One of the most interesting recent developments is the prospect of MGM Resorts in some manner acquiring Sands Bethlehem casino from Las Vegas Sands.
In itself, it would be a relatively minor transaction for both companies. But looked at strategically, the sale would say a lot about MGM and LVS.
In the case of MGM, the company would have built what could fairly be called an East Coast Empire. A year ago, MGM owned one half of a casino—the Borgata in Atlantic City—and had a couple in the works. Now, MGM owns all of and manages, the Borgata, has opened National Harbor near Washington, D.C., will open in Springfield, Massachusetts, next year, and, if it acquires Sands Bethlehem, will own a casino that draws from New York City, including its Asian residents.
And, through the 76-percent owned REIT, MGM Growth Properties, gives MGM the vehicle to acquire Bethlehem without encumbering MGM Resorts with further debt.
What we like is that purchase of Bethlehem and all of Borgata has the look of a coherent strategy. MGM wouldn’t just own attractive properties, it would own an entire region of the country, densely populated, affluent and overlapping—Washington-Baltimore, Philadelphia, New York, southern New England.
The move also suggests the maturation of CEO Jim Murren. As we’ve noted in this space before, Murren no longer talks about celebrity architects and inventing an urban environment on the Las Vegas Strip. Now, he talks about profitability and shareholders.
Indeed, I read a newspaper article recently that called Murren an outspoken CEO. My first reaction was to say, “Oh, yeah. You want an outspoken CEO, look at Steve Wynn or Sheldon Adelson.” Then, it occurred to me that Murren indeed has become a strong spokesperson for his company, Las Vegas and the industry.
Finally, MGM’s continual building of amenities and attractions in Las Vegas reinforces the city’s leadership as a destination.
All of this combines to bode well for MGM and its shareholders long-term.
For Las Vegas Sands, the sale of Bethlehem seems more innocuous. The lone regional casino among LVS’ portfolio of properties doesn’t fit, but it doesn’t hurt, either, as it contributes small but steady cash flows.
One motivation for the sale could be that CEO Sheldon Adelson doesn’t think it’s worth the hassle to deal with Pennsylvania legislators and other local officials who can be demanding and unpredictable. He has bigger fish to fry.
The late Walter Annenberg said that you can become rich by sitting on your assets.
Las Vegas Sands has assets, namely its shopping malls and, perhaps Sands Bethlehem can be thrown into that category. LVS has been sitting on them, earning increasing profits and watching their asset values grow into the billions of dollars.
The idea is that Adelson can do what he has done in the past—sell off these non-core assets and use the proceeds to help finance a much bigger round of expansion, such as a casino resort in Japan.
But what if Japan doesn’t happen, nor any other opportunity of similar scale?
LVS is in the enviable position of generating lots of cash and having no major capital projects ahead of it. The company can build hotel towers in Las Vegas or Singapore, do more development in Macau, but the multi-billion dollar projects are behind for now.
And that gives Adelson growing ability to play a favorite game, increasingly returning capital to shareholders. Or, as Adelson says, “yea dividends.”
