VICI Inks Deal Valued at $5.5bn for MGM Grand Las Vegas and Mandalay Bay

  • VICI will pay Blackstone $1.27bn in cash and assume its share of some $3bn in debt
  • VICI CEO said the deal came together after an approach “just a couple weeks ago”
  • The sale will give Blackstone a profit of more than $700m in less than three years
  • Blackstone’s share price fell 10% as investors rushed to exit on news of the sale

 

MGM Grand Las Vegas
In one of the biggest casino deals of 2022, VICI Properties has taken full ownership of MGM Grand Las Vegas and Mandalay Bay in a transaction valued at $5.5bn. [Image: Shutterstock.com]

Monster casino deal

In what the Wall Street Journal has deemed one of the biggest US casino deals of 2022, private equity giant Blackstone is selling its 49.9% stake in MGM Grand Las Vegas and Mandalay Bay to New York City-based Real Estate Investment Trust (REIT) VICI Properties.

biggest landlord on the Las Vegas Strip

The WSJ revealed the deal valued at $5.5bn on Thursday, strengthening the REIT’s position as the biggest landlord on the Las Vegas Strip by a considerable margin. Blackstone’s shares nosedived almost 10% on the news, prompting author-entrepreneur Gerald Peters to share the trading opportunity via Twitter:

The transaction sees VICI — which already owned a 50.1% stake in MGM Grand and Mandalay Bay — pay Blackstone $1.27bn in cash and assume the firm’s share of some $3bn in debt “at a 3.56% rate through 2032,” reports CNBC.

Appearing on CNBC’s Power Lunch, VICI CEO Ed Pitoniak labeled the 3.56% deal a good one considering the REIT might have expected to pay 6%.

Benefits for both

Pitoniak used the Power Lunch platform to reveal the speed at which the deal, expected to close in the first quarter of 2023, came together after Blackstone approached him “just a couple weeks ago.”

“We were very excited about the opportunity. Obviously it simplifies our structure, but it gives us total ownership of two of the most iconic assets on the Las Vegas Strip the MGM Grand and Mandalay Bay,” Pitoniak said.

VICI’s portfolio includes the Harrah’s, Bally’s and Horseshoe brands, along with four championship golf courses. In February, the REIT completed the high-profile $6.25bn purchase of all of Las Vegas Sands remaining Sin City properties. The addition of Mandalay Bay and MGM Grand gives the REIT outright ownership of an additional 226 prime-located acres on the Strip.

While the transaction reinforces VICI’s S&P 500 presence, it gives Blackstone both short-term gains and buffers. In the former category, the WSJ cites sources familiar with the deal who claim the sale should earn Blackstone a profit of over $700m in less than three years, including rent from the operator. In addition, the seller stated it can use the proceeds to purchase higher-return assets, such as industrial and rental properties.

Blackstone shareholders spooked

Another reason for the deal from Blackstone’s side is the need for a financial buffer to allow investor withdrawals.

a hike in withdrawals in October and November

The company saw a hike in withdrawals in October and November from Blackstone’s real estate fund, Breit. The fund is selling the stake in the two Vegas casinos, with proceeds going to help Breit meet these requests. 

On Thursday, Breit posted a notice to shareholders on its website to inform investors it would allow them to withdraw only 0.3% the fund’s net assets in December, after exceeding its monthly limit of 2% by 2.7%, or around $1.8bn, in October. The withdrawal cap baulked Blackstone shareholders, hence the 10% fall in share price Thursday as investors rushed to exit following news of the VICI deal.

Blackstone still owns the physical assets of the Cosmopolitan and the Bellagio. Company COO Jay Gray confirmed that despite the VICI sale it still sees Vegas as “a high conviction market.”