MGM Resorts International (NYSE:MGM) is selling its MGM Springfield integrated resort to MGM Growth Properties (NYSE:MGP), the gaming company’s primary landlord, for $400 million in cash.
The deal is a sale-leaseback transaction, which have become increasingly popular in the gaming industry in recent years. MGM maintains operational control and responsibility for its lone New England casino, while MGP becomes owner of the property assets, adding another long-term lease.
MGM Springfield will be added to the existing Master Lease between MGM Resorts and MGP, and the rent payment to MGP will increase by $30 million, of which $27 million will be base rent and $3 million will be percentage rent,” according to a statement issued by the companies.
The real estate company’s $400 million obligation for the Massachusetts gaming venue will be paid for with cash on hand or capital from financing instruments, including credit revolvers. The transaction is scheduled to close in the fourth quarter.
MGM Continues Move to Asset-Light Model
The sale of the Springfield venue extends MGM’s transition to an asset-light operating model – one that includes substantial real estate divestments.
In 2019, the gaming giant entered a sale-leaseback transaction for the Bellagio on the Las Vegas Strip, and followed that up by selling the property of MGM Grand and Mandalay Bay in early 2020. Bellagio is the only MGM casino-resort in the US that MGP doesn’t own at least part of the real estate assets. Blackstone Real Estate Income Trust (BREIT) owns the physical assets of that venue. That entity partnered with MGP to acquire MGM Grand and Mandalay Bay.
As part of its asset-light moves, the Mirage operator has also been paring its stake in MGP. In March, it hauled in $1.2 billion in gross proceeds by redeeming 37.1 million units of the gaming real estate investment trust (REIT). MGM now owns 42 percent of the real estate company, a percentage that’s expected to continue declining over time.
The moves are bearing fruit for the Excalibur operator. At the end of the first quarter, it had $6.2 billion in cash on hand and total liquidity of $9.7 billion, including cash and revolver access, giving it one of the strongest balance sheets in the gaming industry.
Good Deal for MGP, Too
With the acquisition of MGM Springfield, MGP adds some geographic diversity, as the Massachusetts venue is just the second it owns in the New York and New England areas. It also owns the real estate of Empire City Casino in Yonkers, NY.
The REIT’s timing in buying the Springfield real estate also appears fortuitous, as it posted record earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) in the first three months of this year.
MGP CEO James Stewart said the transaction will be “immediately accretive to adjusted funds from operations (AFFO) per share.” AFFO is a key measure of a REIT’s financial health and performance.
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