MGM Resorts International and Blackstone Group are teaming up on another multibillion-dollar Las Vegas Strip deal as the city gains financial momentum after reopening last month as pandemic restrictions eased.
The sale-leaseback transaction, involving several steps, is expected to ultimately allow MGM Resorts to cash in on the value of real estate while taking in revenue from hotel-casino operations.
MGM Resorts entered into a definitive agreement to purchase Infinity World Development’s 50% interest in the massive mixed-used CityCenter complex for $2.1 billion, a price that represents an implied valuation of $5.8 billion based on net debt of $1.5 billion. The agreement will make MGM Resorts the 100% owner of CityCenter, which comprises the 4,004-room Aria Resort & Casino and 1,495-suite Vdara Hotel & Spa.
MGM Resorts then plans to sell the properties to affiliates of Blackstone Real Estate Income Trust for $3.89 billion in cash, which represents a multiple of 18.1 times rent, according to MGM Resorts. Following the acquisition, both properties are to be leased back to MGM Resorts for initial annual rent of $215 million.
Business has been growing in the U.S. gambling mecca, according to the Las Vegas Convention and Visitors Authority. Estimated occupancy in March exceeded 55%, up from 42% earlier in the year, and the number of visitors nearly doubled to 2.2 million from the previous month. Still, visitor volume was down 40% compared to March 2019, when hotel occupancy levels were estimated to be above 91%. The city reopened to full capacity June 1.
Prospects are brighter as of last month, which saw the return of large in-person trade shows. Americans are showing an eagerness to travel again now that a significant portion of the nation is vaccinated and most social-distancing restrictions have been lifted.
Concerns still remain, however. The spread of the contagious Delta variant is being watched closely by public health officials.
Thirty-Year Lease
The lease is for 30 years with three 10-year renewal options, according to a federal filing by MGM Resorts. The rent will escalate annually throughout the term of the lease at a rate of 2% per year for the first 15 years and at varying rates in the following years.
“This transaction reflects our high conviction in Las Vegas and our strong partnership with MGM Resorts,” Tyler Henritze, head of U.S. acquisitions Americas for Blackstone Real Estate, said in a statement.
Bill Hornbuckle, president and CEO of MGM Resorts, added, “We expect to continue executing on our asset-light strategy and utilizing the proceeds from our real estate transactions to enhance our financial flexibility and secure new growth opportunities.”
The two companies teamed up on two other major Las Vegas deals in late 2019 and early 2020, before the COVID-19 outbreak. Blackstone acquired MGM Grand and Mandalay Bay for $4.6 billion in January 2020. That deal followed Blackstone’s $4.3 billion pickup of the Bellagio three months earlier.
The MGM Resorts-Blackstone transactions are expected to close in the third quarter.