MGM Resorts International has revealed that it is purchasing joint-venture partner Infinity World Development’s remaining share of CityCenter, specifically the Vdara hotel and Aria resort-casino.
Of the $2.9 billion transaction (including some assumption of debt), MGM said it “represents an implied valuation of $5.8 billion based on net debt of $1.5 billion, after giving effect to the recently closed sale of a two-acre parcel.” The two acres mentioned went to developer Brett Torino for $80 million and represented a new high in Las Vegas Strip land values. Aria opened in 2009 at a cost of $4 billion.
Vdara and Aria won’t be MGM assets for more than a few months. The company has stated that it intends to flip them to Blackstone. In a sale-and-lease agreement, newly disclosed, Blackstone would own the physical assets and lease them back to MGM, part of the latter’s “asset-light” strategy. Blackstone will pay $3.9 billion for Aria and Vdara, renting them to MGM for $215 million a year.
“Uniting all of CityCenter under MGM Resorts’ corporate structure and strategy will allow us to consolidate financial results, build on efforts to strengthen our operating model and guest experience, and further our vision of becoming the world’s premier gaming entertainment company,” said CEO Bill Hornbuckle in a prepared statement.
He added that the proceeds would go into “new growth opportunities,” a possible allusion to Japan, where MGM is committed to investing $10 billion in an integrated resort in Osaka. If approved and built, it would the most expensive hotel-casino in history.
Blackstone, which already owns the rival Cosmopolitan of Las Vegas, as well as MGM Strip resorts that include MGM Grand, issued remarks of its own. “This transaction reflects our high conviction in Las Vegas and our strong partnership with MGM Resorts. CityCenter is a best-in-class resort and complementary addition to our portfolio of high-quality assets on the Strip.”
Wall Street reaction was rapid and positive. Deutsche Bank analyst Carlo Santarelli wrote that the deal “simplifies the MGM structure by removing an often overlooked [joint venture,] brings in cash to MGM, given the real estate monetization, and … allows MGM to better manage its Strip assets, as opposed to receiving fifty cent dollars at a key core asset, as it had been.” On the downside, he noted that MGM would be losing income — approximately $47 million a year — from managing CityCenter for Dubai-based Infinity.
Truist Securities analyst Barry Jones spotted an even bigger upside, as MGM will capture 100 percent of CityCenter’s cash flow ($425 million in 2019), instead of having to share it 50/50 with Infinity. The loser in the deal, he opined, was real estate investment trust MGM Growth Properties. “We think the onus for MGP is now even more so to do non-MGM deals, which we certainly view as achievable.”
In his own investor note, JP Morgan analyst Joseph Greff concluded, “An implication from today’s news is that there continue to be buyers for LV Strip assets. We think this bodes well for other operators who are looking to monetize LV Strip assets,” such as “overweight-rated” Caesars Entertainment. The latter has hinted at selling a Las Vegas casino, but has taken it off the table until next year, according to Caesars CEO Tom Reeg.
MGM expects the sale to close by the end of September and, Jonas noted, “The closing of the Infinity World transaction is not contingent on the Blackstone transaction.”