MGM Resorts International announced an agreement Thursday to sell the operations of Gold Strike Tunica for $450 million in cash to Cherokee Nation Entertainment Gaming Holdings, a subsidiary of Cherokee Nation Businesses.
The deal sets the stage for MGM to build its balance sheet for other projects, while the Cherokee Nation’s purchase reflects the tribe’s ongoing pursuits to diversify off reservations into commercial gaming across the country.
Cherokee Nation Entertainment is the gaming and hospitality company of the Cherokee Nation, the largest Indian nation in the U.S. The company owns and operates Hard Rock Hotel & Casino Tulsa and nine Cherokee casinos, including a horse-racing track, three resort-hotels, three golf courses, and other retail operations. The Cherokee Nation and its businesses employ 11,000 people.
“We look forward to expanding our gaming and hospitality businesses as we execute on our strategic plan to grow our footprint outside of the Cherokee Nation Reservation,” Chuck Garrett, chief executive officer of Cherokee Nation Businesses, said in a statement. “This acquisition will enable us to better serve our mission of growing the Cherokee Nation’s economy, while also having a significant positive impact on the local economies we serve.”
At the closing of the transaction, expected by the first half of 2023, MGM Resorts’ master lease agreement with VICI Properties, which currently includes the Gold Strike, will be amended to reduce annual rent by $40 million.
The Gold Strike opened in 1994 and was acquired by MGM Resorts in 2005. It has a 50,000-square-foot casino and more than 1,100 hotel rooms. Tunica is about 20 miles south of Memphis.
“Gold Strike is a wonderful property with a bright future,” said MGM Resorts CEO Bill Hornbuckle. “Strategically, though, we decided to narrow our focus in Mississippi to a single resort, Beau Rivage (in Biloxi on the Gulf Coast), and dedicate more of our time and resources to continuing to drive success there.”
The purchase price represents about an 11-times multiple on the average Adjusted Property EBITDA from 2019 to 2021. The company expects net cash proceeds after taxes and estimated fees to be approximately $350 million.
“This is a great outcome for the company, as we can reprioritize future capital expenditures toward opportunities that will enhance the customer experience at our other locations,” said Jonathan Halkyard, CFO and Treasurer, MGM Resorts International. “We appreciate VICI, as the real estate owner of Gold Strike, working constructively with CNE to facilitate a new lease agreement.”
Earlier this year, MGM announced the sale of the operations of the Mirage in Las Vegas to Hard Rock International owned by the Seminole Nation of Florida for $1.07 billion, closing by the end of 2022. In May, MGM took over the operations of The Cosmopolitan Las Vegas for $1.6 billion.
“It speaks volumes that as some of these larger companies look to divest assets, as we have seen with MGM with Mirage and now with Gold Strike, that tribal interests will be taking over the operations of these facilities,” said Brendan Bussmann, managing partner of B Global. “It also speaks volumes for regional gaming.”
Bussmann said the move by the Cherokee Nation shows that about 10 tribes are interested in going beyond the boundaries of their reservations and looking at other opportunities to divest gaming operations.
“Some of these larger tribes, such as the Seminoles, Cherokees, San Manuel Band of Mission Indians (which acquired the Palms Las Vegas), Chickasaw Nation (from Oklahoma), and (Poarch Band of Creek Indians from Alabama that operate Wind Creek Bethlehem), can take that next step from an operational standpoint beyond their reservation to look at commercial assets,” said Bussman.
Bussmann said MGM is selling the property because it has other assets in the region and were likely approached as well.
“Whether they see opportunities for New York, Japan, or sports betting and other things down the road, it helps shore up the balance sheet,” Bussmann said.
In 2021, Gold Strike reported net income of $81.1 million and Adjusted Property EBITDAR of $115 million. Pre-pandemic, Gold Strike reported Adjusted Property EBITDAR of $67 million in 2019.
Carlo Santarelli, an analyst with Deutsche Bank, sent a note to investors late Thursday saying, “MGM remains aggressive” in asset-realignment efforts.
“The $450 million gross sale price represents a multiple of 6.0x OpCo EBITDA, based on 2021 results, or, 8.8x OpCo EBITDA, based on the average EBITDAR of the asset in 2019 ($67 million) and 2021 ($115 million),” Santarelli said. “The $40 million in rent related to the asset will transfer to the buyer, leaving VICI circumstances unchanged.”
Relative to 2021 results, the sale will extract roughly $115 million of EBITDAR, $40 million of annual rent, and $320 million of capitalized lease debt, Santarelli said.
“Thus, when looked at in its entirety, in exchange for the $115 million of EBITDAR, MGM is receiving $450 million of gross cash proceeds ($350 million net cash proceeds) and debt (capitalized rent) relief of $320 million, or total gross proceeds of $770 million,” Santarelli said. “In its entirety, based on 2021 results, which were inflated, MGM is exiting the asset at a multiple of 6.7x 2021 EBITDAR, or 8.5x the average EBITDAR from 2019 and 2021. We view the transaction as largely equity-value neutral.”
At 32 stories tall, the iconic property is one of the most recognizable buildings in Tunica and towers above all other structures. When it was built, the gold tower was reported to be the tallest building in Mississippi.
“Cherokee Nation Entertainment has a rich history of operating hospitality destinations in Oklahoma, and we are proud to continue our growth in gaming and bring the level of excellence we are known for to the Tunica area,” Mark Fulton, president of Cherokee Nation Entertainment said in a statement.