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MGM Resorts International announced this week that VICI Properties will buy MGM Growth Properties (MGP). VICI will redeem a majority of MGP operating partnership units held by MGM Resorts for $43 per unit, or about $4.4 billion in cash, under the terms of a formal agreement.
In a stock-for-stock transaction, VICI will also purchase 100 percent of MGP’s outstanding class A shares.
Bill Hornbuckle, CEO and President of MGM Resorts, explained: “In 2016 we started on our journey to become asset light and this announcement, together with our recently announced Springfield and CityCenter transactions, reflects the culmination of those efforts and a major step forward in simplifying our corporate structure.
“As a result of these actions, we are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.”
MGP is valued at $17.2 billion, including VICI’s assumption of about $5.7 billion in pro rata debt. The anticipated 17.5x pro rata EBITDA multiple, adjusted for the recently announced MGM Springfield transaction, ranks among the strongest for a gaming real estate transaction to date, according to MGM, and is a tribute to the quality of its real estate assets and performance as a tenant.
Strengthening of company balance sheet
Since forming MGP in a landmark transaction in 2016, both companies have completed multiple transactions yielding significant cash proceeds that have been used to strengthen the company’s balance sheet, return capital to shareholders, and fund significant investments in significant growth opportunities.
The company said: “Among these investments is the formation of BetMGM, which has now solidified its position as a leader in the igaming and sports betting market in the US. These efforts also favourably positioned the company to weather the unprecedented crisis created by the COVID-19 pandemic and allowed the company to emerge in a position of strength as the economy continues to rebound.”
The company expects to have $11.6 billion in domestic operations liquidity after giving effect to the $4.4 billion in cash proceeds from this transaction, as well as the Springfield and CityCenter transactions, to enable execution of its goals of becoming the premier gaming entertainment company, returning value to shareholders, and solidifying its balance sheet.
Significant value of partnership
MGP’s Chairman of the Board, Paul Salem, stated: “The partnership with MGP over the past five years has provided significant value to MGM Resorts as well as MGP’s other shareholders. We are thankful to the MGP management team for all of their efforts to develop MGP into a premier gaming REIT, which is evidenced by the 15.9 percent premium offered by VICI in this transaction, representing a 149 percent increase to MGP’s valuation since IPO. We look forward to our new long-term partnership with the great team at VICI.”
The existing master lease will be revised and restated as part of the deal, with an initial period of 25 years, three 10-year extensions, and an initial yearly rent of $860 million, including the forthcoming MGM Springfield deal.
This lease will be guaranteed by the corporation and will give it a lot of flexibility in managing its operations throughout the lease’s portfolio of properties.
In addition, MGM Resorts will possess a roughly 1 percent interest in the VICI operational partnership, valued at $370 million. The deal is scheduled to close in the first half of 2022, pending customary closing conditions, regulatory clearances, and VICI stockholder approval.