MGM Growth stock offering could lead to sale-leaseback of MGM Grand LV, Mandalay Bay Howard Stutz, CDC Gaming Reports · November 20, 2019 at 2:30 pm MGM Growth Properties announced a stock sale Wednesday the proceeds of which could fund a sale-leaseback of the MGM Grand Las Vegas and Mandalay Bay as well as helping MGM Resorts International reduce the casino operator’s ownership stake in the real estate investment trust. In a filing with the Securities and Exchange Commission, MGM Growth said it would place 30 million shares in the REIT on the market for $31.25 per share. The stock offering on the New York Stock Exchange is expected to close Friday. The REIT also said it has been in discussions with “prospective third-party investors” to participate in a joint venture ownership of the two Strip resorts. “No third-party investor has been selected as of the date hereof, and if a third party is selected, we would expect to hold a substantial interest in the joint venture,” MGM Growth said. Macquarie Securities gaming analyst Jordan Bender said the SEC filing “confirmed media speculation that MGM, MGM Growth and an outside investor(s) are in discussions to form a joint venture for the real estate for MGM Grand and Mandalay Bay.” In a statement, MGM Growth said proceeds from the sale would “well-position” the company to “consummate a potential joint venture transaction” with MGM Resorts and “honor any potential redemption” of stock in the REIT owned by MGM Resorts for cash. MGM Resorts owns roughly 68% of MGM Growth, which was spun off from the company in 2015 and owns the real estate and facilities of 13 properties in seven states that are operated by MGM Resorts. The casino operator pays the REIT annual rent for the operations. “The announcement of an equity offering by MGM Growth is the first step toward MGM Resorts reducing and de-consolidating its holding in MGM Growth,” Jefferies gaming analyst David Katz told investors, adding the stock sale was “conceptually positive for MGM Resorts.” MGM Resorts Chairman and CEO Jim Murren has said the company wants to bring its ownership stake in the REIT to below 50%. Murren also said last month that the company was pursuing a sale-leaseback for the MGM Grand Las Vegas similar to the agreement the company closed Monday for the Bellagio. Blackstone Real Estate Investment Trust, a subsidiary of the New York-based Blackstone, is paying $4.25 billion for the Strip resort. The Bellagio sales figure equated to 17.3 times the annual rent of $245 million MGM Resorts will pay to operate the resort. On the same day the Bellagio transaction was announced, MGM also said it had agreed to sell Circus Circus Las Vegas to rival casino operator Phil Ruffin for $825 million. That deal is expected to be reviewed by Nevada gaming regulators next month and could close before the end of the year. Murren has said the net proceeds from the transactions – roughly $4.3 billion after taxes – go directly to MGM’s balance sheet, allowing the casino giant to reduce a portion of its $15 billion in long-term debt and allow the company to focus on “high growth potential” opportunities. MGM Growth already owns the real estate associated with Mandalay Bay. A sale-leaseback of MGM Grand and Mandalay Bay would not change the operations or management of the properties. “It’s a very active time in gaming resort market and non-gaming resort leisure market,” MGM Growth CEO James Stewart said on the company’s Nov. 5 third quarter earnings conference call. “We are busy looking at a lot of opportunities.” Katz said in a research note the intent of the joint venture for MGM Grand and Mandalay Bay would reduce MGM’s ownership stake in MGM Growth below 30%. “We have indicated previously that the consolidated stake of MGM Growth owned by MGM trapped value rather than releasing and increasing it despite (the REIT’s) significant valuation premium,” Katz said. Shares of MGM Growth closed at $31.16 in trading Wednesday, down $1.33 or 4.09%. The REIT’s shares had been up 9% since the Bellagio-Blackstone deal as announced in mid-October. Shares of MGM closed at $31.82, up a penny, or 0.03%. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.