Two significant casino transactions
MGM Resorts has announced it is selling the Circus Circus on the Las Vegas Strip for $825m and the Bellagio for about $4.2bn.
The buyer of the Circus Circus is an affiliate of Phil Ruffin, who owns the Treasure Island. The affiliate will be paying $662.5m in cash and $162.5m through a note due in 2024. This is not the first dealing Ruffin has had with MGM. In December 2008, he bought the Treasure Island from the same company for $775m.
MGM Resorts is forming a joint venture with the Blackstone Real Estate Income Trust for the Bellagio deal. This sees the new partnership acquiring the Bellagio real estate and then leasing it to MGM Resorts for $245m annually. The deal puts a $4.25bn value on the property.
MGM Resorts will just have a 5% stake in the joint venture. It will receive approximately $4.2bn in cash following the finalization of the deal.
Reasoning behind the sales
The chairman of the real estate committee in MGM Resorts, Paul Salem, spoke about the reasoning behind these two sales. He said:
We want to make sure — if and when the next recession comes — we have a fortress balance sheet.”
According to Salem, the deal for the Bellagio was one of the biggest for an asset on the Las Vegas Strip. He says MGM may now look at other opportunities to liquidate its holdings, as people will now realize how valuable Las Vegas assets can be.
Expectations are that the Las Vegas Strip casino deals will be finalized by the end of 2019. MGM Resorts has been looking at ways to monetize its property holdings through a recently created committee.?A number of other properties on The Strip already have a similar lease-back arrangement in place.
Future outlook for MGM Resorts
MGM Resorts Chairman and CEO Jim Murren said the company can now return some capital to its shareholders, as well as strengthen its presence in the US sports betting market.
It also wants to focus on obtaining one of three resort casino licenses up for grabs in Japan, according to Murren. He said: “These transactions enhance the company’s strategic and operational flexibility and reinforce its commitment to targeted new growth opportunities.”