MGM Resorts International ended months of speculation over the fate of two of its Las Vegas Strip resorts Tuesday, selling Circus Circus Las Vegas to rival casino operator Phil Ruffin for $825 million and striking a sale-leaseback deal for Bellagio that values the resort’s real estate at $4.25 billion.
The transactions are the result of the company’s ad-hoc board committee that began meeting in January to consider and unlock the value in the company’s real estate holdings. The committee also wanted to address two key issues: How to deal with the company’s massive debt – nearly $15 billion at the end of June – and how to boost its sagging stock price.
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MGM made separate announcements shortly after the stock markets closed. Shares of MGM rose slightly in after-hours trading after ending the day at $27.87 on the New York Stock Exchange, down 10 cents, or 0.36 percent.
“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 maximizes value for its shareholders,” MGM Chairman and CEO Jim Murren said in a statement. “The company expects to utilize the proceeds from this transaction to enhance its capital allocation strategy and complement its strategic and operational flexibility.”
Both transactions, which require Nevada regulatory approval, are expected to close by the end of the year.
Circus Circus was sold outright to Ruffin. The deal includes the aging hotel-casino and its 25-acres on the north end of the Strip, the casino’s adjoining 10-acre recreational vehicle park and 37 aces at the corner of Sahara Boulevard and the Strip that is currently used as the Las Vegas Festival Grounds.
Ruffin, 84, owns Treasure Island – known as TI – which he acquired from MGM in 2009 for $775 million. He also owns Casino Miami, located less than 20 minutes from Downtown Miami.
“The opportunity to own 102 acres on the Las Vegas Strip was very interesting, Ruffin said. “From a strategic standpoint, Circus Circus is the most recognizable name on the north strip. Treasure Island is the crown jewel in my portfolio and Circus Circus adds another layer of gaming customer to my holdings.”
Ruffin will pay MGM $662.5 million paid in cash and a $162.5 million note due 2024.
MGM Resorts sold Bellagio to Blackstone Real Estate Income Trust, a subsidiary of the New York-based Blackstone Group. The casino company will lease back and operate the hotel-casino for $245 million a year.
MGM and the Blackstone are forming a joint venture that is purchasing the Bellagio and leasing it back to an MGM subsidiary for $245 million annually. MGM Resorts will get a 5% ownership stake in the joint venture and about $4.2 billion in cash. Blackstone also owns the Cosmopolitan of Las Vegas, which the company put up for sale in April. The Cosmopolitan is located next to Bellagio.
“As big believers in MGM Resorts and Las Vegas, we are thrilled to partner with MGM to acquire the Bellagio on behalf of our investors,” Blackstone President Jon Gray said in a statement. “We look forward to a long and productive partnership with this world-class company.”
Strengthening the balance sheet
Murren said the two deals will allow the company to pay down debt, “to build a fortress balance sheet, and return capital to shareholders.” He added that the transaction “confirms the premium value of our owned real estate assets.”
In recent quarterly earnings conference calls the company said it wanted to execute an “asset-light” strategy. MGM owns 68% of real estate investment trust MGM Growth Properties, which owns six casinos and The Park entertainment and dining district.
MGM Grand Las Vegas – as well as the company’s 50% stake in CityCenter – are the only MGM controlled Strip properties not in the REIT. MGM Springfield in Massachusetts is also not owned by MGM Growth.
MGM Board member Paul Salem, who chaired the real estate committee, said the panel was formed earlier “to support management’s strategy” to enhance cash flow and maximize the value of the company’s owned real estate and equity holdings. The committee also sought to boost the company’s financial position.
“This transaction represents a key step in our comprehensive, ongoing review,” Salem said. “The value realized in the Bellagio transaction is highly accretive to shareholder value and significantly greater than the implied multiple of our core business.”
Property history
Mirage Resorts, controlled by Steve Wynn, opened Bellagio in 1998. MGM acquired the casino through the $6.4 billion merger between Kirk Kerkorian’s MGM Grand and Wynn Resorts in 2000.
Built on the site of the former Dunes property, that was demolished by Wynn in 1993, the 3,000-room resort property includes an 8-acre man-made lake with a dancing water fountain synchronized to music.
Circus Circus was built in 1968 by Jay Sarno and eventually taken over by William Bennett and William Pennington in 1974. MGM acquired the casino as part of the $7.9 billion merger with Mandalay Resort Group in 2005.
The property has almost 4,000 rooms and suites.
#HotClicksandPicks This Week: Las Vegas Strip: MGM Resorts sells Circus Circus, agrees to sale and leaseback of Bellagio. –@howardstutz, CDC Gaming Reports.https://t.co/WmdjP7246L #CDCgaming @MGMResortsIntl @CircusVegas @Bellagio
— CDC Gaming Reports (@CDCNewswire) October 19, 2019
Ruffin is a self-made billionaire, with a current net worth of $2.8 billion according to Forbes. The Wichita, Kansas businessman made a fortune in real estate, but his biggest deal was selling the New Frontier in 2007 for $1.2 billion. He acquired the Las Vegas Strip casino in 1998 for $165 million, earning accolades for ending a six-and-a-half-year hotel workers’ strike against the property.
Today, he’s probably best known nationally as President Donald Trump’s business partner in the Trump International in Las Vegas. The future president was Ruffin’s best man at his wedding in 2008 to his wife, Oleksandra, a former Miss Ukraine.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
