MGM Resorts Forms New REIT With 10 Properties

By Alex Lopez, Associate Editor

MGM Resorts International announced that it will create a controlled real estate investment trust, or REIT, to be named MGM Growth Properties LLC. MGM Resorts will contribute ten of its properties to the real estate and will assume approximately $4 billion of debt, which is expected to be refinanced with the proceeds of debt and equity issuances. MGM Resorts said it confidentially submitted a draft registration statement on Form S-11 to the SEC.

Key aspects of the transaction include:

• Highlighting the significant long-term value of its real estate by creating a large, publicly traded triple-net lease REIT;
• Reducing leverage, strengthening its financial profile and enhancing its ability to execute its growth strategy;
• Maintaining a substantial majority economic interest in MGP, which is expected to have stable cash flows and regular distributions;
• Leasing the properties from MGP under a long-term, triple-net master lease;
• Continuing to operate the Properties without impact to MGM Resorts’ guests, employees, and business partners;
• Maintaining flexibility to offer additional properties to MGP in the future; and
• Minimizing transaction costs and allowing rapid execution.

“This transaction provides MGM Resorts’ shareholders numerous strategic and financial benefits, including delevering our balance sheet and enhancing long-term shareholder value,” said Jim Murren, chairman and CEO of MGM Resorts in a prepared statement. “MGM Resorts is creating a new growth platform to allow it to more effectively execute its strategic initiatives, including portfolio diversification.”

The ten properties being contributed, or “The Properties,” as they named them will include Mandalay Bay, The Mirage, Monte Carlo, New York-New York, Luxor, Excalibur, and The Park, all in Las Vegas; and MGM Grand Detroit in Michigan and Beau Rivage and Gold Strike Tunica, both of which are located in Mississippi. All ten will total up to more than 24,000 hotel rooms and more than 2.3 million square feet of convention and meeting space.

MGM Resorts will lease The Properties under a long-term, triple-net master lease with an initial 10-year term and four five-year extensions at option.

They will continue to manage and operate the ten locations that make up the Properties and will retain 100% ownership of the Bellagio and MGM Grand Las Vegas. The significant cash flow generated by these properties will allow MGM Resorts to maintain its strong asset base and financial profile. In addition, MGM Resorts will continue to own Circus Circus Las Vegas, undeveloped land holdings, and its equity interests in CityCenter (50%), MGM China Holdings (51%), Borgata Hotel Casino & Spa (50%), Grand Victoria (50%), Las Vegas Arena (50%) and Diaoyutai MGM Hospitality (49%).

The transaction is expected to be completed in the first quarter of 2016, subject to market conditions, gaming regulatory approvals, completion of the related financings and SEC review and other customary conditions.

Photo courtesy of MGM Grand.