MGM Resorts International (NYSE: MGM) announced Tuesday that it has agreed to sell the real estate assets of its MGM Grand Las Vegas property to a new joint venture between MGM Growth Properties LLC (NYSE: MGP) and Blackstone Real Estate Income Trust (BREIT), an affiliate of private equity firm Blackstone Group Inc. (NYSE: BX). MGM Resorts expects to receive net cash proceeds of $2.4 billion and partnership units in MGP worth approximately $85 million.
The new joint venture, which will be owned 50.1% by MGP and 49.9% by BREIT, will also acquire the real estate assets of Mandalay Bay from MGP and will lease both properties to MGM Resorts for an initial rent of $292 million. It is not clear from the announcement whether the Mandalay Bay real estate is included with the deal for the MGM Grand or whether an additional price is still being negotiated. MGP currently owns the Mandalay Bay real estate assets.
Last October, MGM Resorts established a similar joint venture between MGP and BREIT when MGM sold the real estate assets of its Las Vegas Bellagio in a deal valued at $4.25 billion.
MGM Resorts plans to become a propertyless casino operator and has announced its intention to focus on new opportunities in sports betting, entertainment, and casino development in Japan.
In addition to paying down some $15 billion in long-term debt, hiving off real estate frees up MGM capital to take advantage of new sports betting opportunities in the United States. The reverse merger between Draft Kings and Diamond Eagle Acquisition Corp. (NASDAQ: DEAC) announced in December will create a high-profile, publicly traded company that threatens the growth of MGM and other casino operators.
The issue for MGM is whether it can realize the growth it is likely expecting from nationwide sports betting. Compared with buildings and casino equipment and thousands of employees in the real world, software-dominated sports betting and fantasy sports games may seem like a better way to print money rather than having to handle all those filthy $100 bills. Unfortunately, it only looks that simple and cheap.
MGM stock traded down about 0.4% in the late morning Tuesday, at $33.24 in a 52-week range of $23.68 to $33.87. The stock’s 12-month consensus price target is $35.78.
MGP shares traded up about 0.9%, at $31.12 in a 52-week range of $28.19 to $33.30. The price target is $35.40.
Blackstone stock traded essentially flat at $58.44, in a 52-week range of $31.99 to $58.84 and with a price target of $58.92.