Bloomberg is reporting that Blackstone Group, Inc. is pursuing the acquisition of both the Bellagio and MGM Grand Las Vegas from MGM Resorts International. The financial media outlet’s sources say the two companies are talking, but no details are known yet and things could always fall apart. Bloomberg analysts estimate that the Bellagio could sell for $4 billion and MGM Grand could sell for almost $3 billion.
MGM would rent and operate the casinos
Word is that if it all works out, the deal would be a leaseback agreement. In such an arrangement, MGM would sell the two casinos to Blackstone and Blackstone would then turn around and rent the properties back to MGM.
A natural question would be why would MGM sell arguably its two best-known properties on the Strip only to pay millions of dollar a year to rent them? The answer is cash. Brian Egger, analyst with Bloomberg Intelligence, posited the following:
A Blackstone deal to buy and lease back Bellagio and MGM Grand — in advanced talks, Bloomberg reports — could raise $6.5-$7 billion for a $10 billion resort in Osaka, Japan, where MGM will vie for a license.
MGM could possibly get the money it needs via other means, but a sale and leaseback agreement may just work out better financially for the company. For Blackstone, the two casinos are investments and it can capture a steady revenue stream via renting them back to MGM. MGM would continue to operate the properties, so it would still make money – it just wouldn’t own the property assets anymore. Customers likely wouldn’t notice any difference.
Leasebacks in the gaming industry
Leaseback agreements have been fairly commonplace in casino sales recently, with VICI Properties being the central figure in the transactions. This spring, Penn National Gaming and VICI completed the $1 billion acquisition of Greektown Casino in Detroit. VICI owns the real estate and building and is renting it to Penn National in a triple-net lease agreement.
Part of the Caesars/El Dorado merger that was announced June involved VICI acquiring three of Caesars’ Harrah’s casinos and then leasing them out.
And in 2017, Caesars sold Harrah’s Las Vegas to VICI. The two companies then entered into a 15-year leaseback deal. Like what Bloomberg thinks is going on with MGM and its need for cash for its Osaka plans, Caesars used the proceeds for another acquisition.
MGM shares spiked on the news yesterday, jumping 4.9 percent early in the day. As often happens, investors took their profits and the stock price settled back down, closing up 2.1 percent.
If MGM does sell Bellagio and MGM Grand, it would break up a near monopoly it has on the southern half of the Las Vegas Strip. It owns a massive swath that includes well-known casinos like New York New York, Monte Carlo, Mandalay Bay, Luxor, and Excalibur, as well as Mirage a bit further north. Coincidentally, Blackstone owns the Cosmopolitan, which is virtually the lone non-MGM property in that stretch, just south of the Bellagio. As mentioned, if Bloomberg’s sources are correct and the deal does happen, MGM would continue to manage the properties, so the MGM continuum would effectively remain intact.