VICI Properties Wraps Up $17.2B Purchase of MGM Growth

Posted on: April 29, 2022, 02:32h. 

Last updated on: April 29, 2022, 02:53h.

VICI Properties (NYSE:VICI) has closed its $17.2 billion acquisition of MGM Growth Properties (NYSE:MGP), creating the largest casino landlord on the Las Vegas Strip in the process.

MGM’s Mandalay Bay Las Vegas. It’s one of the venues VICI Properties now controls by way of its acquisition of MGM Growth Properties. (Image: YouTube)

The all-stock transaction was announced last August. With closure of the deal there are now just two publicly traded gaming real estate investment trusts (REITs) in the US — VICI and Gaming and Leisure Properties (NASDAQ:GLPI). VICI’s acquisition of its rival is transformative for the Caesars Palace owner on multiple levels.

The addition of the MGP portfolio, together with the recent closing of our Venetian acquisition, elevates VICI to the top ranks of American 4-wall REITs, making VICI a Top-5 REIT by earnings before interest, taxes, depreciation and amortization (EBITDA) a Top-10 REIT by enterprise value,” said VICI CEO Edward Pitoniak in a statement.

The newly formed company has an estimated enterprise value of $44 billion.

VICI/MGP Marriage Creates REIT Behemoth

Not only does VICI’s takeover of MGP create the dominant gaming REIT, it creates a force in the broader hospitality REIT industry.

VICI is now the largest owner of hotel and conference real estate in the US. VICI adds Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, New York New York, and Park MGM, as well as various regional casinos operated by MGM Resorts International (NYSE:MGM). The Strip assets MGP brings to the table add to VICI’s portfolio in the largest US casino center, including Caesars Palace, the Venetian, and the Venetian Expo and Convention Center.

“VICI now owns ten premier resorts on the Las Vegas Strip, consisting of 1.2 million square feet of gaming space, approximately 40,775 hotel rooms, and 5.9 million square feet of meeting and convention space,” notes VICI COO John Payne.

Fifteen Las Vegas and regional casinos are added to the VICI portfolio by way of the transaction.

Inflation Protection

The initial lease term with MGM, which starts today, is 25 years, with three 10-year tenant renewal options and an initial total annual rent of $860 million.

Under the terms of that agreement, rent can increase 2% a year for the first decade and at a rate of 2% to 3% annually thereafter, indicating VICI investors are gaining more inflation protection — an enviable trait in the current market environment.

VICI also maintains MGP’s 50.1% interest in a joint venture with Blackstone Real Estate Income Trust (BREIT), which controls the property assets of Mandalay Bay and MGM Grand.

“The BREIT JV lease remained unchanged and provides for current annual base rent of approximately $303.8 million, of which approximately $152.2 million is attributable to our investment in the BREIT JV, and an initial term of 30 years, with two 10-year tenant renewal options,” according to the statement.

The rent escalator in that agreement is 2% annually for the initial 15 years, followed by 2% to 3% a year thereafter. Overall, VICI is adding $1.01 billion in rental income via the acquisition.