MGM Growth Properties, the real estate investment trust controlled by MGM Resorts International, said Tuesday it wants to purchase a newly established REIT associated with a gaming industry rival.
In a letter and statement released Tuesday morning, MGM Growth Properties offered to acquire VICI Properties Inc., the REIT created through the bankruptcy reorganization of Caesars Entertainment.
MGM said the proposed merger “would create one of the largest triple net lease REITs, with an unmatched portfolio of high quality leisure, entertainment and hospitality assets.”
MGM Resorts owns 70 percent of MGM Growth Properties, which controls the land and buildings associated with 12 of the company’s casinos and an entertainment district. The REIT offered to pay $19.50 a share for all the outstanding shares in VICI. The deal is valued at $5.85 billion, based on 300.3 million shares of VICI.
The two REITs own the land associated with some of the top casino resorts in the U.S., including the Las Vegas Strip and in Atlantic City. MGM Resorts and Caesars Entertainment continue to operate the properties through a lease agreement, paying rent to the REITs.
MGM Resorts Chairman Jim Murren, who is also chairman of MGM Growth Properties, wrote in the letter to the leadership of VICI that the “combination would also create a larger and better capitalized company with greater scale and an enhanced financial profile to support additional opportunities to create value for our respective shareholders.”
VICI and Caesars officials declined comment to various media outlets Tuesday.
In the statement, MGM Growth properties said there were discussions between leadership of the two REITs in December and last week.
“We continue to believe that a combination of our two companies has a compelling strategic rationale and represents an extraordinary opportunity to create significant value for our respective shareholders,” according to the statement.
REITs don’t pay federal income taxes but are required to distribute at least 90 percent of their taxable earnings to shareholders.
Under the proposal, MGM Growth Partners would acquire VICI through a stock transaction; however, MGM’s REIT would be willing to offer a portion of the purchase price in cash. VICI shareholders would end up owning 43 percent of the combined company.
VICI filed paperwork in December with the Securities and Exchange Commission for an Initial Public Offering.
According to the proposal, the combined REIT would have an enterprise value of approximately $22 billion. MGM Resorts’ ownership stake in the combined REIT would be reduced to 41 percent.
MGM Growth, which was formed in 2016, includes Mandalay Bay, The Mirage, Monte Carlo (soon to be renamed Park MGM), New York-New York, Luxor, Excalibur and The Park entertainment district in Las Vegas. The REIT also owns the real estate associated with MGM Grand Detroit, Borgata in Atlantic City, MGM National Harbor in Maryland, Beau Rivage in Biloxi, Miss., and Gold Strike in Tunica, Miss.
In Nevada, VICI controls Harrah’s Las Vegas, Caesars Palace, and Harrah’s and Harvey’s in Lake Tahoe. In Atlantic City, the REIT owns the land and buildings for Caesars and Bally’s. The company also controls Harrah’s and Horseshoe resorts throughout the south and Midwest. The REIT owns the land associated with four golf courses that are also operated by Caesars-controlled properties.
Tony Alamo, Jr., chairman of the Nevada Gaming Commission, told the Las Vegas Sun the proposed merger was a business transaction between two landlords. Although the commission sometimes requires landlords to testify at hearings, he thought it was unlikely the deal would come under review.
“There is no regulatory oversight or approval required if this is a straight ahead real estate REIT purchase,” Alamo said.
Investors had mixed reactions to the news Tuesday. MGM closed up $1 to $36.03 and MGM Growth Properties was up 96 cents to $29.50. Both companies are traded on the New York Stock Exchange. Caesars was down 5 cents to close at $13 on the Nasdaq.
The Las Vegas Sun contributed to this story.
