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MGM Resorts to Sell 2 Casinos, Focus on Asset Light Strategy

Zacks Equity Research

MGM Resorts International MGM has announced two separate deals in an effort to strengthen its balance sheet. Firstly, MGM Resorts International and Blackstone Real Estate Income Trust (“BREIT”) will form a 95%/5% BREIT-led joint venture to acquire MGM Resorts’ Bellagio for $4.25 billion and then lease it back to a unit of MGM Resorts for annual rent of $245 million.

Following the completion of the transaction, MGM Resorts will receive 5% equity interest in the joint venture and cash of nearly $4.2 billion. Notably, the deal is likely to be concluded in fourth-quarter 2019.

Secondly, the company also announced that its has entered into a definitive agreement with an affiliate of Treasure Island owner Phil Ruffin to sell Circus Circus Las Vegas for $825 million. The transaction is likely to be completed in fourth-quarter 2019. The company stated that it is likely to incur impairment charge of approximately $220 million during the third quarter with regard to this transaction.

MGM Resorts International, Chairman and CEO Jim Murren said, “These transactions enhance the Company's strategic and operational flexibility and reinforce its commitment to targeted new growth opportunities, including securing and investing in one of the integrated resort licenses in Japan and becoming an industry leader in sports betting in the U.S. We remain committed to delivering on our 2020 goals and continue to be on track to achieve our previously announced targets.”

The abovementioned deals are first steps toward implementing asset light strategy. The company still has real estate assets, which includes MGM Grand, MGM Springfield, 50% stake in CityCenter and 68% economic ownership in MGM Growth Properties LLC.

Following the news, the company’s shares gained 1.2% in after-hour trading session on Oct 15. Moreover, the stock has increased 1.1% in the past six months, against the industry’s decline of 15.2%.


Focus on Sports Betting

Instead of being a capital intensive, brick & mortar real estate business, the company intends to be a developer, manager and operator of major gaming, hospitality and entertainment properties. The company stated that it wants to focus on sports and live entertainment.

We believe, legalization of sports betting outside Nevada has given the industry a new lease of life. The Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) that banned sports betting outside Nevada.
Other casino operators like Penn National Gaming, Inc. PENN, Boyd Gaming Corporation BYD and Caesars Entertainment Corporation CZR are also focusing on sport betting.

MGM Resorts currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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