NEW YORK and LAS VEGAS—VICI Properties Inc. (VICI Properties or VICI), MGM Growth Properties LLC (MGP), and MGM Resorts International (MGM Resorts)—MGP’s controlling shareholder—have entered into a definitive agreement pursuant to which VICI Properties will acquire MGP for total consideration of $17.2 billion, inclusive of the assumption of approximately $5.7 billion of debt. Upon completion of the merger, VICI will have an estimated enterprise value of $45 billion, firmly solidifying VICI’s position as a large experiential net lease REIT while also advancing VICI’s strategic goals of portfolio enhancement and diversification.
Under the terms of the master transaction agreement, MGP Class A shareholders will receive 1.366 shares of newly issued VICI stock in exchange for each Class A share of MGP. The fixed exchange ratio represents an agreed-upon price of $43.00 per share of MGP Class A shares based on VICI’s trailing 5-day volume-weighted average price of $31.47 as of July 30, 2021, and represents a 15.9 percent premium to MGP’s closing stock price on August 3, 2021. MGM Resorts will receive $43.00 per unit in cash for the redemption of the majority of its MGP Operating Partnership units (OP Units) that it holds for total cash consideration of approximately $4.4 billion and will also retain approximately 12 million units in a newly formed operating partnership of VICI Properties. The MGP Class B share that is held by MGM Resorts will be canceled and cease to exist.
Simultaneous with the closing of the transaction, VICI Properties will enter into an amended and restated triple-net master lease with MGM Resorts. The lease will have an initial total annual rent of $860.0 million, inclusive of MGP’s pending acquisition of MGM Springfield, and an initial term of 25 years with three 10-year tenant renewal options. Rent under the amended and restated master lease will escalate at a rate of 2.0 percent per annum for the first 10 years and thereafter at the greater of 2.0 percent per annum or the consumer price index (CPI), subject to a 3.0 percent cap. Additionally, VICI will retain MGP’s existing 50.1 percent ownership stake in the joint venture with Blackstone Real Estate Income Trust, Inc. (BREIT JV), which owns the real estate assets of MGM Grand Las Vegas and Mandalay Bay. The BREIT JV lease will remain unchanged and provides for current annual base rent of approximately $298 million and an initial term of 30 years, with two 10-year tenant renewal options. Rent under the BREIT JV lease escalates at a rate of 2.0 percent per annum for the first 15 years and thereafter at the greater of 2.0 percent per annum or CPI, subject to a 3.0 percent cap. On a combined basis, the MGM master lease and BREIT JV lease will deliver initial attributable rent to VICI of approximately $1.0 billion.
The transaction was approved by the Board of Directors of each of MGM Resorts, MGP, and VICI Properties (and, in the case of MGP, the Conflicts Committee). The parties expect the transaction to close in the first half of 2022, subject to customary closing conditions, regulatory approvals, and approval by the stockholders of VICI Properties. The VICI Properties Board of Directors and management team will remain unchanged.
Strategic Merits
- The transaction extends VICI Properties’ track record of consistent value creation since its formation in 2017 and is expected to provide immediate, high quality, accretion to AFFO per share upon closing.
- VICI Properties will add 15 Class A entertainment resort properties spread across 9 regions comprising 33,000 hotel rooms, 3.6 million square feet of meeting and convention space, and hundreds of food, beverage, and entertainment venues to its portfolio at an estimated 30 percent to 40 percent discount to replacement cost. Following the transaction, approximately 55 percent of VICI’s rent base will be generated by market-leading regional properties, while the remaining 45 percent will come from properties on the Las Vegas Strip.
- Upon closing, VICI Properties’ top tenant concentration will be reduced to about 41 percent (from 84 percent currently), while 84 percent of VICI Properties’ rent roll will be derived from S&P 500 tenants with a track record of having paid 100 percent of rent on time and in cash throughout the COVID-19 pandemic.
- The transaction adds a 55-year master lease, inclusive of tenant renewal options, with inflation protection through a CPI kicker and a corporate guarantee from MGM Resorts, an S&P 500 global entertainment company with national and international locations.
- Following the acquisition of MGP and the pending acquisition of the real estate of the Venetian Resort and Sands Expo Center, VICI Properties is expected to retain approximately $500 million of annualized free cash flow, after dividend payments, which may be deployed toward highly attractive growth opportunities across gaming and other experiential sectors.
- The transaction will position VICI Properties’ balance sheet for investment-grade status as VICI eliminates all of its existing secured debt and establishes an unencumbered asset pool.
- The transaction unlocks significant new index eligibility for MGP Class A shareholders while allowing investors in the combined company to benefit from index rebalancing, given the significantly larger size, and strong positioning for S&P 500 inclusion and enhanced trading liquidity.
- With improving the cost of capital and retained cash flow, VICI is positioned to continue to grow its portfolio in both gaming and non-gaming sectors.
“Through this transformative strategic acquisition, we are merging MGP’s best-in-class portfolio into VICI’s best-in-class management and governance platform, creating the premier gaming, entertainment, and leisure REIT in America,” said Ed Pitoniak, CEO of VICI Properties. “We want to thank James Stewart, Andy Chien, and the MGP Board for building and stewarding a portfolio of such exceptional quality, and going forward, we are honored to become a key real estate and capital partner for Bill Hornbuckle and the MGM Resorts management team and Board. We look forward to supporting their strategic growth objectives for decades to come.”
“After many years of growing both of our portfolios, combining them into one company will generate the best results for the shareholders of both companies,” said James Stewart, CEO of MGP. “The combined company will create a superior platform for delivering exceptional returns to MGP’s existing shareholders, by improving diversification, increasing scale, lowering cost of capital and benefiting from future growth.”
Bill Hornbuckle, CEO and president of MGM Resorts, said, “This transaction unlocks the significant real estate value of our assets, enhances our financial flexibility, and strengthens our ability to execute key growth initiatives. We look forward to our long-term partnership with VICI.”
Financing
VICI Properties has secured a $9.3 billion financing commitment from Morgan Stanley, J.P. Morgan, and Citibank.
Advisors
Morgan Stanley & Co LLC is acting as the lead strategic and financial advisor to VICI Properties on the transaction. Citigroup Global Markets Inc. is also acting as a financial advisor to VICI Properties. Hogan Lovells US LLP and Kramer Levin Naftalis & Frankel LLP are serving as legal advisors to VICI Properties. Baker Botts LLP is serving as a legal advisor to MGP. Evercore is acting as financial advisor and Potter Anderson & Corroon LLP is serving as legal advisor to the Conflicts Committee of the MGP Board of Directors. J.P. Morgan is acting as a financial advisor and Weil, Gotshal & Manges LLP is serving as legal advisor to MGM Resorts.
Dividend
VICI Properties also announced that its Board of Directors has declared a regular quarterly cash dividend of $0.36 per share of common stock, representing an annualized amount of $1.44 per share and a 9.1 percent increase from the current dividend rate. The dividend will be payable on October 7, 2021, to stockholders of record as of the close of business on September 24, 2021.
