MGM Resorts' $637.5M Agreement Reduces Real Estate Holdings

MGM Resorts International along with MGM Growth Properties LLC (MGP), the casino operator’s real estate investment trust (REIT), agrees to pay $637.5 million to reposition the Park MGM and NoMad Las Vegas which is formerly known as Monte Carlo Resort and Casino.

MGM Resorts CEO Jim Murren explained the move:

“As we continue to execute our multifaceted strategic plan, and as part of our ongoing efforts to optimize our portfolio, we believe that these prudent investments in our assets will bring substantial value to MGM Resorts, MGP and our respective shareholders.”

According to a t press release, the agreement will be completed and therefore terminated by the first quarter of 2019.

In the meantime, MGP CEO, James Stewart, commented: “We intend to fund the consideration through a combination of cash and availability under our credit facility. This transaction will be immediately accretive to our AFFO [adjusted funds from operations] and further demonstrates the power of our business model and partnership with MGM Resorts.”

Agreement Details

The part of the deal requires two companies to amend their master lease for MGM Resorts to pay an additional $50 million as tenant to MGP on a yearly basis. The lease s for 90% of the increased rate with the growth determined to be fixed at 2% until 2022. After that year, the growth will continue…

…depending on the meeting of a tenant revenue-to-rent ratio.

According to Murren, MGM Resorts has been trying to reduce its owned real estate and this is one step towards doing it. “We remain committed to our stated strategic objectives, including reducing our ownership stake in MGP,” he added.

Currently, 73.4% of shares in the REIT belong to the MGM Resorts.

Numbers Fall

In December, a 40,000-square-foot Italian marketplace called Eataly was opened together with LA-based Houston Hospitality’s speakeasy and club, On the Record. Of course, all of this happened in the Park MGM and NoMad Las Vegas complex.

The third quarter saw a downward trend regarding hotel occupancy at MGM’s Las Vegas Strip resorts…

…going down from 95% to 93% year-on-year.

The table drop was lower by 10.6 percent whereas the revenue per available room also went down by 3.9%.

In the meantime, normalized net revenue of the Las Vegas casino resorts plunged by 5.2% to $1.44 billion and normalized earnings before interest, taxes, depreciation and amortization plummeted to $410 million, which is a 15.6% fall.

The company believes that the numbers are lower this year because in 2017, a boxing match between McGregor and Mayweather was held, which contributed significantly to the profits.

g Deals

As MGM Resorts International looks for different ways to reduce its real estate holdings, they have not forgotten about the other aspects of the business.

The company is well aware that sports betting in the United States is spreading like wildfire and they wish to MGM-GVC partnership.

Source: 

“MGM Resorts inks $637.5M deal to reduce real estate holdings”, Paul How, calvinayre.com, December 21, 2018.