MGM Grand and Mandalay Bay sold to Blackstone joint venture

MGM Resorts International said a joint venture that includes Blackstone Group Inc. would buy the real estate of the MGM Grand and Mandalay Bay resorts and casinos on the Las Vegas Strip, in a deal valuing the properties at $4.6 billion.

The deal, first reported early Tuesday by The Wall Street Journal, values MGM Grand’s real-estate assets at about $2.5 billion and Mandalay Bay’s at just over $2 billion.

Blackstone will own slightly less than half of the properties (49.9%) through the private-equity and real estate giant’s non-listed real estate investment trust (REIT), while MGM Growth Properties (MGP), a publicly traded REIT, will own the remainder (50.1%). MGM Resorts spun off MGM Growth Properties in 2016 and still controls the REIT, which owns some MGM real estate including Mandalay Bay’s. The joint venture will lease both properties to MGM Resorts for an initial rent of $292 million.

MGM Resorts expects to receive cash proceeds of about $2.4 billion from the deal, as well as $85 million in MGM Growth partnership units. The transactions, when totaled, are expected to provide $8.2 billion in cash proceeds to MGM. 

As part of the deal, MGM Growth also agreed to buy up to $1.4 billion of its operating partnership units from MGM Resorts. If it purchases the full amount, it would leave MGM Resorts with a 55% stake in the REIT down from a current 68%.

"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," said Jim Murren, Chairman and CEO of MGM Resorts. "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."

The deal is similar to MGM Resorts’ sale of its flagship Bellagio casino in Las Vegas to Blackstone last year. In October, Blackstone said its real-estate investment trust, known as BREIT, would take control of the Bellagio’s real estate through a $4.25 billion joint venture with MGM. MGM, which retained a 5% stake in the venture, continues to operate the casino and is renting the property from the venture for $245 million a year.

MGM Resorts, which has a market value of about $17 billion, began evaluating real estate deals to help pay off debt after its board of directors formed a real estate committee in January 2019. Murren said on a conference call in October that the company planned also to sell the MGM Grand and would use the Bellagio transaction as a blueprint for future real estate deals.

"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," said Paul Salem, Chairman of the Real Estate Committee of the Company's Board of Directors. "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."

Jon Gray, Blackstone President & COO, commented: "This transaction reflects our continuing strong conviction in Las Vegas. We are pleased to once again partner with MGM Resorts, a world-class operator, as well as MGM Growth Properties."

The MGM Grand Las Vegas is the company’s largest property by square footage, as of its most recent annual financial filing. It includes a hotel and resort as well as three condominium towers, and it is the company’s second-most-profitable property behind the Bellagio. Together, MGM Grand, Bellagio and Mandalay Bay brought in $1.1 billion in adjusted earnings before interest, taxes, depreciation and amortization or about 40% of the company’s total.

MGM last year sold another Las Vegas Strip casino, Circus Circus, to Phil Ruffin, who also owns the Treasure Island casino. Circus Circus, which was sold outright for $825 million, was one of the least-profitable of MGM’s properties on the Strip. 

Blackstone is building up a presence on the Las Vegas Strip. The company paid $1.7 billion for the Cosmopolitan hotel and casino in 2014 and put another $500 million into finishing and renovating the property. Blackstone is looking to sell the property, which could bring in $4 billion or more.