MGM reportedly seeking sale and lease-back of two Las Vegas resorts

Bloomberg News last week said the casino company is considering a sale-and-leaseback of the Bellagio and the MGM Grand Las Vegas as part of the effort undertaken by an ad-hoc board committee assigned to appraise the company’s expansive real estate portfolio. The evaluation began in January.
MGM Resorts declined comment on the report. A spokesman referred to remarks made by MGM Chairman and CEO Jim Murren in April that the company would not comment until any decisions or recommendations are reached.

Bloomberg, citing unnamed sources, reported that MGM was working with an adviser to solicit interest from potential buyers for the two casinos. The company is reputedly open to the sale and leaseback of both properties, either individually or bundled together.

Macquarie Securities gaming analyst Chad Beynon said in a research note Sunday a sale could bring in an estimated $5 billion after tax proceeds. Beynon told investors an asset sale “may be imminent.” “We believe the motivation behind any potential transaction would be to deploy capital towards share deleveraging and share repurchases,” Beynon said.

MGM Resorts owns 70 percent of real estate investment trust MGM Growth Properties, which currently owns the land and buildings of 15 casinos and developments operated by MGM Resorts. Earlier this year, MGM Growth acquired the land and buildings associated with Northfield Park in Ohio and Empire Casino-Yonkers Raceway in New York and leased the properties to MGM Resorts.

On the Strip, MGM Growth owns six casinos and The Park entertainment and dining district. MGM Grand and Bellagio are the most notable properties not part of the REIT.

Beynon hinted MGM Resorts may be looking at another gaming REIT or buyer for the properties, “which could make a sale accretive.” Murren has said that MGM Resorts wants to reduce its ownership stake in MGM Growth to below 50 percent in the next three to five years.

MGM Resorts had nearly $15 billion of long-term debt at the end of March, which analysts said has depressed MGM’s share price and attracted the interest of the activist investment community.

The company formed a board committee in January comprising three independent directors – John Kilroy Jr., Keith Meister and Paul Salem. Murren said the directors would work with management to assist in the evaluation.
Meister, the managing partner and chief investment officer of hedge fund Corvex Management, was appointed to the MGM board a week earlier. Corvex acquired 3 percent of the company.

During April’s first quarter conference call, Murren told analysts he wasn’t going to comment on the committee’s work. “We’re going to let the committee continue to do its work and present its recommendation. We’re not going to get ahead of them,” Murren said.

MGM’s real estate includes vacant parcels on both the north and south ends of Las Vegas Boulevard. “(The committee has) made progress in evaluating numerous strategies to maximize the value of our assets, and, working with outside advisers, has narrowed their analysis to a small handful of options,” Murren said. “While there’s no fixed timetable for their recommendation to the board, I expect it will take months, not quarters.”

The topic will probably come up Thursday during the conference call, as well as the continued discussions around MGM 2020. The company said the cost reduction and margin improvement plan would lead to an additional $300 million in cash flow by 2021.

MGM laid off more than 1,000 positions companywide this spring as part of MGM 2020. MGM Resorts said the initiative would lead to “a more centralized organization to maximize profitability and, through key investments in technology, lay the groundwork for the company’s digital transformation to drive revenue growth.”

Shares of the MGM Resorts closed at $28.33 Monday, down 26 cents, or 0.91 percent. Bloomberg said MGM’s shares have gained close to 19 percent in value since the beginning of the year.