MGM Resorts to form REIT using 10 properties

MGM Resorts International said Thursday it will place 10 of its properties — including seven on the Strip — into a real estate investment trust that will be 70 percent owned by the casino giant, but will also offer the company “strategic and financial benefits.”

The Las Vegas-based company announced the REIT transaction in conjunction with its third-quarter earnings, which were overshadowed by the much anticipated news.

MGM Resorts said in the last quarter it was completing a profit growth initiative to increase annual cash flow some $300 million by 2017. The REIT concept was one of the proposals that the company was said to be investigating.

MGM Resorts Chairman and CEO Jim Murren said in an interview “this is the value of not making a rash decision.” Earlier this year, the company faced an aborted proxy fight from a small investor who wanted to force MGM into a REIT.

Under the plan announced Thursday, the 10 properties would become the basis of a separate publicly traded entity that MGM Resorts plans to bring to market by next spring.

Mandalay Bay, The Mirage, Monte Carlo, New York-New York, Luxor, Excalibur, and the non-gaming Park development will be placed into the REIT, along with the MGM Grand Detroit and the company’s two Mississippi resorts, Beau Rivage in Biloxi and the Gold Strike Tunica. The REIT could grow by acquiring other properties not part of the current MGM portfolio.

MGM Resorts will retain 100 percent ownership of Bellagio, MGM Grand Las Vegas, and Circus Circus Las Vegas, as well as the company’s undeveloped land holdings, and its equity interests in CityCenter, MGM China Holdings, the Borgata Atlantic City, Grand Victoria in Illinois, the under-construction MGM-AEG Arena and its nongaming hospitality division.

MGM Resorts filed paperwork with the Securities and Exchange Commission concerning the REIT on Thursday. The REIT will be named MGM Growth Properties (MGP) and MGM Resorts will continue to manage the assets under a 10-year lease agreement that includes five-year extension plans.

Murren is expect to remain chairman of both MGM and MGP, but a new CEO will be named for the REIT, which will also have its own executives and board members.

“We’re looking for people with real estate experience,” he said.

Murren said MGM’s REIT concept will not require an Internal Revenue Service private letter ruling because the MGP is not being spun-off as a separate entity. Murren compared the concept to the company’s 51 percent ownership in MGM China, which controls its Macau holdings. The remaining shares are held by investors through the Hong Kong Stock Exchange.

Murren said the structure of the MGM REIT will keep the costs of developing the concept “far below what we’ve seen in the industry.”

“All our interests are aligned here,” Murren said. “We wanted MGM Growth to be healthy and strong right off the bat.”

The MGM REIT will assume $4 billion of the company’s overall $12.8 billion in debt. The REIT’s debt is expected to be refinanced with proceeds from both debt and equity issues.

The benefits, however, remain the same.

REITs, by law, 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.

Murren said “tax reasons” and “other criteria” went into the investigative process and Bellagio, MGM Grand Las Vegas and Circus Circus were not included in the REIT. Bellagio and MGM Grand accounted for a combined 46 percent of the company’s operating income in 2014.

“We wanted to make sure MGM Resorts was a large and strong company and we sized both companies based on the amount of cash flow,” Murren said. “The structure allows both companies to grow their balance sheets.”

Murren said employees and customers will not see any changes as the REIT moves forward. Employees will remain employees of MGM Resorts.

The master lease is expected to provide the REIT with a right of first offer with respect to MGM Resorts’ developments in Maryland and Massachusetts. The master lease will be guaranteed by MGM Resorts.

The announcement, made before the stock markets opened Thursday, drove shares of MGM Resorts up more than 8 percent in pre-opening trading. Shares of MGM closed at $22.80 on the New York Stock Exchange, uo $1.04 or 4.78 percent.

Wall Street was still analyzing the concept Thursday.

“If we had to use one word to describe investor feedback, it would be confused, and we share that sentiment,” said Deutsche Bank gaming analyst Carlo Santarelli.

Murren said MGM Resorts “exhaustively and thoughtfully explored a wide range of opportunities to leverage our valuable real estate assets and are pleased that this transaction will further position MGM Resorts for sustained success.”

REITs have found their way into the gaming industry. Penn National Gaming, in 2013, spun off 21 of its 29 race tracks and casinos into Gaming Gaming and Leisure Properties. The REIT is in the process of acquiring the casinos owned by Pinnacle Entertainment for $4.1 billion.

Caesars Entertainment Corp. is asking a federal bankruptcy judge to allow the company to split its bankrupt operating division into a REIT as part of a restructuring.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the MGM REIT announcement could be viewed as “greater in scope than what investors had been expecting, creating an incremental near-term upside opportunity.”

In MGM Resort’s third quarter, the company reported net income of $66.4 million, which reversed a net loss of $20 million from a year ago. The company’s earnings per share in the quarter that ended Sept. 30 was 12 cents. Net revenue companywide declined 8 percent to $2.28 billion.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find @howardstutz on Twitter.

ad-high_impact_4
Business
Bellagio, MGM Resorts International’s luxury hotel turns 20
The more than 3,000-room Bellagio hotel is situated on the site of the former Dunes Hotel. The Dunes was imploded in 1993, and construction of the Bellagio started in 1996. It cost $1.6 billion to build, making it the most expensive hotel in the world at the time. The Bellagio was former Wynn Resorts Ltd. Chairman and CEO Steve Wynn’s second major casino on the Strip after The Mirage. MGM Resorts International acquired the property from Steve Wynn in 2000. (Tara Mack/Las Vegas Review-Journal)
Facial recognition software at G2E – Todd Prince
Shing Tao, CEO of Las Vegas-based Remark Holdings, talks about his facial recognition product. (Todd Prince/Las Vegas Review-Journal)
Former NBA player, Shaquille O'Neal, speaks about his new Las Vegas chicken restaurant
Former NBA player, Shaquille O'Neal, speaks about his new Las Vegas chicken restaurant. Bizuayehu Tesfaye/Las Vegas Review-Journal @bizutesfaye
Bobby Baldwin to leave MGM
MGM Resorts International executive and professional poker player Bobby Baldwin is set to leave MGM.
Caesars has new armed emergency response teams
Caesars Entertainment Corp. has created armed emergency response teams. They are composed of former military and law enforcement officials. "These teams provide valuable additional security capabilities,” Caesars spokeswoman Jennifer Forkish said. Caesars is hiring Security Saturation Team supervisors, managers and officers, according to LinkedIn. The company did not say how many people it plans to hire for the units. (Las Vegas Review-Journal)
Las Vegas, airlines prepare for CES
CES in January is expected to attract more than 180,000 attendees. (Las Vegas Review-Journal)
AGS partners with Vegas Golden Knights
AGS is the nation’s second-largest manufacturer of Class II slot machines used primarily in tribal jurisdictions. It announced a marketing partnership with the Vegas Golden Knights NHL team. (Las Vegas Review-Journal)
Lehman Brothers bet big on Las Vegas
Lehman Brothers collapsed 10 years ago, helping send the country into the Great Recession.
Fremont9 opens downtown
Fremont9 apartment complex has opened in downtown Las Vegas. (Marcus Villagran/Las Vegas Review-Journal) @marcusvillagran
Ross & Snow launches in Las Vegas
Luxury shoe brand Ross & Snow has opened in Las Vegas, featuring "functional luxury" with premium shearling footwear. (Bailey Schulz/Las Vegas Review-Journal)
Remote Identification and Drones
DJI vice president of policy and public affairs discusses using remote identification on drones. (Bailey Schulz/Las Vegas Review-Journal)
Drones and public safety in Nevada
Two representatives in the drone industry discuss UAV's impact on public safety. (Bailey Schulz/Las Vegas Review-Journal)
Frontier Airlines to launch flights from Las Vegas to Mexico
Frontier, a Denver-based ultra-low-cost carrier, will become the first airline in more than a decade to offer international service to Canada and Mexico from Las Vegas when flights to Cancun and Los Cabos begin Dec. 15. (Rick Velotta/Las Vegas Review-Journal)
MGM Resorts International CEO Jim Murren addresses Oct. 1 lawsuits
MGM Resorts International Chairman and CEO Jim Murren addresses criticism his company has received for filing a lawsuit against the survivors of the Oct. 1 shooting. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International opens the doors on MGM Springfield
Massachusetts’ first hotel-casino opens in downtown Springfield. The $960 million MGM Springfield has 252 rooms and 125,000-square-feet of casino. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International prepares to open MGM Springfield
Las Vegas-based MGM Resorts International gave news media and invited guests a preview of the $960 million MGM Springfield casino in Massachusetts. The commonwealth's first resort casino will open Friday, Aug. 24. (K.M. Cannon/Las Vegas Review-Journal)
A Walk Through Circus Circus
It only takes a short walk through Circus Circus to realize it attracts a demographic like no other casino on the Strip: families with young children. (Todd Prince/Las Vegas Review-Journal)
Morphy Auctions, a vintage slot machines seller, wants gaming license
Vice president Don Grimmer talks about Morphy Auctions at the company's warehouse located at 4520 Arville Street in Las Vegas on Thursday, Aug. 16, 2018. (Rick Velotta/Las Vegas Review-Journal)
Nevada's venture capital money doesn't stay in state
Zach Miles, associate vice president for economic development for UNLV, said there’s venture money in Southern Nevada, “but trying to find the right groups to tap into for that money is different.” According to a 2017 report from the Kauffman Foundation, Las Vegas ranked number 34 out of 40 metropolitan areas for growth entrepreneurship, a metric of how much startups grow. With a lack of growing startups in Las Vegas, investment money is being sent outside of state borders. The southwest region of the U.S. received $386 million in funding in the second quarter, with about $25.2 million in Nevada. The San Francisco area alone received about $5.6 billion. (source: CB Insights)
Neon wraps can light up the night for advertising
Vinyl wrap company 5150 Wraps talks about neon wraps, a new technology that the company believes can boost advertising at night. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Nevada on the forefront of drone safety
Dr. Chris Walach, senior director of Nevada Institute for Autonomous Systems, talks to a reporter at NIAS's new Nevada Drone Center for Excellence of Public Safety, located inside the Switch Innevation Center in Las Vegas. K.M. Cannon Las Vegas Review-Journal @KMCannonPhoto
TOP NEWS
News Headlines
Add Event
Home Front Page Footer Listing
Circular
You May Like

You May Like