UPDATE: VICI announced Monday that it has completed the previously announced purchase of its joint venture with Blackstone Real Estate that owns the MGM Grand and Mandalay Bay properties in Vegas.
It previously owned 50.1% of the joint venture and announced the purchase of Blackstone’s 49.9% share in the resorts for $1.27 billion, along with Blackstone’s share of debt, in early December.
The property is now subject to an existing triple-net lease agreement between the joint venture and MGM Resorts International.
ORIGINAL 12/1/2022: VICI Properties Inc. has acquired the remaining 49.9% interest in MGM Grand Las Vegas and Mandalay Bay Resort in their joint venture with Blackstone Real Estate Income Trust, the companies announced Thursday.
VICI, current owner of a 50.1% interest in the two properties, is acquiring Blackstone’s interest for $1.27 billion and VICI’s assumption of BREIT’s pro-rata share of the existing property-level debt. Blackstone said the sale allows it to focus on logistics and rental housing.
The transaction is expected to be completed in early 2023.
The properties, situated at the south end of the Las Vegas Strip, are subject to an existing triple-net-lease agreement between the joint venture and MGM Resorts International. The lease will generate annual rent of approximately $310 million when the next rental escalation commences on March 1, 2023, officials said.
The Wall Street Journal estimated that the sale, including rent from the operator, will bring a profit of more than $700 million for Blackstone for a less than three year investment.
VICI CEO Edward Pitoniak said the transaction demonstrates the ability of Blackstone and VICI to work together productively, now and in the future.
“MGM Grand Las Vegas and Mandalay Bay (are) two of the largest and highest-quality resorts in what we believe is the leisure and convention destination with the most compelling future-demand outlook,” Pitoniak said. “This transaction also provides us with the opportunity to grow our partnership with MGM Resorts International as they look to capitalize on the growing vitality of the South Strip.”
Barry Jonas, an analyst with Jefferies Equities Research, said the $1.27 billion, plus Blackstone’s 49.9% stake of $3 billion of debt, has an implied valuation of $5.5 billion for a 5.6% cap rate. “We like the deal, as it simplifies VICI’s structure and highlights VICI’s multiple paths for growth, despite the company’s larger base and a rising interest rate environment.”
Carlo Santarelli, an analyst with Deutsche Bank, said he views the transaction favorably for the elimination of “a messy joint-venture structure in an otherwise easy-to- understand forecast business model.” In addition, he cited the use of previously raised equity and a healthy cash balance.
Santarelli also cited “the ability to take advantage of the in-place debt financing, in the form of the assumption of the pro rata share of the inexpensive CMBS, while still paying an optical multiple that is supportive of other real estate valuations in Las Vegas. On the latter point, while the transaction has several fundamentally positive merits, we question whether this transaction would have been feasible if not for the fact that 55% of the total purchase price was locked in at an inexpensive cost of debt.”
Jon Gray, president and COO of Blackstone, noted that VICI Properties has been an outstanding partner on these assets and they’re pleased to have delivered “such exceptional returns for our BREIT investors.” He added that Las Vegas continues to be “a high-conviction market” for Blackstone.
Scott Trebilco, senior managing director of Blackstone Real Estate, added that the sale of these assets “is an excellent outcome for our BREIT investors and enables us to further concentrate BREIT’s portfolio in its highest growth sectors, including logistics and rental housing.”
The MGM Grand Las Vegas and Mandalay Bay triple-net lease has a remaining initial term of approximately 27 years (expiring in 2050) with two 10-year tenant-renewal options. Rent under the lease agreement escalates annually at 2% through 2035 (year 15 of the initial lease term) and thereafter at the greater of 2% or CPI (subject to a 3% ceiling), officials said.
VICI Properties intends to fund the transaction through a combination of cash on hand, proceeds from the settlement of existing outstanding forward equity sale agreements, and assumption of the remaining 49.9% of the existing property-level debt.
The property-level debt has a principal balance of $3 billion, matures in 2032, and bears interest at a fixed rate of 3.558% per annum through March 2030.
The two properties have a combined 11,000 guestrooms and suites, including the Four Season and Delano hotels and several entertainment venues. There’s 321,000 square feet of gaming space and 191 table games and 2,235 slot machines and electronic table games. The two also boast three million square feet of state-of-the-art exhibition and meeting facilities. MGM recently announced plans to spend $100M million on a remodel of the Mandalay Convention Center.
VICI assumed the stake when the company acquired MGP in August 2021. VICI will see an additional $155 million of rent post-transaction close, Jonas said.
