MGM Resorts International is reported to be exploring the sale and leaseback of some of two of its marquee Las Vegas Strip casinos.
Bloomberg News, citing unnamed individuals with knowledge of the plan, said the company is working with an adviser to solicit interest from potential buyers for Bellagio and MGM Grand either as stand-alone sales or bundled together.
In a conference call with investors, MGM Resorts Chairman and CEO Jim Murren said no decision has been made and the plan will develop from the work of a committee of three independent directors commissioned back in January to evaluate ways to extract value from the company’s massive real estate portfolio, possibly in response to activist investors like hedge fund Starboard Value and Land & Buildings Investment Management which have been pushing for changes at the Las Vegas-based gaming giant.
“We have a lot of options in front of us, actually very creative and interesting options,” Murren said. “We also know that our real estate is undervalued in the marketplace.”
MGM created its publicly traded real estate investment trust MGM Growth Properties (NYSE: MGP) a couple of years ago partly in response to activist pressure and has announced a company-wide cost-cutting plan aimed at consolidating technologies across several operational areas and reducing 1,000 management positions.
MGM has a market value in the neighborhood of $15 billion but is also carrying nearly $15 billion of long-term debt, which analysts say has depressed the price of its NYSE-traded shares and attracted the interest of activists like Starboard and Land & Buildings. Keith Meister, one of the three directors evaluating the real estate portfolio, is the managing partner and chief investment officer of hedge fund Corvex Management, which owns 3 percent of MGM. Meister was appointed to the board a week before the committee was formed, and is a admirer of Carl Icahn.
Macquarie Group analyst Chad Beynon said MGM could reap $6 billion to $7 billion of value from a sale-leaseback of Bellagio and MGM Grand alone, assuming that rent coverage is similar to prior transactions.
“We believe the motivation behind any potential transaction would be to deploy capital towards share deleveraging and share repurchases. On an after-tax basis, we believe MGM could repurchase over 150 million shares.”
MGM Growth Properties could figure in the deals should they materialize, although Beynon hinted that MGM may be looking at another gaming REIT or buyer, “which could make a sale accretive”.
MGM owns 70 percent of MGM Growth, but Chairman and CEO James Murren has said the company wants to reduce that to below 50 percent in the next three to five years.
On the Las Vegas Strip, MGM Growth currently owns six MGM-operated casino hotels—Mandalay Bay, The Mirage, Park MGM (formerly the Monte Carlo), Luxor, New York-New York and Excalibur—along with The Park retail and entertainment complex.
Its holdings elsewhere are comprised of: MGM National Harbor outside Washington, D.C.; Atlantic City’s Borgata; MGM Grand Detroit; MGM Northfield Park in Northfield, Ohio; Empire Resort Casino in Yonkers, N.Y.; two Mississippi casinos, Beau Rivage in Biloxi and Gold Strike Tunica; and Empire Casino and Yonkers Raceway in Yonkers, N.Y. It also holds a right of first offer to acquire the new MGM Springfield in western Massachusetts.
Along with Bellagio and MGM Grand, MGM still owns the Strip’s City Center gaming and hotel complex, Circus Circus and the Delano and NoMad hotels and a majority stake in MGM China, which owns and operates the MGM Macau and MGM Cotai casino hotels in Macau.
