MGM sells off its remaining casinos

Overseas Property | Christopher Palmeri 17 Oct 2019

Pressured by investors to unload its remaining casinos, MGM Resorts International has agreed to sell the Bellagio resort in Las Vegas to the Blackstone Group for US$4.25 billion (HK$33.15 billion) and will continue to operate the property under a lease arrangement.

The casino company also agreed to sell its Circus Circus property on the Strip and 19 adjoining hectares to real estate mogul Phil Ruffin for US$825 million.

With these sales, MGM Resorts moves a step closer to becoming a landless casino company, marking a new era for the largest operator of casinos on the Las Vegas Strip.

When all of its deals close, the company will have just two wholly owned properties, including the flagship MGM Grand, under its ownership. It is maintaining a 5 percent stake in the Blackstone-led venture that is buying the Bellagio.

"The casino industry is evolving and we figured the best use of our intellectual capital was to focus on sports, live entertainment and reduce leverage," said Jim Murren, MGM's chairman and chief executive officer. "It's very historic for a variety of reasons."

MGM has been restructuring under pressure from activist investors. The company has cut and reorganized management and sold all but four of its wholly owned casinos to MGM Growth Properties, a real estate investment trust it created three years ago. The REIT has an option to buy the MGM Springfield in Massachusetts.

The price for the Bellagio is 17.3 times the initial annual rent of US$245 million. MGM will use the proceeds to bolster its balance sheet and return capital to shareholders.

Murren said the transactions will help the company target new growth opportunities, including one of the new integrated resource licenses in Japan and sports betting in the United States. MGM has no plans to develop any more casinos in Las Vegas, he said.

Ruffin, a real estate mogul raised in Wichita, Kansas, will pay US$662.5 million in cash for the Circus Circus. The US$162.5 million balance will be in a note that is due in 2024. The parties are expected to close the deal in the fourth quarter.

The resort has 2,300 employees and includes an eight-hectare RV park and 14-hectare festival grounds.

Ruffin bought the Treasure Island casino from MGM for US$746 million in 2009. At the time, the company was trying to raise cash following the financial crisis and complete construction on its CityCenter project.

He fixed up Treasure Island, once known for its outdoor daily pirate battles, adding a western-themed barbecue restaurant and other amenities aimed at Middle American guests.

Earlier, he partnered with Donald Trump on the Trump International Hotel, a non-casino hotel and condo development on the Strip.

The Circus Circus, now more than 50 years old, was once a flagship property of publicly traded Circus Circus Enterprises, which MGM ultimately acquired. The resort itself is located at the less-trafficked north end of the Strip.

The sale of the Bellagio will provide a benchmark value to attract bidders for MGM's remaining real estate interests, Murren said, including the CityCenter properties that are co-owned with Dubai World and the flagship MGM Grand.

Murren also said he wasn't concerned that Penn National Gaming, another casino operator that had moved to a similar asset-light strategy, trades at a lower multiple of earnings than other casino companies, saying MGM's assets make it unique.


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