MGM Resorts International Makes $2.4 Billion Joint Venture Deal by Selling MGM Grand and Mandalay Bay

Mandalay Bay Casino in Las Vegas, For Sale Sign
In a newly formed joint venture between MGM Growth Properties LLC (“MGP”) and Blackstone Real Estate Income Trust (“BREIT”), MGM Resorts International announced Tuesday morning that they will be selling two of their mega Strip properties, the MGM Grand and Mandalay Bay.

MGM Resorts International Makes $2.4 Billion Deal

According to Fox Business, MGM Resorts expects to receive net cash proceeds of approximately $2.4 billion for the deal, and approximately $85 million in MGP operating partnership units as a result of the transaction. MGP is set to own 50.1 perfect of the joint venture, while BREIT will own 49.9 percent.

As part of the transaction, the real estate assets of Mandalay Bay from MGP will also be acquired and both properties will be leased to MGM Resorts for an initial rent of $292 million. This is how it’s been similarly done with the Bellagio, where MGM Resorts leases back the properties and continues to operate them.

Jim Murren, Chairman and CEO of MGM Resorts, said this of the acquisition:

“These announcements represent a key milestone in executing the Company’s previously communicated asset-light strategy, one that enables a best-in-class balance sheet and strong free cash flow generation to provide MGM Resorts with meaningful strategic flexibility to create continued value for our shareholders.

As such, we remain determined to prudently pursue accretive opportunities related to our remaining owned real estate assets including MGM Springfield, our 50% stake in CityCenter and our 55% economic ownership in MGP (pro forma for the potential $1.4bn redemption).

Our corporate objective remains crystal clear, 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.”

A Big Boost to the Company Balance Sheet

Substantial proceeds from MGM Resorts previously completed sales of Bellagio and Circus Circus in the previous year were the initial launchpad in reducing the level of company debt through the process of selling its assets. This joint venture will only further execute the company’s 2020 initiatives and create significant improvements in the company’s balance sheet.

Plans for divvying up the proceeds from the newly announced transaction include returning capital to shareholders through share repurchases and dividends. A more specific capital allocation plan is intended to be released once the company releases its earning from their fourth quarter of 2019.

Paul Salem, Chairman of the Real Estate Committee of the Company’s Board of Directors, said this of MGM Resorts financial initiatives through the transaction:

“The valuation levels achieved on the Bellagio and MGM Grand Las Vegas transactions are a testament to MGM Resorts as a high-quality tenant and our overall asset quality. The robust interest in our recent transactions further validates the Company’s conviction on being able to unlock value for our shareholders through its asset light strategy

The transaction represents another key phase of our ongoing review of the Company’s assets and is in-line with all of the Real Estate Committee’s principal objectives of enhancing free cash flow per share, maximizing the value of our owned real estate and equity holdings, highlighting the strength of our operating business, and strengthening the Company’s financial position.”

Closing Date

While subject to certain closing conditions, the transaction is expected to close in the first quarter of 2020. If the success of the sales of Bellagio and Circus Circus are an indication of the company reaching their long-term financial repositioning goals, MGM Resorts International looks to be in good standing by building an even stronger fortress in terms of their balance sheet with the latest transaction.