Blackstone Banks on Bellagio in $4.25 Billion Deal With MGM Resorts International, Ruffin Gets Circus Circus For $825 Million

Posted on: October 15, 2019, 02:12h. 

Last updated on: October 15, 2019, 05:30h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

In a widely anticipated move, MGM Resorts International (NYSE:MGM) formally announced today it is selling the Bellagio on the Las Vegas Strip to a real estate investment trust (REIT) controlled by private equity firm Blackstone Group Inc. (NYSE:BX) for $4.25 billion.

MGM reaches a deal to sell Bellagio to Blackstone for $4.25 billion. More Stripe sales could be in the works. (Image: Fox News)

As Casino.org reported last month, MGM has been in talks with Blackstone regarding sale-leaseback transactions involving the Bellagio and MGM Grand, two of the gaming company’s prime assets on the Strip. A statement issued today by the casino operator only mentions MGM Grand by way of saying the company still owns that property.

Under the terms of the deal for Bellagio, MGM is entering into a joint venture with Blackstone Real Estate Income Trust (BREIT), whereby the real estate company will purchase the property assets of the high-end integrated resort, while MGM will continue operating it.

The $4.25 billion price tag implies BREIT is paying 17.3x annual rent of $245 million. MGM is taking a five percent interest in BREIT, and the Blackstone-backed property entity will lease back Bellagio to a unit of the gaming company.

This transaction confirms the premium value of our owned real estate assets, highlights the unique value of Bellagio as a premier asset in gaming, and solidifies our status as a premier operator of gaming and entertainment properties,” said MGM CEO Jim Murren in a statement.

The deal is expected to close in the current quarter.

Shedding Property, Stockpiling Cash

In the statement, MGM noted that the sale of Circus Circus, located on the north end of the Strip, is “pending” and that divesting that property and Bellagio would result in gross proceeds of $5 billion and after-tax cash of $4.3 billion for the company.

MGM said it is selling Circus Circus to investor and Treasure Island owner Phil Ruffin for $825 million. Ruffin is paying $662.5 million in cash and a $162.5 million note that comes due in 2024.

The Circus Circus deal is also expected to close in the current quarter, and MGM said it will take a third-quarter charge of $220 million related to the sale.

Earlier this year, analysts forecast that on a pre-tax basis, sales of Bellagio and MGM Grand could command $6 billion to $7 billion, indicating that the latter could fetch up to $2.8 billion should that venue be sold.

Not Done Yet

With its quest to move toward an asset-light model and build what Murren dubs “a fortress balance sheet,” MGM may not be done selling assets.

As noted above, the company still owns the MGM Grand, as well as MGM Springfield in Massachusetts, along with a 50 percent interest in CityCenter and a 68 percent stake in gaming REIT MGM Growth Properties (NYSE:MGP).

“The Company anticipates opportunistically monetizing and/or unlocking value from the above mentioned remaining real estate portfolio in a measured manner that maximizes value creation for its shareholders and broader constituents,” said MGM.

The casino operator could use some of the cash generated from real estate sales to reduce debt, which stood at $14.8 billion at the end of the second quarter, and is expected to use some of those proceeds to boost its dividend and repurchase more of its stock.