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Mandalay Bay, MGM Grand sold to Blackstone in $4.6B deal

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January 14, 2020 By Eli Segall

A few months after it bought the Bellagio for more than $4 billion, The Blackstone Group has partnered on a deal to acquire two other Strip properties for even more.

The New York financial giant, which has been on a real estate buying binge in Southern Nevada for years, announced Tuesday it agreed to form a joint venture with casino operator MGM Resorts International’s real estate investment trust to acquire the MGM Grand and Mandalay Bay properties for $4.6 billion. The transaction is expected to close within the first three months of the year.

The real estate trust, MGM Growth Properties, will own 50.1 percent of the joint venture, and Blackstone will own 49.9 percent.

MGM Resorts will lease back the two hotel-casinos and continue to operate them, as it does with the Bellagio.

MGM’s strategy

The sell-off is the latest move by MGM to bolster its balance sheet. The company eliminated more than 1,000 jobs, mostly in Las Vegas, last year as part of its “MGM 2020” cost-cutting plan; sold the Bellagio’s real estate for around $4.2 billion in cash; and sold Circus Circus and 37 acres of adjacent land for $825 million to Treasure Island owner Phil Ruffin, a deal that closed last month.

These sales, combined with the sale-leasebacks announced Tuesday, are expected to provide total net cash proceeds of $8.2 billion to MGM Resorts, according to the company.

MGM said it plans to use a substantial portion of the proceeds for stock buybacks and dividends.

Jefferies analyst David Katz said Tuesday’s announcement was expected. An SEC filing from November revealed that MGM Resorts was in preliminary discussions with MGM Growth regarding the sale-leaseback of the MGM Grand.

While the sale could provide a boost to MGM Resorts’ shares, Katz said the long-term valuation of the repositioned company is uncertain.

“Overall, we expect neutral reaction to the news,” Katz said in a note Tuesday.

According to a statement Tuesday from MGM Resorts, this likely won’t be the last time it sells off assets.

Chairman and CEO Jim Murren said the company will “continue to monetize” its owned real estate to pursue growth initiatives, which include sports betting and a resort in Japan.

It could take years before investors can gauge whether MGM Resorts’ so-called asset-light strategy was a success, according to a note Tuesday from SunTrust Robinson Humphrey analyst Barry Jonas.

He said it could take a recession and a Japan casino, which he believes would be completed no earlier than 2025, to assess the merits of MGM’s shift.

“Investors will need time to digest the ramifications of MGM’s journey to a full operating company … potentially late cycle with added political uncertainty,” Jonas said in a note last month.

Blackstone’s buying spree

Led by billionaire Stephen Schwarzman, Blackstone has picked up properties all over the Las Vegas Valley since the market crashed, ranging from houses and apartments to casinos and office buildings.

“This transaction reflects our continuing strong conviction in Las Vegas,” Blackstone President and Chief Operating Officer Jon Gray said in a statement Tuesday.

Blackstone bought tens of thousands of houses around the country to rent out after the economy tanked, launching Invitation Homes in 2012 for the venture. Invitation owned more than 900 homes in the Las Vegas area by the end of 2016, not long before its initial public offering, and nearly 3,000 by the end of September, securities filings show.

Outside of housing, Blackstone bought the 68-acre Hughes Center office park east of the Strip for $347 million in 2013 and The Cosmopolitan of Las Vegas for more than $1.7 billion in 2014, scooping up a trendy hotel-casino that was deeply in the red at the time.

It also bought downtown’s 5.4 million-square-foot World Market Center furniture-showroom hall for an undisclosed sum in 2017 and has shelled out hundreds of millions of dollars for apartment complexes over the past few years.

Its purchase of the Bellagio closed in November and, by all appearances, was the most expensive sale ever of a Las Vegas resort, with the closest competitor being its purchase of the Cosmopolitan.

MGM Resorts shares were down 0.4 percent Tuesday morning to $33.24. MGM Growth Properties shares were up 0.2 percent to $30.19, and Blackstone Group shares were down 0.3 percent to $58.23.


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