MGM Resorts International added to its war chest for Japan last week via deals to sell MGM Grand, its 5,000-room Las Vegas flagship and Mandalay Bay, and reduce its stake in its MGM Growth Properties (MGP) REIT.
The Grand will be transferred to a joint venture between MGM Growth and private equity giant Blackstone Group’s Blackstone Real Estate Income Trust for $2.4 billion in cash and $85 million in MGP partnership units.
The joint venture also will acquire the 3,200-room Mandalay Bay, which is owned by MGM Growth and operated by MGM, for $2.1 billion.
MGM will continue to run Mandalay Bay, along with the Grand, under long-term leases for a combined $292 million in annual rent.
As part of the deals, Blackstone, which also owns Bellagio and the Cosmopolitan on the Las Vegas Strip, will purchase $150 million in new MGM Growth shares and own 49.9 percent of the joint venture, with MGP in control of 50.1 percent.
“This partnership illustrates the numerous opportunities available to grow our business and emphasizes the strong institutional demand for gaming real estate assets,” MGM Growth CEO James Stewart.
In a related transaction, MGP has committed to pay MGM $1.4 billion to redeem the gaming giant’s remaining partnership units. This will reduce its ownership in the REIT, which is separately traded on the New York Stock Exchange, from 70 percent to 55 percent. MGM has often stated its desire to divest its majority position in MGP.
Created in 2015 to help MGM cash out of its real estate, the REIT currently owns 13 MGM resorts, 11 of them on the Strip.
The sales, which are expected to close in the first quarter, are MGM’s second go-round with Blackstone after the latter’s $4.25 billion purchase of Bellagio in October under a similar sale-leaseback arrangement that included MGM’s purchase of a 5 percent stake in Blackstone Real Estate Income Trust.
Combined with its outright sale of Circus Circus in November to TI owner Phil Ruffin for $825 million, in all, MGM will be netting around $8.2 billion to pursue its goals of creating a “fortress balance sheet,” returning cash to shareholders, and reducing a portion of its $15 billion in long-term debt.
The next move will be to cap the process with sales of the last of the casino real estate it owns: MGM Springfield in Massachusetts, which opened in August 2018, and its 50 percent stake in CityCenter on the Strip.
“Our corporate objective remains crystal clear,” said Chairman and CEO Jim Murren. “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.”
Japan, considered the largest of East Asia’s few remaining untapped markets, is the big prize, and has attracted interest from an A-list of global operators. MGM already enjoys a strong foothold in the region in the form of two Macau casinos, which it owns through a majority stake in Hong Kong-listed MGM China Holdings, and is considered a front-runner for a megaresort license in Osaka.
But it won’t come cheap. Estimates of the cost of entry have been placed as high as $10 billion.
