MGM Resorts to Offload 15 Properties Through $17.2bn Spinoff Sale

  • VICI has agreed to acquire MGM Growth Properties for $17.2bn, including $4.4bn in cash 
  • In addition to casinos in Las Vegas, the deal also includes properties in New York and Mississippi
  • MGM will enter into a 25-year lease agreement with VICI to continue operating the properties
  • For Q2, MGM has reported a 683% increase in revenue y-o-y as it continues its pandemic recovery
MGM Grand Las Vegas
MGM Resorts International has agreed to sell MGM Growth Properties to VICI Properties for $17.2bn, with its real estate portfolio of 15 assets including MGM Grand Las Vegas (pictured above). [Image: Shutterstock.com]

MGM seals the deal

US-based casino operator MGM Resorts International will soon wave goodbye to its ownership of a number of properties, including the Mandalay Bay Resort and the MGM Grand Las Vegas. The company has agreed to offload the real estate assets through the sale of its spinoff MGM Growth Properties (MGP).

Real estate investment trust VICI Properties has agreed to acquire MGP for a total of $17.2bn. MGM spun off the company more than five years ago with the intention of taking real estate assets off its balance sheet. Its portfolio includes 15 properties from a number of states.

VICI will also acquire 100% of the spinoff’s outstanding class A shares

As the largest stakeholder in MGP, MGM stands to earn $4.4bn in cash through the agreement. VICI will also acquire 100% of the spinoff’s outstanding class A shares. Added to this, the agreement includes around $5.7bn in pro-rata debt.

MGM and VICI expect the deal to close in H1 2022, subject to regulatory and stockholder approval.

VICI expands its empire

VICI will likely become the largest landowner on the Las Vegas Strip upon completion of the MGP deal, but the sale also includes properties elsewhere.

In addition to the Mandalay Bay and MGM Grand in Las Vegas, the company will also acquire the Borgata in Atlantic City, Beau Rivage in Mississippi, and New York’s Empire City, among others. VICI will ultimately generate 55% of its rent through casinos as a result, with 45% of this from the Las Vegas Strip.

VICI secured another significant Las Vegas deal in March this year. The company agreed to purchase the Sands Expo and Convention Center along with the Venetian Resort Las Vegas for a total of $4bn in cash. The former owner of the properties, Las Vegas Sands, decided to offload the real estate to focus on reinvesting in the Asian market.

As part of the MGP deal, MGM will enter into a triple-net master lease agreement with VICI for a term of 25 years. The casino operator will pay $860m per year in rent to continue to occupy its 15 properties. This rate will grow 2% annually for the first 10 years of the agreement.

In an interview this week, VICI CEO Edward Pitoniak described the 15 properties as “magnificent assets.” Meanwhile, Bill Hornbuckle, CEO and president of MGM Resorts, explained his company’s reasons for selling. He said the transaction would increase MGM’s “financial flexibility,” describing the sale as part of the company’s “journey to become asset light.”

MGM revenue skyrockets in Q2

Like many in the global gaming industry, MGM Resorts has struggled throughout the COVID-19 pandemic with casino closures and restrictions. As markets across the world continue to emerge from the crisis, however, the operator has seen a significant uptick in its casino revenue.

a staggering 683% rise in revenue year-on-year

In reporting the company’s most recent earnings this week, CEO Hornbuckle described Q2 as “a strong second quarter, driven by robust demand and productivity efforts.” The operator reported a staggering 683% rise in revenue year-on-year for the three months from April 2021, generating a total of $2.3bn in revenue.

The firm also made significant progress in regard to operating costs. Consolidated operating income came in at $264m for the quarter. That’s a substantial shift in comparison to the operating loss of $1bn seen in 2020. MGM also saw net income of $105m in 2021 against net loss of $857m last year.

In part, this recovery is thanks to the operator’s Las Vegas Strip operations. MGM reported net revenue of $1bn in the gambling hub, up 566% year-on-year. Hornbuckle also noted the success of the company’s US sports betting and iGaming venture, BetMGM.