MGM Resorts International is working to sell its MGM Grand property on the Strip in the same way it moved its flagship Bellagio resort.
The company’s real estate sale of the Bellagio was the first of what could be several similar transactions to execute the company’s “asset-light” strategy to grow the company, invest in new opportunities and return more money to investors, company leaders said Wednesday.
MGM Chairman and CEO Jim Murren said in a conference call with investors announcing third-quarter earnings that a similar real estate sale for the MGM Grand would likely be announced before the end of the year.
Other similar deals involving Aria, Vdara, MGM Springfield in Massachusetts and even the company’s affiliated MGM Growth Properties real estate investment trust are being contemplated, using the $4.2 billion sale of Bellagio real estate on Oct. 15 to the New York-based Blackstone Group as a blueprint.
Under terms of the Bellagio deal, MGM maintains a 5 percent equity stake in the property, will pay $245 million annually in rent and will continue to maintain and operate the resort.
Murren discussed the Bellagio sale as well as the $825 million sale of Circus Circus to TI owner Phil Ruffin in Wednesday’s call.
‘Blueprint for the future’
“These transactions were key steps, but by no means the end of our journey,” Murren said. “The Bellagio real estate transaction represents more to us than a smart financial deal. It provides a likely blueprint for the future. In fact, a process to monetize the real estate related to the MGM Grand Las Vegas is now well underway and we anticipate sharing more of that with you before the end of this year.”
The sales were a key part of MGM’s “asset-light” strategy of focusing on the company’s future.
“For MGM, asset-light means separating the ownership of capital-intensive, lower return assets and recycling that capital into high ROI (return on investment) opportunities,” Murren said. “The recently announced sales of Bellagio’s real estate to Blackstone and Circus Circus to Mr. Ruffin are important milestones to that end.”
Murren said Blackstone wasn’t the only real estate company with which MGM talked.
“The net was pretty wide and it zeroed into a half a dozen or so extremely well-known, very sophisticated, deep-pocketed real estate owners,” he said, “but we concluded that the best course of action was to focus on Blackstone to try to get the most precise execution, and I think we’ve done that.”
Focus on sports betting, Japan
Savings from the execution of MGM’s strategy is expected to be dedicated to bolstering the company’s nationwide rollout of sports wagering and a focus on developing an integrated resort in Osaka, Japan.
Earlier in the week, MGM announced a new partnership with Yahoo Sports to help expand sports betting nationwide. The company already has a deal with Buffalo Wild Wings in a sports partnership.
While the execution of the sales of Bellagio and Circus Circus is an outline for MGM’s future, it also put a dent in the company’s third-quarter earnings.
The company reported a loss of $37.1 million, 8 cents a share, on revenue of $3.314 billion for the quarter that ended Sept. 30. The bulk of the loss was attributed to a one-time $219 million non-cash impairment charge resulting from the sale of Circus Circus, the 5-acre Adventuredome theme park, a 10-acre recreational vehicle park and 37 acres of festival grounds fronting Sahara Avenue and Las Vegas Boulevard to Ruffin.
Revenue was 9.4 percent higher than the $3.029 billion generated in the third quarter of 2018. In that quarter, the company reported net income of $142.9 million, 26 cents a share.
Murren called the quarterly results “solid” and in line with the company’s projections, although they didn’t stack up to analysts’ expectations. A survey of 13 analysts on average anticipated earnings of 29 cents a share. Without the impairment charge, MGM would have produced 26 cents a share. And 15 analysts projected an average revenue total of $3.33 billion compared with the $3.314 billion collected.
Murren: Future is bright
Murren said the financial outlook is bright for MGM in Las Vegas with a robust convention calendar for the rest of the fourth quarter into 2020, which will include the massive once-every-three-years ConExpo-Con/Agg trade show as well as the city hosting the National Football League Draft in April.
Entertainment offerings should also fill MGM venues with Lady Gaga and Aerosmith performing, the new Cirque du Soleil “R.U.N.” show starting up at Luxor and the Vegas Golden Knights off to a good NHL season at MGM co-owned T-Mobile Arena.
One of the few rough factors was the weak performance of baccarat in the casino. The company reported a 3 percent drop in year-over-year gaming revenue and an 11 percent decline in table-game win, mostly driven by slumping Far East baccarat play.
MGM shares traded on the New York Stock Exchange on Wednesday closed up 10 cents, 0.3 percent, on trading slightly below the daily average. After hours, shares declined 3 cents, 0.1 percent, to close at $28.60 a share.
MGM Resorts International
Third-quarter revenue and earnings for Las Vegas-based MGM Resorts International, operators of the MGM Grand, Bellagio, The Mirage, Aria and Mandalay Bay among other Strip properties. (NYSE: MGM)
3Q 2019: $3.314 billion
3Q 2018: $3.029 billion
3Q 2019: ($37.1 million)
3Q 2018: $142.9 million
Earnings/(loss) per share
3Q 2019: (8 cents)
3Q 2018: 26 cents