Blackstone in MGM Grand and Bellagio Negotiations
Rumors are circulating that the Blackstone Group Inc. are in talks to purchase and lease the MGM Grand Las Vegas and Bellagio casinos from MGM Resorts. The private equity firm is seeking to add the iconic casinos to their growing portfolio under the grounds they will lease back both resorts to MGM Resorts.
Due to the secret nature of the meeting, both sources are yet to comment further on the terms of the deal, although it is speculated that the negotiations are in the advanced stages. It is believed that the parties are still yet to agree on the terms.
Despite the unconfirmed nature of the reports, the news has sent some Las Vegas insiders into a frenzy. Some analysts have predicted that MGM could raise up to $7 billion for the deal, and on the day following the news MGM Resorts’ shares rose by 5% before settling to 1.4% by midday.
However, others are concerned that the move will have a negative impact on the company, particularly on their own MGM Growth Properties (MGP) trust. The MGP is a gaming real estate investment trust that separated from MGM over three years ago and is co-owned by the current owner of the Bellagio.
MGP is the current lessor of the two hotels for sale, as well as a number of other iconic resorts along the Las Vegas Strip operated by MGM including the Mirage and Mandalay Bay. If it were to lose MGM Grand and the Bellagio, it would lose two properties that supply MGP with a majority of its rent coverage.
”MGP benefits from a high 6.2x trailing corporate rent coverage given MGM’s ownership of Bellagio and the Grand.We estimate removing these two assets would drop the figure down to 3.5x”– Shaun Kelley, Analyst, Bank of American Merrill Lynch
Why MGM Resorts Is Selling
MGM Resorts has been looking to sell and lease its properties individually or as grouped assets since January when it formed an independent committee to investigate ways it could raise value from its real estate investments. The sales of properties would allow for the company to find the funds to expand whilst they could still manage their resorts.
It is currently estimated that MGM Resorts will raise $4 billion from the Bellagio and roughly $3 billion from the MGM Grand Las Vegas. The properties collectively have over 10,000 rooms and around 315,000 square feet of casino space. This would be a large percentage of the gaming company’s current market value, which is roughly $15.5 billion.
It is believed that the main reason that MGM Resorts wants to raise funds is so that it can pay off debts as well as enter the race to build a billion-dollar resort complex in the hotly contested gambling destination of Japan.
“A Blackstone deal to buy and lease back Bellagio and MGM Grand — in advanced talks, Bloomberg reports — could raise $6.5-$7 billion for a $10 billion resort in Osaka, Japan, where MGM will vie for a license.”– Brian Egger, Senior Gaming and Lodging Analyst, Bloomberg Intelligence
It is believed that the sales of both the MGM Grand and the Bellagio will be beneficial to the future of the company and its investors if MGM continues down the same path of sales and diversification rather than stop. Investors will probably expect the operator to streamline and monetize its stakes in its other holdings to ensure it is continuing to cut costs and raise funds.
The Blackstone Group
Blackstone is a New-York based private equity firm and the largest alternative investment fund in the world. It that currently set its sights on acquiring huge swathes of valuable property to strengthen its real estate portfolio.
Over the last decade, it has become one of the largest investors in leveraged buyouts similar to the one it is currently negotiating with MGM Resorts. Last week alone, it raised $20.5 billion for its ninth real estate fund – almost $5 billion more than it raised for its eighth.
The purchase of MGM resorts will not be its first foray into gaming. It is currently the owner of Spain’s Cirsa Gaming Corporation which it purchased and 2018 and the Cosmopolitan of Las Vegas which was purchased in 2014.
As of 2019, the company’s total assets under management were approximately $470 billion dollars