MGM Monetizes Bellagio, Sells Circus Circus, in $5B Deals

LAS VEGAS—In its continued strategy to go asset light, MGM Resorts International has entered into a definitive agreement to form a joint venture with Blackstone Real Estate Income Trust (BREIT) that values the real estate of Bellagio at $4.25 billion. It has also entered into a separate definitive agreement to sell Circus Circus Las Vegas for $825 million to an affiliate of Treasure Island owner Phil Ruffin.

The joint venture will acquire the Bellagio real estate and lease it back to a subsidiary of MGM Resorts for initial annual rent of $245 million. MGM Resorts will receive a 5% equity interest in the joint venture and cash of approximately $4.2 billion. The transaction is expected to close in the fourth quarter of 2019, subject to certain closing conditions.

“The [Bellagio] 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 Jim Murren, chairman/CEO, MGM Resorts International. “We will use the proceeds from this transaction, together with the proceeds from the pending sale of Circus Circus Las Vegas, to build a fortress balance sheet and return capital to shareholders. By the end of 2020 we intend to have domestic net financial leverage at our operating properties of approximately 1x. These transactions enhance the company’s strategic and operational flexibility and reinforce its commitment to targeted new growth opportunities, including securing and investing in one of the integrated resort licenses in Japan and becoming an industry leader in sports betting in the U.S. We remain committed to delivering on our 2020 goals and continue to be on track to achieve our previously announced targets.”

Jon Gray, president/COO, Blackstone, commented: “As big believers in MGM Resorts and Las Vegas, we are thrilled to partner with MGM to acquire the Bellagio on behalf of our BREIT investors. We look forward to a long and productive partnership with this world-class company.”

The company acquired Circus Circus Las Vegas in connection with its acquisition of Mandalay Resort Group in 2005. Originally opened in 1968, today the property has 2,300 employees and is home to the Adventuredome (a five-acre indoor amusement park), a 10-acre RV park, and 37-acre festival grounds.

“Circus Circus has anchored the north end of the Las Vegas Strip for over 50 years, and I am excited to add it to my casino portfolio,” said Ruffin. “I have tremendous respect for Jim Murren and the MGM team, and my relationship with them goes back to my friendship with Kirk Kerkorian and continues to this day.”

Pursuing Asset-Light Strategy

MGM Resorts’ commitment to its asset-light strategy is the culmination of an extensive strategic review of the interplay of its real estate portfolio, overall valuation and operational potential, the company reports. This strategy is expected to unlock the significant unrealized value of its real estate and highlight the strength of its operating business. MGM Resorts is evolving its business model away from primarily a capital intensive, brick & mortar real estate business towards a developer, manager and operator of leading gaming, hospitality and entertainment properties. This strategy is designed to accelerate its top line growth, enhance its return on investment profile and result in a more financially robust, global enterprise that is best positioned to take advantage of future growth opportunities.

“The Real Estate Committee was formed earlier this year to support management’s strategy to enhance free cash flow per share, maximize the value of our owned real estate and equity holdings, highlight the strength of our operating business, and fortify the company’s financial position,” said Paul Salem, chairman of the Real Estate Committee of the company’s board of directors. “This transaction represents a key step in our comprehensive, ongoing review. The value realized in the Bellagio transaction is highly accretive to shareholder value and significantly greater than the implied multiple of our core business.”

These transactions are the first steps in executing the asset-light strategy, and the company still retains several highly valuable real estate assets including MGM Grand, MGM Springfield, its 50% stake in CityCenter and its 68% economic ownership in MGM Growth Properties LLC, the company reports. It 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. MGM’s fortress balance sheet and robust free cash flow generation will enable it to take advantage of targeted growth initiatives and opportunistically return capital to shareholders.

PJT Partners and J.P. Morgan are serving as financial advisors to MGM Resorts and the Real Estate Committee of the Board of Directors of MGM Resorts for the Bellagio transactions. Weil, Gotshal & Manges LLP is serving as MGM Resorts’ legal counsel.

Morgan Stanley & Co. LLC and CBRE are serving as financial advisors to MGM Resorts on the Circus Circus Las Vegas transaction.

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