Enterprise alternatives overseas and the opportunity of a recession could possibly be pushing MGM Resorts Worldwide to promote a few of its Las Vegas Strip property, in keeping with analysts.
Bloomberg reported this week that the corporate is trying to promote and lease again its MGM Grand and Bellagio properties. Others have stated the corporate is near promoting its Circus Circus property on the north finish of the Strip — though some gaming analysts discover that arduous to consider.
In keeping with some consultants, these gross sales could possibly be large money-making strikes for MGM, giving it a bonus because it seems to safe a coveted gaming license in Japan. Moreover, the strikes may assist the corporate deleverage its steadiness sheet forward of the following recession.
Bloomberg reported earlier this week that MGM is in superior talks to finish a sale-leaseback of the MGM Grand and Bellagio with Blackstone Group Inc.
The 2 properties — together with Circus Circus — are the final Las Vegas Strip property the place MGM owns the true property. If MGM does promote MGM Grand and the Bellagio, the properties would go to MGM Progress Properties, the corporate’s affiliated actual property funding belief. The corporate would lease the properties again and proceed to handle the resorts.
A Monday be aware from Deutsche Financial institution Analysis estimates the sale-leaseback of the 2 properties may generate gross proceeds between $5.6 billion and $6 billion.
Representatives from Blackstone and MGM declined to remark.
Throughout a name to traders in July, CEO Jim Murren stated MGM was persevering with “to make progress” with its newly shaped actual property committee and hoped to report again within the coming months.
“The committee is exploring all choices with very clear guideposts in thoughts,” Murren stated, referencing MGM’s objectives to free money circulate, maximize the worth of its owned actual property and create shareholder worth. “I’m more and more optimistic that the committee’s work will obtain these objectives, and anticipate sharing their ends in early fall.”
Deutsche Financial institution gaming analyst Carlo Santarelli stated the sale-leasebacks of the Bellagio and MGM Grand could possibly be these outcomes.
“These are two key items of actual property,” he stated. “If you happen to’re MGM, you possibly can anticipate a wholesome premium for these property. … I feel they’re evaluating methods to unlock worth.”
Macquarie hospitality analyst Chad Beynon stated the sale-leaseback would supply a method for MGM to cut back its debt.
Deleveraging is “wanted at the moment … significantly if (corporations are) uncovered to extremely risky markets like Las Vegas, the place revenues fell 16 p.c over the last recession,” he stated. “With rates of interest coming all the way down to historic lows and ample liquidity, we consider it’s a very good time for MGM to discover worth for a few of these irreplaceable property.”
Jefferies analyst David Katz stated in a Tuesday report that whereas the sale-leaseback would add worth on a web foundation, it additionally may add long-term danger “by the ensuing decreased flexibility,” which may diminish MGM’s valuation a number of.
“If (talks of the sale-leaseback) had been to show true in some type, we consider the event can be modestly constructive for MGM,” Katz stated within the report.
Brendan Bussmann, a associate at casino analysis agency World Market Advisors, stated he views the potential sale-leaseback as a method for MGM to spice up home and worldwide enlargement plans.
“Something MGM or different operators can do to shore up their steadiness sheet and get extra cash is constructive,” Bussmann stated.
However Santarelli stated he doesn’t consider MGM is able the place it must stockpile money. If MGM had been to be awarded considered one of three gaming licenses in Japan, it will take years earlier than building begins and MGM must pay for half of the prices.
MGM shares closed down $0.08 to $29.51 on Wednesday, down 0.27 p.c. Shares of Blackstone Group — which additionally owns The Cosmopolitan of Las Vegas — closed down 1.25 p.c to $52.85.
Circus Circus chatter
Rumors of the sale of Circus Circus have additionally been circulating amongst these within the gaming group.
An nameless supply despatched paperwork dated July 2019 to the Overview-Journal that seem to point out the property was on the market. MGM spokesman Brian Ahern stated the corporate doesn’t touch upon rumors.
The almost 51-year-old Circus Circus, estimated to be price between $850 million and $950 million by Beynon, has been a gold mine for MGM through the years. Between 2015 and 2017, the property posted the quickest share progress in common day by day room fee and money circulate amongst MGM’s Strip resort properties.
Bussmann stated the sale of Circus Circus wouldn’t come as a shock. The property is usually seen as an outlier amongst MGM’s different properties, and has been handled as such — for instance, it’s not included in MGM’s M Life Rewards loyalty program.
However the sale doesn’t appear so as to add as much as Santarelli.
“I might be stunned if there have been to announce one thing,” he stated. “Whenever you take a look at the land parcel that’s there, over 100 acres of actual property on the Las Vegas Strip — albeit on the northern finish — (it’s) nonetheless Strip-fronted actual property that’s producing (money circulate).”
In keeping with Bussmann, that land could possibly be enticing to potential patrons.
“It’s a chance to begin a resort from the bottom up,” he stated. “There’s a super want to have an asset on the Las Vegas Strip.”
And with extra growth on the north aspect of the Strip — together with Resorts World, the Drew Las Vegas, renovations on the STRAT and extra — Bussmann stated the realm is abruptly beginning to look interesting
“That’s going to be the taking place place on the Strip,” he stated. “Whoever had been to buy (Circus Circus) would have some prime actual property in a rising space.”