Casinos & Hotels

MGM Hits $5 Billion Jackpot From Vegas Casino Sales; More to Come?

MGM Resorts International (NYSE: MGM) late Tuesday announced the sale of Circus Circus Las Vegas property and the establishment of a joint venture with a subsidiary of Blackstone Group Inc. (NYSE: BX) for the sale and leaseback of the Bellagio property in Las Vegas.

MGM sold Circus Circus to an affiliate of Treasure Island owner Phil Ruffin for $662.5 million in cash and a note for $152.5 million due in 2024. Ruffin was a partner in Donald Trump’s Las Vegas hotel and condo development (non-casino), Trump International, which opened in 2008.

The joint venture deal for Bellagio is valued at $4.25 billion and gives Blackstone Real Estate Investment Trust (NYSE: BREIT) a 95% ownership stake in the joint venture with MGM Resorts, which retains a 5% stake in the property.

The sales are additional transactions in MGM’s move to become a propertyless casino operator. Once these two transactions are completed, the company will own just two properties outright: the MGM Grand in Las Vegas and the MGM Springfield in Massachusetts. The company also will hold a 50% interest in the Las Vegas CityCenter mixed-use urban project and a 68% stake in MGM Growth Properties LLC (NYSE: MGP).

An analyst with Macquarie told in July that Bellagio and the MGM Grand could command sales prices totaling $6 billion to $7 billion. That leaves a range of $1.75 billion to $2.75 billion as a price tag for the MGM Grand.

That same analyst suggested that MGM might use some of the proceeds from the sales to buyback as much as 100 million shares (around $2.75 billion). Of course, management also could choose to whittle down the $15 billion in long-term debt, but the share price won’t be rewarded for that.

While MGM Resorts becomes a propertyless casino operator, MGM Growth Properties will still own Las Vegas properties like Excalibur, Luxor, Mandalay Bay and the Mirage.

Shares of MGM Resorts traded down about 1.2% in the late morning Wednesday, at $27.56 in a 52-week range of $21.62 to $31.68. The 12-month consensus price target on the stock is $33.26. MGM pays a dividend yield of 1.86%.