MGM Resorts sells casinos for billions and rents huge sums of money
In an explosion of multi-billion dollar transactions, Las Vegas has seen investors paying mountains of money in recent years to own top-notch casino resorts.
These sales also showed what casino operators – well, one in particular – are willing to pay to lease these properties.
MGM Resorts International has entered into agreements since fall 2019 to rent Bellagio, MGM Grand, Mandalay Bay, Aria, Vdara and, as announced this week, The Cosmopolitan of Las Vegas.
Its initial annual rent ranges from $ 200 million for The Cosmopolitan to $ 292 million for MGM Grand and Mandalay Bay.
All but one of the transactions involved sale-leasebacks that brought MGM a fortune in proceeds, including more than $ 4 billion for Bellagio alone. Plus, all of the deals involved the same company across the table, New York financial giant Blackstone, which for years has been gobbling up real estate in southern Nevada.
Still, the nine-figure rental rates show what MGM is willing to pay to continue running its properties and take over another towering resort on the Strip, The Cosmopolitan, without buying its real estate.
A landlord and tenant determine the rental rate of a casino complex based on income, stability, market and possible corporate collateral for a property, says Truist Securities analyst Barry Jonah.
When MGM announced in July that it was selling Aria and Vdara to Blackstone for almost $ 3.9 billion in cash and re-letting them, it noted that the sale price was just over 18 times its rent, which is initially $ 215 million per year.
At the time, Tyler Henritze, head of real estate acquisitions in the Americas for Blackstone, said such deals were attractive for several reasons, including “long-term leases with stable cash flow and no capital expenditure requirements. , and in this case, a company supplements the guarantee of the payment of the rents of a first rate operator.
After Blackstone bought several MGM-operated properties on the Strip, it is now selling The Cosmopolitan for $ 5.65 billion. As part of the deal, MGM acquires the operating portion of the complex for more than $ 1.6 billion and leases the property to a group of owners.
MGM did not respond to a request for comment Friday on its rental rates.
The casino chain has made a fortune selling its real estate as part of its “asset consumption” strategy, although, as with any deal, there are risks in renting a resort rather than owning the property. .
Jonas, for his part, noted that there is an “end” to selling a building and losing control of it.
Plus, as Macquarie Capital analyst Chad Beynon noted, tenants “still owe that rent” and have to put money aside each year to pay their landlord.
Even after the coronavirus pandemic sparked catastrophic job losses and led to nationwide casino closings, turning the Strip into a ghost town for a while, casino owners came out of agreement.
A large owner is now buying another in a deal worth over $ 17 billion.
Vici Properties, a spin-off of Caesars Entertainment, announced in August the acquisition of MGM Growth Properties, a spin-off of MGM Resorts, placing real estate ownership of several of Las Vegas’ largest hotel-casinos under one company.
After the deal was announced, Vici chief executive Edward Pitoniak said the two casino owners had received “100% of our rent so far through COVID on time and in cash.”