The Mirage will once again be the catalyst for a major change on the Las Vegas Strip. When it opened in 1991, the property became the first true integrated resort that combined non-gaming amenities, meetings and conventions and casino gambling in a cohesive manner. MGM Resorts, which owned the operating assets of the Mirage, agreed to sell it to Hard Rock International, which has been on the hunt for a Las Vegas Strip location since it gained the ability to offer the Hard Rock brand in Las Vegas in 2018.
Hard Rock will pay $1.075 million for the operations and invest another $1.5 billion to rebrand the hotel as the Hard Rock Las Vegas. The real estate is owned by the REIT VICI, which recently purchased MGM Growth Properties, the previous owner of the real estate.
In a digital photo accompanying the release, a Guitar Hotel is superimposed in front of the existing Mirage building, which itself is emblazoned with the Hard Rock logo. The first Guitar Hotel opened two years ago at Seminole Hard Rock in Hollywood, Florida, and has become a must-see attraction in the state. Even with this photo, Hard Rock has not gotten into any specifics about how and when it would reinvest in the property with a Guitar Hotel.
In an interview with the Nevada Independent, Hard Rock CEO Jim Allen declined to say what he plans for the iconic volcano or any of the animals— white tigers or the dolphins—that call the Mirage home.
Even without the hotel, Allen said the property would be completely renovated.
“MGM has just really kept it in great condition, but certainly I think we all know that it’s extremely dated,” Allen told the Independent. “You will see concrete on the floor and concrete on the roof and everything else will be brand new. Frankly, some of the structure will change. For the existing 3,000 rooms, it’s our plan to gut them completely, bathrooms and everything, and start over.”
MGM will lease the Mirage brand to Hard Rock for three years, when it will revert to MGM and could be used at another property, either in Las Vegas or elsewhere. Allen also did not reference any plan to completely close the property during the renovation.
Analysts liked the deal. John DeCree, an analyst with CBRE Equity Research, likes the position of MGM Resorts after the sale, calling the Mirage a “non-core asset.”
“MGM will pocket an estimated $815 million net of taxes and fees, further bolstering its already impressive balance sheet,” wrote DeCree in a note to investors. “At the same time, the company is avoiding at least $100 million of capex required at the Mirage. This capex avoidance gives management additional flexibility to redeploy capital to higher-ROI initiatives or return additional cash to shareholders in the near term.”
David Katz of Jefferies said the deal compared favorably other recent deals. Given the revenue produced by Mirage in 2019, the deal implied 12.7x EBITDA based on $90M of rent remaining constant. The compares with a 9.5x EBITDA that Las Vegas Sands got when selling the operation of the Venetian and Palazzo.
Barry Jonas, an analyst with Truist Securities, views the transaction “as a modest positive for MGM.”
“Overall, we view the transaction as a positive for MGM as it rebalances its Las Vegas portfolio,” Jonas said. “MGM swaps the older Mirage operations with the newer Cosmopolitan. We also think there is a chance MGM can retain some of the lost Mirage (earnings) via its Mlife database, though we believe Mirage has a very loyal property-specific player base.”
For the Las Vegas Strip, the sale of the Mirage could once again be a pivot point. Caesars Entertainment has committed to selling at least one of its properties and the price MGM got for the Mirage could push up the value of any property.
DeCree says it’s a win-win for everyone involved, and not involved.
“For Caesars, we assumed its proposed Strip casino sale could generate $2.5 billion of gross proceeds; however, considering current Las Vegas real estate prices and this (operating-company) precedent, that figure could swell to $3 billion plus,” he said. “For Wynn, the impact could be even greater. The potential value that Wynn could unlock in Las Vegas alone could be transformative, especially for an asset that needs no (capital expenditure) and has plenty of excess land for development.”
Katz agrees the Caesars should be able to ask more for whatever it sells, and the deal will have other ripple effects.
“Caesars has also publicly indicated plans to divest one Strip asset in 2022 which should see strong demand,” he wrote. “We expect there could be further redevelopment activities around the older, mid-market properties across the Strip, some owned by MGM and other disparate owners.”
