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MGM Resorts still the Strip’s largest casino operator, just not its biggest landowner

Howard Stutz
Howard Stutz
EconomyGaming
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The MGM Grand hotel and casino sign

Nearly a decade ago, MGM Resorts International owned much of the Las Vegas Strip.

The company controlled more than 800 acres along the resort corridor, much of which housed 10 Strip resorts, the 67-acre CityCenter complex, a 33-acre concert venue and 23 acres that became The Park dining and retail space and T-Mobile Arena.

“It’s a good time to be the largest landowner on the Strip,” then MGM Chairman and CEO Jim Murren said during a quarterly earnings conference call in 2014. He was responding to news that vacant land across from Wynn Las Vegas, formerly the site of the New Frontier, had sold for between $9 million and $15 million an acre.

Murren told investors that whatever the value ascribed to Strip real estate was a figure that “we like a lot.”

Starting in 2016, the company changed its strategy.

When a pair of recently announced transactions involving CityCenter and totaling more than $6 billion are finalized later this year, MGM Resorts’ land ownership on the Strip will cover just 15 acres. Outdoor festival grounds across from Luxor and Mandalay Bay – the location of the Oct. 1, 2017, mass shooting – is the last piece of the company’s Strip real estate puzzle. Much of that site is slated to be used for parking for nearby Allegiant Stadium.

“We expect to continue executing on our asset-light strategy and utilizing the proceeds from our real estate transactions to enhance our financial flexibility and secure new growth opportunities,” MGM Resorts CEO Bill Hornbuckle said on July 1.

Analysts believe MGM Resorts, which owns a 50 percent stake in BetMGM, the company’s sports betting and online gaming operation, wants to acquire the other half through a purchase of United Kingdom betting giant Entain PLC. MGM made an $11 billion buyout offer for the company in January, but the bid was rejected for “undervaluing the company.”

Under UK law, MGM was precluded from making another offer for six months.

“We believe MGM is still interested in owning the BetMGM business outright given its long-term aspirations in the space,” said Macquarie Securities gaming analyst Chad Beynon, noting the cooling off period ended this month.

Beynon said the company’s land transactions have provided some $8 billion in cash toward the balance sheet, “which could make an acquisition more palatable.”

Also, technology giant IAC/InterActiveCorp, which spent more than $1 billion last summer to acquire a 12 percent stake in MGM Resorts, making it the company’s largest shareholder, was expected to fund a portion of January's proposed Entain deal through a further investment in MGM.

IAC is controlled by media mogul Barry Diller, who joined the MGM board last summer. He said at the time MGM Resort’s potential from its online gaming business drove his investment thesis.

In a presentation to investors in April, BetMGM CEO Adam Greenblatt predicted the company – operating in 10 states and Washington D.C. – will double its jurisdictions by the end of 2022 and produce more than $1 billion in net revenues.

MGM Resorts may discuss continued interest in Entain and expanding BetMGM when the company releases its second-quarter earnings on Aug. 4.

Exterior of the Vdara Hotel and Aria Casino Resort at CityCenter. (File photo)

REITs on the Strip

MGM Resorts began reducing its Strip real estate with the 2016 spin-off of MGM Growth Properties as a publicly traded real estate investment trust. Subsequent deals in the past two years with Blackstone Real Estate Investment Trust converted MGM Resorts from the Strip’s largest landowner to a company operating nine resorts on behalf of the two REITs.

MGM Growth owns all or a portion of seven MGM-operated Strip resorts – MGM Grand Las Vegas, Mandalay Bay, The Mirage, Park MGM, Luxor, Excalibur and New York-New York. MGM Growth also owns The Park and T-Mobile Arena, as well as the casino company’s seven regional casinos.

MGM Resorts controlled 73 percent of MGM Growth following the REIT’s initial public offering. The stake has been reduced over the last five years. In March, the stake fell to 42 percent after the casino company redeemed $1.2 billion in ownership shares.

MGM Resorts is not the only Strip casino operator selling properties to REITs. Las Vegas Sands announced a $6.25 billion sale in March of the Venetian, Palazzo and Sands Expo to VICI Properties, which is paying $4 billion for the real estate and buildings. Apollo Global Management is paying $2.25 billion for control of the operations.

New York-based VICI Properties, which spun off from Caesars Entertainment in 2017 as part of the company’s bankruptcy reorganization, owns the land and buildings associated with Caesars Palace, Harrah’s Las Vegas, and the Caesars Forum Convention Center. In Las Vegas, VICI also has the right of first refusal should Caesars Entertainment sell Flamingo Las Vegas, Linq Hotel, Bally’s Las Vegas, Paris Las Vegas, and Planet Hollywood. Also, VICI owns 27 acres of undeveloped land behind Bally’s, Paris, and Planet Hollywood.

Outside of Las Vegas, VICI has leases with five different operating companies for casinos in 11 states.

“We believe (VICI) is a name that will continue to prove its ability to grow with its existing tenant base and acquire new tenants in both the gaming and non-gaming space,” said Macquarie Securities gaming analyst Jordan Bender. 

Pennsylvania-based REIT Gaming and Leisure Properties, created in 2013 through a spin-off with regional casino operator Penn National Gaming, owns one property on the Strip – Tropicana Las Vegas – which is managed by Penn. Gaming and Leisure is in the process of leasing the operations to Bally’s Corp. in a deal announced in April.

By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders. Investors are taxed at their individual tax rate for the ordinary income portion of the dividend.

A couple sits in front of the Bellagio fountains with a sign reading "Thank you for practicing social distancing" on Thursday, June 4, 2020. (Mikayla Whitmore/The Nevada Independent)

MGM Resorts’ REIT deals

CityCenter is the last of MGM Resorts’ Strip properties to fall under REIT ownership.

MGM Resorts said on July 1 it was paying $2.125 billion to buy a 50 percent stake owned by Infinity World, the investment arm of the United Arab Emirates and the company’s longtime partner in CityCenter.

Subsequently, the company said it would sell the underlying real estate to Blackstone Real Estate Investment Trust for $3.89 billion. MGM Resorts will then lease the operations back from the landowner.

CityCenter holdings include the 4,000-room Aria Resort and Casino and the non-gaming 1,200-room Vdara Hotel. Other developments on the site, including Crystals luxury retail center, an empty two-acre parcel and the non-gaming Waldorf Astoria were previously sold to new owners.

Aria and Vdara will be leased to MGM Resorts for annual rent of $215 million.

“Uniting all of CityCenter under MGM Resorts' corporate structure and strategy will allow us to consolidate financial results, build on efforts to strengthen our operating model and guest experience and further our vision of becoming the world's premier gaming entertainment company,” Hornbuckle said in a statement announcing the transactions.

Beynon said the CityCenter deal transformed MGM into “a 100 percent operating company.”

Deutsche Bank gaming analyst Carlo Santarelli added, “We think the fact that the transaction furthers MGM's cash position, while also further simplifying the organizational structure of the company, are firm positives.”

Santarelli said MGM Resorts will earn $1.8 billion in cash following the two transactions. He suggested the funds could be used to reduce the company’s long-term debt, which stood at $13.4 billion at the end of March. Separately, the CityCenter’s debt was $1.73 billion at the end of March.

Deals in 2019 and 2020 furthered the company’s transformation. MGM Resorts sold Bellagio to Blackstone for $4.25 billion. MGM is paying the REIT $245 million in annual rent, but the casino operator retained a 5 percent ownership in the resort.

A few months later, the company sold MGM Grand Las Vegas and Mandalay Bay to a joint venture between Blackstone and MGM Growth for $4.6 billion. MGM Resorts pays $292 million annually to lease back the casinos.

Also in 2019, MGM Resorts sold Circus Circus Las Vegas and its 25-acre site, along with three adjacent parcels totaling 78 acres, to Treasure Island owner Phil Ruffin for $825 million.

MGM’s sale-leasebacks have a positive implication for the market, said J.P. Morgan gaming analyst Joe Greff. There continue to be buyers for Las Vegas Strip resorts.

“We think this bodes well for other operators who are looking to monetize Strip assets,” Greff said. He alluded to Caesars, whose management team has said the company wants to sell one or two of its eight Strip properties.

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