The Aria Resort & Casino, owned by CityCenter, is slated to fall under ownership of Blackstone Real Estate.
Courtesy of MGM Resorts InternationalCasino operators continue to sell off their real estate as they focus on operating, rather than owning, properties.
The latest example: MGM Resorts International (ticker: MGM) said earlier this month that it would pay $2.1 billion for the remaining 50% stake it doesn’t own of CityCenter on the Las Vegas Strip, so it can then sell it.
CityCenter, which MGM Resorts has managed and had a 50% stake in along with Infinity World Development Corp., owns the Aria Resort & Casino and Vdara Hotel & Spa.
After the deal is complete, MGM Resorts plans to sell those properties to funds managed Blackstone Real Estate for $3.9 billion. MGM will continue to operate those properties.
More deals like this are likely, partly because they are allowing companies like MGM Resorts to raise capital to invest in projects aimed at delivering more growth.
In a recent note, real estate research firm Green Street wrote that “there are other assets in Las Vegas that operators could look to monetize at attractive pricing in a post-Covid environment.”
Cedrik Lachance, director of REIT research at Green Street, told Barron’s recently that the pricing of the deal reflects the growing premium put on Las Vegas real estate. The city has benefited from a surge in leisure travel this year after a difficult 2020 due to Covid. Weekend hotel occupancy has been especially strong.
Blackstone plans to acquire the two CityCenter properties for $3.9 billion, or 18.1 times the $215 million of initial annual rent MGM will pay. Put another way, the inverse of that ratio—or the cap rate, as it’s known—is about 5.5%.
In contrast, when Las Vegas Sands (LVS) announced in March that it was selling the Venetian and other real estate to VICI Properties (VICI) for $4 billion, the cap rate was around 6.25%, according to Lachance. In other words, the multiple on the rent for the latest deal is higher than the one involving Las Vegas Sands earlier this year. That no doubt reflects how much more uncertain things were for the city back then pertaining to the Covid situation.
Still, Lachance says, “to us, the gaming business is very cheap, both public and private”—the public market being REITs.
For casino operators, hiving off real estate is not new, as they are increasingly favoring an asset-light model in which they operate properties but don’t own them.
MGM Growth Properties (MGP), for example, was created in 2016 as a way for MGM Resorts International to unload real estate. In May, the company announced that it planned to sell its Springfield, Mass., resort’s real estate to MGM Growth Properties for $400 million—the latest in a series of sales it has done.
MGM Resorts International has the most hotel rooms on the Strip.
Shares of MGP Growth Properties, which yield 5.6%, have returned about 22% this year, dividends included, through July 14, versus about 17% for the S&P 500. MGM Resorts International’s stock has done a little better, up about 27%.
VICI Properties owns Caesars Palace on the Las Vegas Strip, among various other properties. VICI’s stock, which yields 4.2%, has returned about 25% this year through July 14.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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