comprise $662.5 million paid in cash and a $162.5 million note due 2024, with MGM expecting to record a third quarter impairment charge of approximately $220 million in connection with this transaction.
“The Real Estate Committee was formed earlier this year to support management’s strategy to enhance free cash flow per share, maximize the value of our owned real estate and equity holdings, highlight the strength of our operating business, and fortify the Company’s financial position. This transaction represents a key step in our comprehensive, ongoing review. The value realized in the Bellagio transaction is highly accretive to shareholder value and significantly greater than the implied multiple of our core business,” said Paul Salem, Chairman of the Real Estate Committee of the Company’s Board of Directors.