weather icon Clear

MGM might be looking to sell some Las Vegas Strip assets

Updated September 18, 2019 - 6:59 pm

Business opportunities abroad and the possibility of a recession could be pushing MGM Resorts International to sell some of its Las Vegas Strip assets, according to analysts.

Bloomberg reported this week that the company is looking to sell and lease back its MGM Grand and Bellagio properties. Others have said the company is close to selling its Circus Circus property on the north end of the Strip — although some gaming analysts find that hard to believe.

According to some experts, these sales could be big money-making moves for MGM, giving it an advantage as it looks to secure a coveted gaming license in Japan. Additionally, the moves could help the company deleverage its balance sheet ahead of the next recession.

Deleveraging opportunity

Bloomberg reported earlier this week that MGM is in advanced talks to complete a sale-leaseback of the MGM Grand and Bellagio with Blackstone Group Inc.

The two properties — along with Circus Circus — are the last Las Vegas Strip assets where MGM owns the real estate. If MGM does sell MGM Grand and the Bellagio, the properties would go to MGM Growth Properties, the company’s affiliated real estate investment trust. The company would lease the properties back and continue to manage the resorts.

A Monday note from Deutsche Bank Research estimates the sale-leaseback of the two properties could generate gross proceeds between $5.6 billion and $6 billion.

Representatives from Blackstone and MGM declined to comment.

During a call to investors in July, CEO Jim Murren said MGM was continuing “to make progress” with its newly formed real estate committee and hoped to report back in the coming months.

“The committee is exploring all options with very clear guideposts in mind,” Murren said, referencing MGM’s goals to free cash flow, maximize the value of its owned real estate and create shareholder value. “I am increasingly optimistic that the committee’s work will achieve these goals, and anticipate sharing their results in early fall.”

Deutsche Bank gaming analyst Carlo Santarelli said the sale-leasebacks of the Bellagio and MGM Grand could be those results.

“These are two key pieces of real estate,” he said. “If you’re MGM, you can expect a healthy premium for those assets. … I think they’re evaluating ways to unlock value.”

Macquarie hospitality analyst Chad Beynon said the sale-leaseback would provide a way for MGM to reduce its debt.

Deleveraging is “needed at this time … particularly if (companies are) exposed to highly volatile markets like Las Vegas, where revenues fell 16 percent during the last recession,” he said. “With interest rates coming down to historic lows and ample liquidity, we believe it’s a good time for MGM to explore value for some of these irreplaceable assets.”

Jefferies analyst David Katz said in a Tuesday report that while the sale-leaseback would add value on a net basis, it also could add long-term risk “through the resulting reduced flexibility,” which could diminish MGM’s valuation multiple.

“If (talks of the sale-leaseback) were to prove true in some form, we believe the development would be modestly positive for MGM,” Katz said in the report.

Brendan Bussmann, a partner at casino research firm Global Market Advisors, said he views the potential sale-leaseback as a way for MGM to boost domestic and international expansion plans.

“Anything MGM or other operators can do to shore up their balance sheet and get more cash is positive,” Bussmann said.

But Santarelli said he doesn’t believe MGM is in a position where it needs to stockpile cash. If MGM were to be awarded one of three gaming licenses in Japan, it would take years before construction begins and MGM would have to pay for half of the costs.

MGM shares closed down $0.08 to $29.51 on Wednesday, down 0.27 percent. Shares of Blackstone Group — which also owns The Cosmopolitan of Las Vegas — closed down 1.25 percent to $52.85.

Circus Circus chatter

Rumors of the sale of Circus Circus have also been circulating among those in the gaming community.

An anonymous source sent documents dated July 2019 to the Review-Journal that appear to show the property was for sale. MGM spokesman Brian Ahern said the company doesn’t comment on rumors.

The nearly 51-year-old Circus Circus, estimated to be worth between $850 million and $950 million by Beynon, has been a gold mine for MGM over the years. Between 2015 and 2017, the property posted the fastest percentage growth in average daily room rate and cash flow among MGM’s Strip resort properties.

Bussmann said the sale of Circus Circus wouldn’t come as a surprise. The property is often viewed as an outlier among MGM’s other properties, and has been treated as such — for example, it’s not included in MGM’s M Life Rewards loyalty program.

But the sale doesn’t seem to add up to Santarelli.

“I would be surprised if there were to announce something,” he said. “When you look at the land parcel that’s there, over 100 acres of real estate on the Las Vegas Strip — albeit at the northern end — (it’s) still Strip-fronted real estate that’s producing (cash flow).”

According to Bussmann, that land could be attractive to potential buyers.

“It’s an opportunity to start a resort from the ground up,” he said. “There is a tremendous desire to have an asset on the Las Vegas Strip.”

And with more development on the north side of the Strip — including Resorts World, the Drew Las Vegas, renovations at the STRAT and more — Bussmann said the area is suddenly starting to look appealing

“That’s going to be the happening place on the Strip,” he said. “Whoever were to purchase (Circus Circus) would have some prime real estate in a growing area.”

Don't miss the big stories. Like us on Facebook.
Business Videos
Southern Nevada could set a new resale-price record in coming months.
The median sales price of previously owned single-family homes – the bulk of the market – was $310,000 in September. Before the economy crashed last decade, prices peaked in June 2006 at $315,000, according to the Greater Las Vegas Association of Realtors.(Bizuayehu Tesfaye/Las Vegas Review-Journal) @bizutesfaye
Walmart container park in Henderson - VIDEO
Henderson could be home to a container park associated with a Walmart Inc. initiative. (Las Vegas Review-Journal)
Recession lessons could help Las Vegas face next slump - VIDEO
While the last economic downturn had a dramatic impact on local casinos, most experts expect the industry will be better able to weather the storm during the next recession. (Mat Luschek / Las Vegas Review-Journal)
MGM and victims of Oct. 1 reach settlement agreement - VIDEO
MGM Resorts International and lawyers representing potentially thousands of victims of the Oct. 1, 2017, mass shooting on the Las Vegas Strip have reached a tentative settlement of between $735 million and $800 million. (Mat Luschek /Las Vegas Review-Journal)
Live music and EDM dominate the night on day 2 of A’Le’Innstock
After sunset bands rocked the crowds at A’Le’Innstock in Rachel, Nevada on the second night of the event.
iPhone 11 Release
Local Las Vegas long time Apple product consumer shares her excitement for the new iPhone 11 release Downtown Summerlin. (Elizabeth Page Brumley/Las Vegas Review-Journal)
Lihi Levin talks about a mobil app Dropit - VIDEO
Lihi Levin, regional manager at Dropit Shopping, talks about a mobil app Dropit. The app lets customers leave their shopping bags at a store then have them delivered the same day to their home or hotel so they can shop without carrying multiple bags all day. (Bizuayehu Tesfaye Las Vegas Review-Journal) @bizutesfaye
North Las Vegas company prepares for Mars - VIDEO
Robert Bigelow and his Bigelow Aerospace manufacturing facility played host to eight NASA astronauts and 60 engineers this week getting to know the company’s B330 autonomous, expandable space station. (Elizabeth Brumley/Las Vegas Review-Journal)
Las Vegas developer talks about a new apartment complex called “the yoU”
Frank Marretti lll, founder of G2 Capital Development, talks about his new apartment complex called “the yoU” near UNLV. (Bizuayehu Tesfaye/Las Vegas Review-Journal) @bizutesfaye
Steel cables will hoist roof at Allegiant Stadium - VIDEO
Stainless steel cables are being put into place at Allegiant Stadium to begin the process of putting the roof on the 65,000-seat stadium in Las Vegas. Stadium Chief Operating Officer Don Webb explains how the cables will be used to get the roof put on the future home of the Raiders and UNLV football. (Heidi Fang/Las Vegas Review-Journal)
The last remaining Sigma Derby game in Las Vegas
Derek Stevens, owner of the D Las Vegas, talks about the last remaining Sigma Derby horse racing game in Las Vegas inside his casino floor. (Erik Verduzco/Las Vegas Review-Journal)
Popeyes Spicy Chicken Sandwich Review
Janine Blake of Las Vegas gives her review of the new Popeyes Spicy Chicken Sandwich at the restaurant’s location on west Bonanza Road on Thursday, Aug. 22, 2019,
SuperZoo 2019 takes over Mandalay Bay in Las Vegas
SuperZoo 2019 show for pet retailers brought pet products of all description to the Mandalay Bay Convention Center in Las Vegas. (Heidi Knapp Rinella/Las Vegas Review-Journal)
MSG Sphere at The Venetian to cost $1.2B plus
Scheduled to open in 2021, it is expected to be busier than Madison Square Garden in New York. (Michael Quine/Las Vegas Review-Journal)
Favorite products from SuperZoo 2019
Some of the fun and interesting pet products on display at the SuperZoo in Las Vegas at the Mandalay Bay Convention Center. (L.E. Baskow/Las Vegas Review-Journal)
MAGIC Convention Day 3
The fashion trade show MAGIC, held Monday through Wednesday at the Las Vegas Convention Center. (Elizabeth Brumley/Las Vegas Review-Journal)
MAGIC Las Vegas - Day One
The biannual MAGIC convention show opened Monday at the Las Vegas Convention Center. (Elizabeth Brumley/Las Vegas Review-Journal)
Allegiant celebrates naming deal with tailgate party
Allegiant Air employees celebrate with a tailgate party after the company’s naming deal with the Raiders for the new Las Vegas stadium.
Nevada's sportsbook operators welcome competition
Sportsbook operators from near and far are looking to get into in the established Nevada market, experts say. (Las Vegas Review-Journal)
Get a first look of MSG Sphere construction in Las Vegas
Representatives of The Madison Square Garden Company give the first glimpse of progress Tuesday of the under-construction MSG Sphere — a first-of-its-kind performance venue with high-tech audio and visual capabilities.
There's a new place to play board games in Las Vegas
Matt Smiciklas, co-owner of Boarding School Games, talks about the new Las Vegas business that he co-owns with Emily Labejof. Dedicated tabletop gamers can choose from more than 500 games to play for free in-store. The doors open to the public Saturday, July 20, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Renovations at the STRAT
Analysts say the $140 million renovation project at The STRAT, formerly the known as the Stratosphere, could help the hotel-casino compete with the evolving north side of the Las Vegas Strip. (Bailey Schulz/Las Vegas Review-Journal)
Nevada Donor Network taps Sonja Barlow for lead role

Nevada Donor Network has named Sonja Barlow director of donation services to oversee donation service operations and develop the company’s strategic plans as part of the corporate leadership team