MGM Resorts International (NYSE: MGM) announced that it has entered into a definitive agreement to form a joint venture with Blackstone Real Estate Income Trust that values the real estate of Bellagio at $4.25 billion, which represents a purchase price multiple of 17.3x rent. In this landmark transaction for the gaming and entertainment industry, the joint venture will acquire the Bellagio real estate and lease it back to a subsidiary of MGM Resorts for initial annual rent of $245 million. MGM Resorts will receive a 5% equity interest in the joint venture and cash of approximately $4.2 billion. The transaction is expected to close in the fourth quarter of 2019, subject to certain closing conditions.
"This transaction confirms the premium value of our owned real estate assets, highlights the unique value of Bellagio as a premier asset in gaming and solidifies our status as a premier operator of gaming and entertainment properties. We will use the proceeds from this transaction, together with the proceeds from the pending sale of Circus Circus Las Vegas, to build a fortress balance sheet and return capital to shareholders. By the end of 2020 we intend to have domestic net financial leverage at our operating properties of approximately 1x," said Jim Murren, Chairman and CEO of MGM Resorts International. "These transactions enhance the Company's strategic and operational flexibility and reinforce its commitment to targeted new growth opportunities, including securing and investing in one of the integrated resort licenses in Japan and becoming an industry leader in sports betting in the U.S. We remain committed to delivering on our 2020 goals and continue to be on track to achieve our previously announced targets."
Jon Gray, Blackstone President & COO, commented: "As big believers in MGM Resorts and Las Vegas, we are thrilled to partner with MGM to acquire the Bellagio on behalf of our BREIT investors. We look forward to a long and productive partnership with this world-class company."
MGM Resorts' commitment to its asset-light strategy is the culmination of an extensive strategic review of the interplay of its real estate portfolio, overall valuation and operational potential. This strategy is expected to unlock the significant unrealized value of the Company's real estate and highlight the strength of its operating business. MGM Resorts is evolving its business model away from primarily a capital intensive, brick & mortar real estate business towards a developer, manager and operator of leading gaming, hospitality and entertainment properties. This strategy is designed to accelerate the Company's top line growth, enhance its return on investment profile and result in a more financially robust, global enterprise that is best positioned to take advantage of future growth opportunities.
"The Real Estate Committee was formed earlier this year to support management's strategy to enhance free cash flow per share, maximize the value of our owned real estate and equity holdings, highlight the strength of our operating business, and fortify the Company's financial position. This transaction represents a key step in our comprehensive, ongoing review. The value realized in the Bellagio transaction is highly accretive to shareholder value and significantly greater than the implied multiple of our core business," said Paul Salem, Chairman of the Real Estate Committee of the Company's Board of Directors.
Central to executing this strategy is monetizing real estate efficiently and effectively redeploying the significant amount of capital the Company is unlocking. Between the Bellagio transaction and the pending Circus Circus sale, the Company is expecting to receive gross proceeds of approximately $5 billion and estimated net cash proceeds (including expected transaction costs) of $4.3 billion.
These transactions are the first steps in executing the asset-light strategy, and the Company still retains several highly valuable real estate assets including MGM Grand, MGM Springfield, its 50% stake in CityCenter and its 68% economic ownership in MGM Growth Properties LLC. The Company anticipates opportunistically monetizing and/or unlocking value from the abovementioned remaining real estate portfolio in a measured manner that maximizes value creation for its shareholders and broader constituents. MGM's fortress balance sheet and robust free cash flow generation will enable it to take advantage of targeted growth initiatives and opportunistically return capital to shareholders.
PJT Partners and J.P. Morgan are serving as financial advisors to MGM Resorts and the Real Estate Committee of the Board of Directors of MGM Resorts. Weil, Gotshal & Manges LLP is serving as MGM Resorts' legal counsel.
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