Vici Properties, MGM Growth Properties and MGM Resorts International (MGP’s controlling shareholder) have entered into a definitive agreement in which Vici Properties will acquire MGP for total consideration of $17.2 billion, inclusive of the assumption of approximately $5.7 billion of debt.
Upon completion of the merger, Vici will have an estimated enterprise value of $45 billion.
Lease Agreements
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 million, inclusive of MGP’s pending acquisition of MGM Springfield (Mass.), and an initial term of 25 years, with three 10-year tenant renewal options. Rent under the amended and restated master lease will escalate at a rate of 2 percent per year for the first 10 years and thereafter at the greater of 2 percent per annum or the consumer price index, subject to a 3 percent cap.
Additionally, Vici will retain MGP’s existing 50.1 percent ownership stake in the joint venture with Blackstone Real Estate Income Trust, which owns the real estate assets of MGM Grand Las Vegas and Mandalay Bay. The BREIT JV lease will remain unchanged and provides for current annual base rent of approximately $298 million and an initial term of 30 years, with two 10-year tenant renewal options. Rent under the BREIT JV lease escalates at a rate of 2 percent per annum for the first 15 years and thereafter at the greater of 2 percent per annum or CPI, subject to a 3 percent cap. On a combined basis, the MGM master lease and BREIT JV lease will deliver initial attributable rent to Vici of approximately $1 billion.
As part of the agreement, Vici Properties will add 15 entertainment resort properties across nine regions with 33,000 hotel rooms, 3.6 million square feet of meeting and convention space and hundreds of food, beverage and entertainment venues to its portfolio at an estimated 30 percent to 40 percent discount to replacement cost. Following the transaction, approximately 55 percent of Vici’s rent base will be generated by regional properties while the remaining 45 percent will come from properties on the Las Vegas Strip.
MGM Lightens Assets
This transaction is MGM's latest step in dispersing its assets. In May, MGM Resorts International entered into a definitive agreement with MGM Growth Properties to have MGP purchase the real estate assets associated with the MGM Springfield in Western Massachusetts. MGM Resorts will lease the property from MGP and continue to operate the property, with no expected change to its employees or vendors. As part of the agreement, MGP will pay total consideration of approximately $400 million in cash (which may include cash on hand or cash from financings, including borrowings under MGP's revolving credit facility).
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. The sale is expected to close in the fourth quarter of 2021, subject to regulatory approvals and other customary closing conditions.
In April, CityCenter Holdings—a venture between MGM Resorts International and Infinity World Development Corp.—entered into a definitive agreement to sell its two-acre site to 63SLVB, which is owned by locally based national retail developers Brett Torino of Torino Development and Paul and Dayssi Kanavos of Flag Luxury, for approximately $80 million. Under the terms of the agreement, 63SLVB intends to develop a multilevel retail complex.
“In 2016 we started on our journey to become asset light and this announcement, together with our recently announced Springfield and CityCenter transactions, reflects the culmination of those efforts and a major step forward in simplifying our corporate structure,” said Bill Hornbuckle, CEO and president of MGM Resorts. “As a result of these actions, we are well positioned and remain focused on pursuing growth opportunities in our core business, with significant financial flexibility to continue to deploy capital to maximize shareholder value.”
“After many years of growing both of our portfolios, combining them into one company will generate the best results for the shareholders of both companies,” said James Stewart, CEO of MGP. “The combined company will create a superior platform for delivering exceptional returns to MGP’s existing shareholders, by improving diversification, increasing scale, lowering cost of capital and benefiting from future growth.”
Veni, Vidi...
Following the acquisition of MGP and the pending $4 billion acquisition of the real estate of the Venetian Resort and Sands Expo Center, Vici Properties is expected to retain approximately $500 million of annualized free cash flow, after dividend payments, which may be deployed toward growth opportunities across gaming and other experiential sectors. With the improving cost of capital and retained cash flow, Vici is positioned to continue to grow its portfolio accretively in both gaming and nongaming sectors.
Upon closing, Vici Properties’ top tenant concentration will be reduced to about 41 percent (from 84 percent currently) while 84 percent of Vici Properties’ rent roll will be derived from S&P 500 tenants with a track record of having paid 100 percent of rent, on time and in cash throughout the COVID-19 pandemic.
Key Players
The transaction was approved by the boards of directors at MGM Resorts, MGP and Vici Properties (and, in the case of MGP, the conflicts committee). The parties expect the transaction to close in the first half of 2022, subject to customary closing conditions, regulatory approvals and approval by the stockholders of Vici Properties. The Vici Properties board of directors and management team will remain unchanged.
Vici Properties has secured a $9.3 billion financing commitment from Morgan Stanley, J.P. Morgan and Citibank.