GGRAsia – Bellagio, Circus Circus deals for MGM balance sheet: CEO

Bellagio, Circus Circus deals for MGM balance sheet: CEO

Oct 16, 2019 Newsdesk Japan, Latest News, Top of the deck, World

United States-based casino firm MGM Resorts International’s planned sale for US$825 million of its Circus Circus Las Vegas venue and its decision to “monetise” for US$4.2 billion in cash its interest in Bellagio, another of its properties in the Nevada gaming hub, will help the firm “build a fortress balance sheet”. So says Jim Murren (pictured in a file photo), chairman and chief executive of MGM Resorts.

The information on the two exercises was given in separate press releases on Tuesday.

Mr Murren said in prepared comments relating to the Bellagio deal: “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.”

MGM Resorts came under severe financial pressure for a period after the global financial crisis of 2007 to 2008 that came hard on the heels of the firm’s major spending on what was then called the CityCenter complex, a hotel and gaming development on the Las Vegas Strip.

The two newly-announced transactions have come at a time MGM Resorts – parent of Macau gaming licensee MGM China Holdings Ltd – is looking to marshal as much as US$10 billion in capital expenditure in a tilt at a Japan casino licence, although the structure and contributing entities for such levels of spending are yet to be clarified.

The deals also come shortly after the firm announced its “MGM 2020” programme designed to eliminate US$100 million in labour costs.

Mr Murren was quoted in the release concerning the planned sale of Circus Circus Las Vegas to an affiliate of Phil Ruffin, owner of Treasure Island, another Las Vegas property: “The company expects to utilise the proceeds from this transaction to enhance its capital allocation strategy and complement its strategic and operational flexibility.”

Mr Murren noted regarding the Bellagio exercise: “MGM Resorts has engaged in an exhaustive process to evaluate its owned real estate and remains committed to executing its asset-light strategy in a measured way that maximises value for its shareholders.”

Brokerage Nomura said in a Tuesday memo that the Bellagio exercise – under which a joint venture with Blackstone Real Estate Income Trust Inc will acquire the Bellagio real estate and lease it back to a subsidiary of MGM Resorts for initial annual rent of US$245 million – was a “positive deal”. That was precisely because MGM Resorts’ own real estate investment trust (REIT) MGM Growth Properties LLC (MGP), wasn’t involved.

“The 17.3x rent multiple… that Blackstone is paying for Bellagio would have been dilutive for MGM Growth Properties,” noted Nomura analysts Daniel Adam and Harry Curtis.

“That MGM Growth Properties was not involved in the deal not only demonstrates the company’s disciplined approach to mergers and acquisitions vis-a-vis its willingness to walk away from non-accretive transactions, but also underscores the fact that MGM Growth Properties operates independently from its controlling shareholder/tenant, MGM Resorts,” the analysts added.

Under the Bellagio deal, MGM Resorts will receive a 5-percent equity interest in the joint venture as well as cash amounting to approximately US$4.2 billion.

The transaction is likely to be completed before the end of 2019, subject to certain conditions, said the casino firm.