LAS VEGAS — MGM Growth Properties LLC (MGP) and Blackstone Real Estate Income Trust, Inc. (BREIT) today announced that they have entered into a definitive agreement to form a new joint venture to acquire MGM Grand and Mandalay Bay in Las Vegas for $4.6 billion. In addition, BREIT will purchase $150 million in MGP Class A shares. MGP will own 50.1 percent of the joint venture, and BREIT will own 49.9 percent. This transaction is expected to close in the first quarter of 2020.
At closing, MGM Resorts International will enter into a long-term triple-net master lease for both properties and provide a full corporate guarantee of rent payments. MGM Resorts will continue to manage, operate, and be responsible for all aspects of the properties on a day-to-day basis, with the joint venture owning the properties and receiving rent payments.
Together, the MGM Grand and Mandalay Bay comprise 9,743 rooms, approximately three million square feet of meeting space, and approximately 300,000 square feet of casino space across 226 acres on the Las Vegas Strip. MGM Resorts’ initial annual rent will be $292 million. MGP currently owns the Mandalay Bay real estate, and MGM Resorts currently owns the MGM Grand real estate.
“We are pleased to announce this partnership with BREIT, which illustrates the numerous opportunities available to grow our business and emphasizes the strong institutional demand for gaming real estate assets,” said James Stewart, CEO of MGP, a REIT focused on the acquisition, ownership, and leasing of large-scale destination entertainment and leisure resorts. “Along with the contemplated cash redemption of $1.4 billion of MGM’s operating partnership units as announced by MGM, we expect this transaction to be accretive to AFFO while allowing us to maintain pro rata net leverage of 5.6x.”
Jon Gray, president and COO of Blackstone, added, “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.”
Tyler Henritze, head of U.S. acquisitions for Blackstone Real Estate, which has a history in the Las Vegas real estate market and recently acquired the Bellagio for $4.25 billion, commented, “Similar to the Bellagio, owning these two premier Las Vegas assets under a long-term lease with MGM provides stable cash flow and excellent downside protection for our BREIT investors. We look forward to growing our partnership with MGM Resorts and MGM Growth Properties, a best-in-class company.”
MGM Resorts’ Asset-Light Strategy
In connection with the transaction, MGM Resorts expects to receive net cash proceeds of approximately $2.4 billion and approximately $85 million in MGP operating partnership units. MGP has also entered into an agreement with MGM Resorts to deliver cash for up to $1.4 billion of MGM Resorts’ existing operating partnership units. MGM Resorts can elect to redeem units for up to 24 months post-closing, and anticipates doing so within the early part of that window. Combined with the previously announced Bellagio and Circus Circus Las Vegas transactions, and assuming the redemption of $1.4 billion in operating partnership units, these transactions are expected to provide total net cash proceeds to MGM Resorts of $8.2 billion.
“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 percent stake in CityCenter and our 55 percent economic ownership in MGP (pro forma for the potential $1.4 billion 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 previously completed Bellagio and Circus Circus Las Vegas transactions provided proceeds for deleveraging and the continued execution of the company’s 2020 initiatives are expected to further support improvements to its balance sheet.
“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 MGM Resorts’ 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.”