When people think of the players that dominate the Las Vegas Strip, their thoughts generally turn to Caesars Entertainment (CZR) – Get Free Report and MGM Resorts International (MGM) – Get Free Report, which dominate the south and central parts of the Strip.
Caesars owns its namesake Caesars Palace, Harrah’s, Planet Hollywood, the Cromwell, the Flamingo, Bally’s (soon to be Horsehoe), the Linq, and Paris Las Vegas. MGM counters that with Cosmopolitan, Bellagio, Aria, MGM Grand, Mandalay Bay, Delano Las Vegas, Park MGM, NoMad Las Vegas, New York-New York, Luxor, and Excalibur.
After that, thoughts turn to other players like Wynn Resorts (WYNN) – Get Free Report, the brand new Resorts World International, and the Venetian, which is operated by Apollo Global Management (APO) – Get Free Report. There are, of course, some lesser players like Circus Circus owner Phil Ruffin and Tillman Fertita, who plans to develop a major Las Vegas Strip resort.
In reality, while those are the frontline big players, none of those companies is actually the leading player on the iconic 4.2-mile stretch of road known as the Las Vegas Strip.
Two Major Las Vegas Strip Properties
Vici Properties (VICI) – Get Free Report actually owns the underlying property that many of Caesars and MGM’s resort casinos sit on. Now, the real estate investment trust that’s heavily invested in the Las Vegas Strip has entered into a deal to acquire full interest in two MGM-operated properties.
Vici currently owns 50.1% of Mandalay Bay and the MGM Grand. Blackstone Real Estate Income Trust (BREIT) owns the remaining 49.9%. Now, Vici will acquire BREIT’s 49.9% interest in the joint venture for cash consideration of approximately $1.27 billion and Vici’s assumption of BREIT’s pro-rata share of the existing property-level debt.
The debt has a principal balance of $3 billion, matures in 2032, and bears interest at a fixed rate of 3.558% per year through March 2030.
“We’re excited to further our investment in MGM Grand Las Vegas and Mandalay Bay, two of the largest and highest-quality resorts in what we believe is the leisure and convention destination with the most compelling future demand outlook. This transaction also provides us with the opportunity to further grow our partnership with MGM Resorts International as they look to capitalize on the growing vitality of the South Strip,” said Vici Properties CEO Edward Pitoniak in a press release.
Nothing Really Changes for MGM
Caesars and MGM have both sold much of their real estate holdings to Vici. That frees up cash in the short term while allowing the companies to still operate the properties under long-term leases.
“The MGM Grand Las Vegas/Mandalay Bay triple-net lease has a remaining initial lease term of approximately 27 years (expiring in 2050) with two ten-year tenant renewal options. Rent under the lease agreement escalates annually at 2% through 2035 (year 15 of the initial lease term) and thereafter at the greater of 2% or CPI (subject to a 3.0% ceiling),” Vici shared.
MGM has a triple-net lease, a common setup where the company leasing the property pays all expenses including real estate taxes, building insurance, and maintenance as well as utilities (along with the rent). The MGM Grand and Mandalay Bay lease will earn Vici Properties approximately $310 million annually upon the commencement of the next rental escalation on March 1, 2023.
Vici Properties plans to fund the transaction through a combination of cash on hand, proceeds from the settlement of existing outstanding forward equity sale agreements, and the assumption of the remaining 49.9% of the existing property-level debt. The deal, which Vici said will be “immediately accretive to AFFO (adjusted funds from operations) per share upon closing,” is expected to close in the first quarter of 2023.