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MGM Grand, Mandalay Bay Hotels Sell For $4.6B

MGM Growth Properties and Blackstone Real Estate Income Trust have formed a joint venture to acquire the Las Vegas Strip hotels MGM Grand and Mandalay Bay for $4.6B from MGM Resorts International.

MGM Growth Properties will own 50.1% of the JV, while BREIT will own 49.9%.

MGM Grand, Mandalay Bay Hotels Sell For $4.6B
The MGM Grand hotel in Las Vegas as of November 2012.

The buyers will lease both assets to MGM Resorts for an initial rent of $292M/year. MGM Resorts isn't planning any major changes in the running of either property.

The deal is the latest in a series of dispositions by MGM Resorts, which the company calls its asset-light strategy, which it rolled out last year. The strategy calls for emphasizing development and management of entertainment properties as opposed to ownership. 

MGM Resorts is, for instance, vying to be the first gaming concern to open an integrated resort with a casino, hotel, convention facilities, entertainment, dining and other features in Japan. It is competing for a license to open such a property in Osaka in time for the World Expo 2025.

Originally, eight companies were in the running for the Osaka license, but only three are left, The Motley Fool reports: MGM Resorts, Galaxy Entertainment and Genting Group.

MGM Resorts currently has a 68% stake in MGM Growth Properties, a REIT it established in 2015. Another term of the MGM Grand-Mandalay Bay deal involves MGM Growth buying some of its own operating partnership units for as much as $1.4B, which would mean MGM Resorts would have a 55% stake in the REIT, The Wall Street Journal reports

In October, MGM Resorts and Blackstone formed a JV to acquire the Bellagio Hotel and Casino. That $5B deal was structured differently than the latest one, since MGM Resorts retained only a 5% interest in the JV, effectively representing a sale to Blackstone.

In a separate deal at about the same time, MGM sold the Circus Circus Las Vegas hotel outright for $825M to Treasure Island owner Phil Ruffin.

MGM's strategy comes at a time when Las Vegas' hotel market remains strong. The Las Vegas Visitors Authority reports that in November 2019, visitor volume was more than 3.5 million, edging up 0.9% compared with the same month in 2018. During the first 11 months of 2019, more than 39 million people came to Vegas, up 0.5% from the same period in 2018.

Revenue per available room, or RevPAR, an important metric in the hospitality industry, was $131.09 on the Las Vegas Strip in November 2019, up 5.4% compared with the previous year, and Strip hotel occupancies during that month stood at 90.1%, up from 89.9% a year earlier.