MGM Resorts International has signed a definitive agreement under which a newly formed joint venture between MGM Growth Properties (MGP) and Blackstone Real Estate Income Trust (BREIT) will acquire MGM Grand Las Vegas real estate assets.
The deal was estimated at around $2.5bn, reflecting a multiple of 15.75x rent.
MGM Resorts announced that it expects net cash proceeds of approximately $2.4bn and approximately $85 m in partnership units participating in MGP. MGP has also entered into an agreement with MGM Resorts to provide up to $1.4 billion in cash from current operating alliance units of MGM Resorts.
Combined with the previously announced transactions in Bellagio and Circus Circus Las Vegas, and considering a redemption of $1.4bn in operating agreement units, these sales are projected to yield total net cash proceeds of $8.2bn to MGM Resorts.
According to the company, the transactions would uniquely place it as a leader in the global gaming, hospitality and entertainment sector as a significant return on capital story, while also enabling it to achieve a balance sheet of fortresses.
The Chairman and CEO Jim Murren 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 company, the previously completed transactions in Bellagio and Circus Circus Las Vegas provided significant deleveraging proceeds, while the ongoing implementation of its 2020 initiatives is expected to further facilitate improvements to the balance sheet.
The company added that it remains optimistic that it will meet its previously stated net domestic financial leverage goal of around 1x by the end of 2020, excluding MGP. It also anticipates that a large portion of the proceeds from this deal will be used in returning capital to shareholders through share repurchases and dividends, along with the near-term cash proceeds from the operating partnership unit redemptions.
“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 own 50.1 per cent of MGP and 49.9 per cent of BREIT, will also purchase Mandalay Bay’s real estate assets from MGP and lease both properties to MGM Resorts for an estimated $292 million rent.