MGM Reportedly Talking to Blackstone About Bellagio, MGM Grand Sale, Leaseback Deals

Posted on: September 16, 2019, 10:49h. 

Last updated on: September 16, 2019, 12:07h.

MGM Resorts International (NYSE:MGM) is rumored to be in discussions with private equity behemoth Blackstone Group (NYSE:BX) regarding the sale of the Bellagio and the MGM Grand on the Las Vegas Strip.

MGM is believed to be in talks with Blackstone to sell and then leaseback the Bellagio and MGM Grand. (Image: NY Post)

As reported two months ago, MGM, the largest operator on the Strip, is looking to unlock value from some of its real estate assets, including high-end properties such as the Bellagio and MGM Grand. MGM is said to be pursuing sale/leaseback deals where it would sell the real estate assets of the aforementioned properties, but continue managing the gaming operations and other attractions.

News of Blackstone’s interest in the Sin City venues was originally reported by Bloomberg, which cited unidentified sources familiar with the matter. Some analysts believe selling those two, highly desirable Sin City assets could result in price tags of $6 billion to $7 billion, or as much as $5 billion to $6 billion for MGM after taxes.

On real estate, MGM can still monetize several assets at attractive cap rates, in our view,” said Macquarie analyst Chad Beynon in a note out earlier today.

Beynon’s note was published before news of Blackstone’s supposed interest in the Bellagio and MGM was reported. The analyst raised his price target on MGM shares to $35 from $34 today.

Busy Blackstone

Blackstone’s reported interest in Las Vegas gaming properties comes about six months after news broke that the private equity firm is mulling a sale of the Cosmopolitan on the Strip. The investment giant acquired that venue from Deutsche Bank AG for $1.73 billion roughly five years ago, and the returns are expected to be stellar, as Blackstone could fetch up to $4 billion in a sale.

Last week, the private equity company said it raised $20.5 billion for its ninth real estate fund, the firm’s largest-ever capital raise for a property investment vehicle. The company’s total real estate portfolio is valued at $154 billion.

Earlier today, it was revealed that Blackstone is paying $4.9 billion to acquire Canadian property manager Dream Global Real Estate Investment Trust.

If sales of the Bellagio and MGM Grand to Blackstone are completed, that would be a blow to MGM Growth Properties (NYSE:MGP), the real estate company that was separated from MGM three and a half years ago and has since been the gaming operator’s primary landlord.

Alleviating Pressure

MGM has been under pressure from activist investors to unlock value from its real estate assets as an avenue for reducing debt and increasing shareholder rewards, such as dividends and buybacks. In July, the company said its real estate committee, which was formed earlier this year, planned to release ideas for the firm’s property assets this fall.

In his note out today, Beynon, the Macquarie analyst, said MGM has a lot of real estate-related options and that Wall Street doesn’t give the company enough credit for those opportunities.

If MGM proceeds with divesting Bellagio and MGM Grand, its remaining Las Vegas real estate assets would be CityCenter and Circus Circus.