MGM Resorts inks $637.5M deal to reduce real estate holdings

MGM Resorts inks $637.5M deal to reduce real estate holdings

MGM Resorts International, along with MGM Growth Properties LLC (MGP), the casino operator’s real estate investment trust (REIT), have signed an agreement for the latter to pay $637.5 million for investments in repositioning the Park MGM and NoMad Las Vegas, formerly known as Monte Carlo Resort and Casino.

MGM Resorts inks $637.5M deal to reduce real estate holdingsMGM Resorts CEO Jim Murren, in explaining the move, said, “As we continue to execute our multifaceted strategic plan, and as part of our ongoing efforts to optimize our portfolio, we believe that these prudent investments in our assets will bring substantial value to MGM Resorts, MGP and our respective shareholders.”

The agreement is scheduled to be completed by the first quarter of 2019, according to a joint press release.

MGP CEO James Stewart said, “We intend to fund the consideration through a combination of cash and availability under our credit facility. This transaction will be immediately accretive to our AFFO [adjusted funds from operations] and further demonstrates the power of our business model and partnership with MGM Resorts.”

As part of the agreement, the two companies will amend their master lease for MGM Resorts to pay an additional $50 million a year as tenant to MGP. The lease provides for 90% of the increased rent to be fixed to growth at 2% a year until 2022, with growth of this to continue depending on the meeting of a tenant revenue-to-rent ratio.

Murren said the deal was part of a continued effort of MGM Resorts to reduce its owned real estate. “We remain committed to our stated strategic objectives, including reducing our ownership stake in MGP,” he added. At present, MGM Resorts holds 73.4% of shares in the REIT.

December saw the opening of a 40,000 square-foot Italian marketplace called Eataly, and LA-based Houston Hospitality’s speakeasy and club On the Record, in the Park MGM and NoMad Las Vegas complex.

MGM’s Las Vegas Strip resorts had hotel occupancy of 93% in the third quarter, down from 95% in the same period last year, as well as 10.6% lower table drop and 3.9% lower revenue per available room, year on year.

Normalized net revenue of the Las Vegas casino resorts went down 5.2% to $1.44 billion, while normalized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) fell 15.6% to $410 million. The company cited the demand generated by last year’s McGregor-Mayweather boxing match in explaining the comparatively low results of this year’s third quarter.