MGM to sell MGM Grand Las Vegas and Mandala Bay resorts

By Jane Shaw Senior Editor Updated: 01/11/2020

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MGM Grand and Mandalay Bay to be sold by MGM Resorts for $2.5 billion, Photo by Pixabay

MGM Resorts International has agreed to sell two of its most well-known properties, MGM Grand Las Vegas and Mandala Bay for $2.5 billion. These Las Vegas properties are being sold to a newly formed joint venture between MGM Growth Properties and Blackstone Real Estate Income Trust, Inc.

While the private equity giant will own 49.9 percent of the joint venture via its non-listed REIT, MGM Growth Properties will own the rest 50.1 percent. According to the deal between the two parties, MGM Resorts will receive $2.4 billion in cash, and will be given about $85 million worth of MGM Growth Properties operating partnership units.

Jon Gray, Blackstone President said that his company is pleased partner with a world class-operator such as MGM Resorts, and that this partnership is a reflection of Blackstone’s “strong conviction in Las Vegas.”

A long-term master lease allows MGM Resorts to carry on daily management and ownership of these two, while the joint venture will be the official owner of the properties and will also receive rent payments. MGM Resorts is expected to pay $292 million as an initial annual rent. Currently, the MGM Grand is owned by MGM Resorts, while the Mandala Bay is owned by MGM Growth Properties.

Decision to sell part of MGM’s new growth strategy

Recently, MGM Resorts has been selling several of its real estate properties so that it can focus on entertainment, sports betting, as well as developing casinos in China and Japan. The casino giant has been under pressure from investors lately, as it is being nudged to shift to a different business model where they focus more on the development, management and operation of gaming, hospitality, as well as entertainment properties.

CEO of MGM Resorts Jim Murren said that the deal with the joint venture was a “key milestone” in the company’s journey of following an asset-light strategy. This would result in stronger balance sheets and free cash flow generation, thus providing the company with “meaningful strategic flexibility” so that they can continue creating value for their shareholders. He added:

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.

MGM pursuing an “asset-light strategy”

Last year in October, Murren announced his company’s plan to sell MGM Grand, after it was announced that its Circus Circus and Bellagio casinos would also be sold. It was this agreement that resulted in Blackstone taking ownership of the Bellagio casino through a $4.25 billion joint venture with MGM, which kept a 5 percent stake. Daily operations in the casino are still carried out by MGM, who pays a rent of $245 million per year in return.

The Circus Circus property was sold to Phil Ruffin last year in December for $825 million. Ruffin is also the owner of Treasure Island.

As of now, MGM Resorts still owns MGM Springfield, which is located in Massachusetts, and 50 percent of the CityCenter casino resorts and retail complex, located in Vegas. It also owns 55 percent of MGM Growth Properties.
MGM Growth Properties is a real estate investment trust that deals in acquiring, owning, and leasing large, well-known entertainment and resort destinations.