MGM Growth Properties LLC (MGP), the MGM Resorts International-created real estate investment trust (REIT), is going to have to sell some shares if it wants to enter into a joint venture with MGM Resorts. This is according to a statement by the REIT, which indicates that it will offer 24 million shares in order to pick up funds that will be used, in part, to help finance the unidentified joint venture.
MGP was spun out from under MGM’s umbrella about three and a half years ago, working as a separate entity ever since. It is going to unload 12 million shares to BofA Securities (a division of Bank of America), Morgan Stanley Co., LLC and J.P. Morgan Securities, LLC, all three of which are underwriters of the company. Through forward sale agreements, they will also be eligible to purchase another 12 million shares from different entities or “affiliates” of those entities.
The value of the sale depends on when it’s consummated. When the markets closed on November 19, the 12 million shares were worth around $390 million; however, this is around 1% lower than mid-day prices. When MGP announced the sale, its stock went from $32.85 in the afternoon to $31.32 in after-hours trading.
MGP explains in its statement:
“The Company will receive proceeds from its direct sale of 12,000,000 shares in the offering, but it will not initially receive any proceeds from the sale of shares by the forward purchasers or their affiliates, except in certain circumstances described in the prospectus supplement related to the offering. The Company plans to use the net proceeds from the sale of shares in the offering and the physical settlement of the forward sale agreements primarily to repay a portion of the borrowings outstanding under its senior secured term loan A facility and senior secured term loan B facility, which the Company believes will well-position it to be able to agree to and consummate a potential joint venture transaction under discussion with MGM Resorts International.”
MGM is in the process of closing several deals to sell off some of its assets. The Bellagio just changed hands, with the land underneath it going to Blackstone REIT, for $4.25 billion and Circus Circus is next, expected to go to Treasure Island owner Phil Ruffin. After this, it could get rid of MGM Grand and Mandalay Bay in Las Vegas and MGM Springfield in Massachusetts. MGM owns 66% of MGP. MGP already owns the land under Mandalay Bay, so it’s only fitting that it take control of the business side, as well.
At least CEO Jim Murren will be able to say he’s fulfilled his “MGM 2020” goals by reducing MGM’s overhead, even if this only means pushing everything over to MGP, which the company controls.