In its continuing effort to become asset light, MGM Resorts International has entered into a definitive agreement with VICI Properties Inc. and MGM Growth Properties LLC (MGP), whereby VICI would redeem a majority of MGP operating partnership units held by MGM Resorts for $43 per unit, or approximately $4.4 billion in cash, and acquire 100% of the outstanding class A shares of MGP in a stock-for-stock transaction. The transaction is valued at $17.2 billion.
“In 2016 we started on our journey to become asset light and this announcement, together with our recently announced Springfield and CityCenter transactions, reflects the culmination of those efforts and a major step forward in simplifying our corporate structure,” said Bill Hornbuckle, CEO/president, MGM Resorts. “As a result of these actions, we are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.”
The $17.2 billion value is inclusive of VICI’s assumption of approximately $5.7 billion of pro rata debt. Adjusted for the recently announced MGM Springfield transaction, the implied 17.5x pro rata EBITDA multiple ranks among the strongest for a gaming real estate transaction to date.
Since the MGM formed MGP in a transaction in 2016, the company and MGP have successfully executed multiple transactions providing for significant cash proceeds that company has used to strengthen its balance sheet, return capital to shareholders and fund substantial investments in significant growth opportunities. Among these investments is the formation of BetMGM, which has now solidified its position as a leader in the iGaming and sports betting market in the U.S. These efforts also favorably positioned the company to weather the unprecedented crisis created by the COVID-19 pandemic and allowed it to emerge in a position of strength as the economy continues to rebound, the company reports. After giving effect to the $4.4 billion in cash proceeds from this transaction, as well as the Springfield and CityCenter transactions, the MGM expects to have $11.6 billion of domestic operations liquidity available to enable execution of its goals of becoming the premier gaming entertainment company, returning value to shareholders and solidifying its balance sheet.
“The partnership with MGP over the past 5 years has provided significant value to MGM Resorts as well as MGP’s other shareholders,” said Paul Salem, chairman of the board, MGP. “We are thankful to the MGP management team for all of their efforts to develop MGP into a premier gaming REIT, which is evidenced by the 15.9% premium offered by VICI in this transaction, representing a 149% increase to MGP’s valuation since IPO. We look forward to our new long-term partnership with the great team at VICI.”
James Stewart, CEO, MGP, added, “Since our IPO in 2016, MGP completed over $7 billion of real estate transactions that grew our portfolio of premier entertainment assets, including introducing innovative transaction structures to the gaming REIT universe. As a result of our completed and announced transactions, MGP’s pro rata rental revenue has nearly doubled from $550 million at IPO to approximately $1 billion, our annualized dividends per share increased 44%, and our total shareholder return has more than doubled. Following the strategic merger with VICI, MGP shareholders will benefit from the collective strengths of both companies.”
Ed Pitoniak, CEO, VICI Properties, said, “We have always admired the exceptional quality of MGP’s real estate portfolio and are thrilled this transaction allows MGM to reach its stated objectives while enhancing value for both VICI and MGP shareholders.”
As part of the transaction, the existing master lease will be amended and restated and will provide for an initial term of 25 years, with three ten-year renewals, and an initial annual rent of $860 million, inclusive of the pending MGM Springfield transaction. This lease will be guaranteed by MGM and will provide it with significant flexibility to manage its operations across the portfolio of properties covered by the lease.
As part of the agreement, MGM Resorts will own an approximate 1% stake in the VICI operating partnership, worth approximately $370 million. The transaction is expected to close in the first half of 2022, subject to customary closing conditions, regulatory approvals and approval by VICI stockholders.
J.P. Morgan is acting as exclusive financial advisor and Weil, Gotshal & Manges LLP is serving as legal advisor to MGM.