MGM Resorts International and its real estate investment trust struck a $637.5 million deal Thursday over the recently re-branded Park MGM and NoMad Las Vegas on the Strip.
The resort, formerly known as the Monte Carlo, is already owned by MGM Growth Properties. The REIT is paying for the improvements MGM Resorts made in the 2,700-room hotel-casino, which includes 293 rooms operated by the NoMad hotel chain. MGM Resorts continues to operate the resort under a lease agreement.
According to a statement, MGM’s master lease with MGM Growth will increase by $50 million annually. MGM Resorts owns 70 percent of MGM Growth, but the casino operator has said it plans to reduce that stake to below 50 percent over the next few years.
“MGM Resorts will continue to deliberately reduce our owned real estate through accretive transactions in the future,” MGM Chairman and CEO Jim Murren said in a statement. “MGM Growth is an attractive partner to achieve this goal. We remain committed to our stated strategic objectives, including reducing our ownership stake in MGM Growth.”
MGM Growth currently owns the real estate and buildings associated with 11 hotel-casinos operated by MGM Resorts, including six on the Las Vegas Strip and the Borgata in Atlantic City. The REIT also owns The Park dining and entertainment district in Las Vegas, that is adjacent to Park MGM and the T-Mobile Arena.
In July, MGM Growth completed its $1.06 billion purchase of the Cleveland-area Hard Rock Rocksino. The property, which is now operated by MGM Resorts, will be renamed a re-branded.
MGM Growth expects the Park MGM deal to be completed early next year.
“Park MGM and NoMad Las Vegas are exciting new concepts on the Las Vegas Strip, further enhancing our already outstanding portfolio,” said MGM Growth Chairman and CEO James Stewart.
MGM Resorts spent several years to rebrand the Monte Carlo, which opened in 1996. The company originally placed a $550 million price tag on the improvements.
Macquarie Securities gaming analyst Chad Beynon said the announcement “came quicker than we expected,” but was still a good deal for the casino operator.
“We view this as a positive as MGM Resorts can now continue to deleverage or repurchase shares,” Beynon said in a note to investors.
The analyst believes MGM Resorts will still consider sale-leasebacks. The company owns Bellagio, MGM Grand Las Vegas, Circus Circus Las Vegas, MGM Springfield in Massachusetts, and 50 percent of the CityCenter complex on the Las Vegas Strip.
“While we don’t expect for it to happen near-term, Bellagio, MGM Grand and Circus Circus, which currently generate almost $1 billion of annual (cash flow) could fetch $6.6 billion of value,” Beynon said.
By law, REITs don’t pay federal income taxes. With real estate as their primary source of income, REITs are required to distribute at least 90 percent of their taxable earnings to shareholders. Investors are taxed at their individual tax rate for the ordinary income portion of the dividend.
Shares of MGM Resorts closed at $23.52 on the New York Stock Exchange, down 99 cents or 4.04 percent. MGM Growth shares closed at $27, down 95 cents or 3.40 percent, also on the New York Stock Exchange.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
