Continues the real estate/operation split
MGM Growth Properties has acquired the real estate of MGM Springfield in Massachusetts from MGM Resorts International for $400 million cash. The purchase is a leaseback deal in which MGM Resorts will continue to operate the property and pay MGM Growth $30 million per year in rent.
In Tuesday’s announcement, MGM Resorts president and CEO Bill Hornbuckle said that he believes the sale “serves the best interests of the shareholders of both companies and further advances our asset-light commitment.”
MGM Growth Properties is a real estate investment trust (REIT) spun off from MGM Resorts International in October 2015. It went public in April 2016 and bought ten properties from MGM Resorts. It is now the sole or majority owner of 16 properties, all formerly MGM Resorts-held. MGM Resorts, in fact, is MGM Growth’s only tenant.
MGM is the dominant casino operator on the Las Vegas Strip, with a portfolio that includes the MGM Grand, New York-New York, Excalibur, Mandalay Bay, Mirage, Park MGM, and Luxor. Among its other casinos are the Borgata in Atlantic City and MGM National Harbor.
This “asset-light” strategy has been a trend in the casino industry for the last decade. Gambling behemoths have decided that it makes more sense to focus on running their casinos and other properties without having to worry about the responsibilities that go along with owning such massive pieces of real estate. A separate company can best handle that and the two firms can work together, strength teaming up with strength.
MGM Resorts still owns a 42% stake in MGM Growth Properties.
Penn National Gaming was the first gambling company to spin off a REIT, creating Gaming and Leisure Properties in 2013. MGM was next in 2015, followed by Caesars spinning off VICI Properties in 2017.
Still looking for another Vegas casino?
During a third quarter earnings call this past fall, MGM Growth’s CEO James Stewart said that his company was interested in adding a major casino property on the Las Vegas Strip, something that would “move the needle.”
Of course, with his company owning much of the Strip and VICI controlling another sizeable chunk, there aren’t many properties that would both fit the bill and would likely be available. The rumor in the industry was that MGM Growth may target Las Vegas Sands’ The Venetian Resort, the Palazzo, and the Sands Expo Convention Center, as Las Vegas Sands Corp. had said it was getting out of Las Vegas and would sell their assets in the city. It would be the first non-MGM Resorts property(ies) that MGM Growth would own.
It never happened, though, as VICI Properties and Apollo Global Management teamed up to buy the Sands properties for $6.25 billion in March of this year.
