MGM Resorts International has entered into a definitive agreement pursuant to which a newly formed joint venture between MGM Growth Properties (MGP) and Blackstone Real Estate Income Trust (BREIT) will acquire the real estate assets of MGM Grand Las Vegas.
The transaction has been valued at approximately $2.5bn, which represents a multiple of 15.75x rent.
MGM Resorts reported that it expects to receive net cash proceeds of approximately $2.4bn and approximately $85m in MGP operating partnership units. MGP has also entered into an agreement with MGM Resorts to deliver cash for up to $1.4bn of MGM Resorts’ existing operating partnership units.
Combined with the previously announced Bellagio and Circus Circus Las Vegas transactions, and assuming the redemption of $1.4bn in operating partnership units, these transactions are expected to yield total net cash proceeds to MGM Resorts of $8.2bn.
The transactions will, said the firm, uniquely position it as a leader within the global gaming, hospitality and entertainment sector as a significant return of capital story, while also enabling it to achieve a fortress balance sheet.
Jim Murren, Chairman and CEO, explained: “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.
“As such, we remain determined to prudently pursue accretive opportunities related to our remaining owned real estate assets including MGM Springfield, our 50% stake in CityCenter and our 55% economic ownership in MGP. Our corporate objective remains crystal clear, we will continue to monetize 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.
The company added that it remains confident in achieving its previously stated net domestic financial leverage target, excluding MGP, of approximately 1x by end of 2020. It also 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 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,” said Paul Salem, Chairman of the Real Estate Committee of the Company’s Board of Directors. “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.”
The joint venture, which will be owned 50.1% by MGP and 49.9% by BREIT, will also acquire the real estate assets of Mandalay Bay from MGP and will lease both properties to MGM Resorts for an initial rent of $292m.