MGM Resorts grows quarterly revenues, confirms additional real estate transactions

ID 136155749 © Michael Gordon |
Howard Stutz has over 30 years of experience reporting on the gaming industry.

Even after selling Circus Circus Las Vegas and negotiating a sale-leaseback of the Bellagio, MGM Resorts International said Wednesday the company is not done shopping available real estate.

During the company’s third quarter earnings call, MGM Chairman and CEO Jim Murren said a deal for the flagship MGM Grand Las Vegas could be announced before the end of the year. The model is the company’s sale and leaseback of the Bellagio to Blackstone Real Estate Income Trust.

“The Bellagio real-estate transaction represents more to us than a smart financial deal,” Murren said during a question and answer session with analysts. “It provides a likely blueprint for the future.”

MGM is selling the real estate of Bellagio for $4.25 billion, which represents a purchase price multiple of 17.3 times the rent the casino company will pay Blackstone annually – $245 million – to lease back Bellagio’s operations. Blackstone and MGM are forming a joint venture to own Bellagio, which MGM holding just a 5% stake.

Murren said the deal for Bellagio – “our most valuable asset” – set the tone for a sale-leaseback of MGM Grand Las Vegas, which was the company’s first resort when it opened in 1993. In the third quarter that ended Sept. 30, Bellagio had revenues $333.8 million and MGM Grand had revenues of $318.3 million, the highest of any of the company’s wholly owned resorts.

“We believe MGM Grand is equally as valuable. It’s been a top five performer (one the Strip) for over a decade,” Murren said. “We expect to talk to you about MGM Grand later in the year.”

He said the company is looking to sell and leaseback the operations of its two CityCenter properties – Aria and the non-gaming Vdara Hotel. MGM and Dubai World are 50-50 owners of CityCenter with the gaming company serving as the managing partner.

MGM is also considering its options for MGM Springfield in Massachusetts, as well as its 67.7% stake in MGM Growth Properties, a real estate investment trust the owns a dozen MGM Resorts and leases the operations back to the company.

Murren has said the “near term goal” is to reduce the company’s stake in the REIT below 50%. The transactions, he said, are part of the company’s “broader asset light strategy” that is shifting the business model to that of a pure operator. MGM is looking to expand its presence in other areas, such as sports betting.

While he said MGM Growth is the company’s “preferred transaction partner,” the sale of Bellagio with Blackstone showed that the company’s assets have high value.

Murren said MGM would receive $4.3 billion from the two deals after taxes and other costs. He said the company would use a majority of the funs “to fortify our balance sheet and then return capital to shareholders.”

The Bellagio deal and the company’s other transaction in October – the $825 million sale of Circus Circus Las Vegas and total of 103 acres along the north end of the Las Vegas Strip to rival casino owner Phil Ruffin – were announced on the same day and are expected to close by the end of the year. The Circus Circus transaction, however, factored into the company results for the quarter.

MGM Resorts said the company grew revenues 9% percent in the quarter to $3.3 billion but recorded a net loss of $37 million due to a non-cash impairment charge of $219 impairment charge related to Circus Circus.

Murren told analysts the property didn’t fit into the company’s long-term plans and the sale to Ruffin put the casino into the hands of someone “who has a plan for the location.”

MGM’s totals included a 4% increase in revenues of $1.5 billion from the company’s Las Vegas Strip casinos. Revenues from the company’s resorts in Macau increased 21.7% to $737.8 million.

“We performed well in the third quarter, which came in line with our expectations,” Murren said in statement. “Our Las Vegas Strip resorts saw an increase in revenues by 4% with non-gaming revenues up 6% thanks to a robust performance in rooms and food and beverage.”

The net loss translated into a loss per share of 8 cents. In the same quarter a year ago, MGM reported net income of $143 million and earnings of 23 cents per share.

Murren said cash flow increased 27% at the company’s regional resorts, notably MGM National Harbor in Maryland and Borgata in Atlantic City.