When people think of the players dominating the Las Vegas Strip, their thoughts generally turn to Caesars Entertainment (CZR extension) – Get a free report and MGM Resorts International (mgm extension) – Get a free reportwhich dominate the southern and central part of the Strip.
Caesars owns its namesake Caesars Palace, Harrah’s, Planet Hollywood, Cromwell, Flamingo, Bally’s (soon to be Horsehoe), Linq and Paris Las Vegas. MGM contrasts it with Cosmopolitan, Bellagio, Aria, MGM Grand, Mandalay Bay, Delano Las Vegas, Park MGM, NoMad Las Vegas, New York-New York, Luxor and Excalibur.
Next, thoughts turn to other players like Wynn Resorts (WYNN) – Get a free reportthe brand new Resorts World International and the Venetian, managed by Apollo Global Management (APO) – Get a free report. There are, of course, some minor players like Circus Circus owner Phil Ruffin and Tillman Fertita, who has plans to develop a major resort on the Las Vegas Strip.
In reality, while those are the big players at the forefront, none of these companies are actually the major players on the iconic 4.2-mile stretch of road known as the Las Vegas Strip.
Two premier properties on the Las Vegas Strip
Property near (VICI) – Get a free report it actually owns the underlying property on which many of Caesars and MGM’s casino resorts sit. Now, the real estate investment trust that has invested heavily in the Las Vegas Strip has entered into an agreement to acquire full interest in two MGM-managed 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 percent interest in the joint venture for cash consideration of approximately $1.27 billion and Vici’s assumption of BREIT’s proportionate share of existing debt at the property level.
The debt has a principal balance of $3 billion, matures in 2032, and bears interest at a fixed rate of 3.558% annually through March 2030.
“We are thrilled to further promote 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 prospects. This The transaction also provides us with an opportunity to further grow our partnership with MGM Resorts International as they seek to capitalize on the growing vitality of the South Strip,” Vici Properties CEO Edward Pitoniak said in a press release.
Nothing really changes for MGM
Caesars and MGM have both sold much of their real estate in Vici. This frees up short-term liquidity by allowing companies to still operate properties under long-term leases.
“The MGM Grand Las Vegas/Mandalay Bay triple-net lease has an initial term to maturity of approximately 27 years (expires in 2050) with two ten-year tenant renewal options. Rent under the lease increases 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% cap),” Vici shared.
MGM has a triple mains lease, a common setup in which 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 from the start of the next rent escalation on March 1, 2023.
Vici Properties expects to finance the transaction through a combination of cash, proceeds from the settlement of existing forward sale agreements of existing shares, and the assumption of the remaining 49.9% of the existing debt at the property level. The deal, which Vici said will be “immediately accretive to AFFO (operations adjusted funds) per share at closing,” is expected to close in the first quarter of 2023.