VICI Properties (NYSE:VICI) is buying rival MGM Growth Properties (NYSE:MGP) for $17.2 billion in stock. It’s an acquisition creating the dominant owner of Las Vegas Strip casino real estate.
Under the terms of the transaction, VICI assumes $5.7 billion in MGP debt and gets MGM Resorts International’s (NYSE:MGM) $4.4 billion stake in the real estate investment trust (REIT) it spun off in 2016. The casino operator has been paring that investment with an eye toward eventually eliminating it entirely. When the deal closes, VICI will have an enterprise value of $45 billion, making it the largest experiential net lease REIT.
MGP investors will receive 1.366 shares of newly issued VICI equity for each share of MGP they currently own. That values the target at $43 — an almost 16 percent premium to where the stock closed on Aug. 3. MGM Resorts also receives $43 a share for each unit of MGP it owns, and 12 million units “in a newly formed operating partnership of VICI Properties.” That one percent stake is worth approximately $370 million.
Simultaneous with the closing of the transaction, VICI Properties will enter into an amended and restated triple-net master lease with MGM Resorts. The lease will have an initial total annual rent of $860.0 million, inclusive of MGP’s pending acquisition of MGM Springfield, and an initial term of 25 years, with three 10-year tenant renewal options,” according to a statement.
The deal is expected to close in the first half of 2022. Citigroup, J.P. Morgan and Morgan Stanley are providing VICI with a $9.3 billion commitment for the acquisition.
Creating Strip Real Estate Monolith
VICI was spun off from Caesars Entertainment (NASDAQ:CZR). While it’s the owner of the Caesars Palace, prior to this year it generated less than a third of its revenue in Las Vegas.
That’s slated to change in dramatic fashion. In January, the New York-based REIT partnered with private equity firm Apollo Global Management (NYSE:APO) to acquire the Venetian Resort and Sands Expo and Convention Center on the Strip for $6.25 billion from Las Vegas Sands.
By acquiring MGP, VICI becomes the owner of the property assets of the following Strip venues: Excalibur, Luxor, Mandalay Bay, MGM Grand, Mirage, New York New York and Park MGM. Overall, the buyer adds the real estate of 15 gaming venues to its portfolio, with Las Vegas becoming 45 percent of its rent base. Regional casinos will account for the rest.
There are more benefits for VICI, including reducing top tenant concentration. Currently, properties operated by Caesars Entertainment account for 84 percent of the REIT’s rent base. Following completion of the MGP transaction, VICI’s largest tenant will account for 41 percent of rental income.
VICI adds the deal will be immediately accretive to acquire funds from operations (AFFO) — a metric investors use to assess the financial health of real estate companies.
Field of Gaming REITs Getting Smaller
Assuming the VICI/MGP marriage is consummated, there will be just two publicly traded gaming REITs in the US, with Gaming and Leisure Properties, Inc. (NASDAQ:GLPI) being the other.
In 2019, an investor pushed GLPI to merge with VICI. That deal didn’t come to fruition and it may be MGP investors that are benefiting.
As VICI notes, the combined company could appeal to a broader swath of investors, and perhaps be positioned for inclusion in widely followed equity benchmarks.
“The transaction unlocks significant new index eligibility for MGP Class A shareholders, while allowing investors in the combined company to benefit from index rebalancing, given the significantly larger size, and strong positioning for S&P 500 inclusion and enhanced trading liquidity,” according to the statement.
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