MGM Resorts International has entered into another multibillion-dollar sale-leaseback agreement with New York-based financial giant The Blackstone Group, this time for the Aria and Vdara resorts.
MGM announced Thursday that it was buying its partner in the sprawling CityCenter complex for more than $ 2.1 billion, giving MGM full ownership of Aria and Vdara, and that it had agreed to sell the real estate of the two hotels in Blackstone and rent them out again.
Blackstone buys the towering properties for $ 3.89 billion in cash and leases them to the casino operator for an initial annual rent of $ 215 million, according to the press release.
Transactions are expected to close this quarter.
Blackstone, which has been acquiring real estate in southern Nevada for years, will own several properties operated by MGM in Las Vegas when the deal goes through. The latest sale, however, comes as the southern Nevada tourism industry begins to gain a foothold after being crushed by the coronavirus outbreak.
It also gives a boost to the Strip real estate market, which has seen mixed results since the start of the pandemic, and gives MGM a huge injection of cash.
“New growth opportunities”
MGM purchases the 50% stake of state-owned holding company Dubai World in its remaining stakes in CityCenter, a 67-acre, $ 8.5 billion complex that includes multiple properties and owners.
Bill Hornbuckle, president and CEO of MGM Resorts, said in a press release Thursday that CityCenter “has consistently improved the Las Vegas experience over the years” and that the transaction with Blackstone “demonstrates the unprecedented value of our real estate assets “.
MGM plans to use the proceeds from its real estate transactions “to improve our financial flexibility and secure new growth opportunities,” he added.
The company later said that those funds could be spent on expanding online gaming and mobile betting and other company properties.
Once the sale-leaseback agreements for Vdara and Aria, as well as the previously announced agreement for MGM Springfield in Massachusetts, are concluded, MGM will strictly operate, but not own, all of its properties in the United States.
He said operations are not expected to change in Aria or Vdara following the latest deal.
Analysts speak out
According to Barry Jonas, games analyst at Truist Securities, it was a question of when, not if, MGM would make a decision like this.
“MGM has made it clear for some time that it sees itself as the natural full owner of CityCenter,” Jonas told the Review-Journal Thursday.
The sale-leaseback agreements are expected to bring in enough money to pay off existing debts and finance the purchase of the remaining 50% of the CityCenter property, Jonas said.
JP Morgan analyst Joseph Greff said in a Thursday memo that the news implied there were still buyers of properties on the Strip, and that bodes well for other casino operators such as Caesars Entertainment. Inc.
Still, the deal surprised Evercore ISI analyst Rich Hightower.
Hightower said the timing was odd because he understood MGM was “in pretty good shape, in terms of the balance sheet” and did not need an immediate cash flow.
The first deal, the CityCenter buyout, largely depended on Dubai World’s willingness or interest in selling its stake to MGM, he said. Maybe the leaseback was an opportunity for MGM or Blackstone.
But who was – and who was not – in Part 2 of the deal surprised Hightower.
“Everyone who follows (MGM Growth Properties) has been a bit disappointed that they weren’t able to play a role here,” he said of MGM’s real estate fallout.
The Las Vegas casino real estate market has seen a lot of action over the past few years, and in many cases Blackstone has been in the middle of it.
The company, run by billionaire Stephen Schwarzman, acquired The Cosmopolitan of Las Vegas in 2014 for $ 1.73 billion. He also bought the Bellagio real estate in 2019 for around $ 4.2 billion and re-let them to MGM Resorts, and partnered on a $ 4.6 billion deal in early 2020 – shortly. before the pandemic – to acquire the real estate of MGM Grand and Mandalay Bay and lease the properties to MGM Resorts.
Tyler Henritze, head of real estate acquisitions in America for Blackstone, said in a statement to the Review-Journal that Las Vegas is one of Blackstone’s “most convinced markets, and this transaction strengthens our confidence in the city and a robust recovery. “.
“CityCenter is a complementary addition to Blackstone’s portfolio of high quality assets on the Strip and we look forward to continuing our partnership with MGM Resorts,” he said.
Henritze also said that such transactions are attractive for several reasons, including “long-term leases with stable cash flow and no obligation for capital expenditure, and in this case a full corporate guarantee of rent payments. by a first-rate operator “.