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MGM Resorts International plans to form a real estate
investment trust (REIT) with much of its U.S. real estate holdings by next
March.
The hotel-casino operator said Thursday that it’s looking to
reduce debt and boost its stock price by forming the REIT, which CEO Jim Murren
said wouldn’t be a spinoff but a majority-owned subsidiary called MGM Growth
Properties.
MGM Resorts would own about 70% of the REIT upon its initial
public offering. The REIT would take on about $4 billion in debt. MGM Resorts had
$12.8 billion in long-term debt at the end of the third quarter.
After the REIT formation, MGM Resorts will be “a company
with a stronger balance sheet and less leverage pro-forma than it has today,
with a growth plan that’s already articulated,” Murren said Thursday on a
conference call with analysts. “And it would participate in a really robust
recovery in Las Vegas.”
The REIT would include 10 pieces of real estate that include
more than 24,000 hotel rooms and more than 2.3 million square feet of meeting
space. Seven of the properties are in Las Vegas: Mandalay Bay, Mirage, Monte
Carlo (a hotel that MGM plans to rename), New York-New York, Luxor,
Excalibur and The Park (a dining and entertainment district due to open next
year).
The REIT would also include the MGM Grand Detroit and two Mississippi
hotel-casinos: the Beau Rivage in Biloxi and the Gold Strike Tunica.
The REIT won’t include the MGM Grand Las Vegas, Bellagio or
Circus Circus nor will it include the CityCenter district, which is 50% owned
by MGM and 50% owned by Dubai World.
The MGM Grand and the Bellagio are two of MGM Resorts’
largest-grossing properties and combined to account for 36% of the revenue and
39% of the EBITDA (earnings before interest, taxes, depreciation and
amortization) of MGM Resorts’ wholly-owned domestic properties.
MGM Resorts would retain a substantial majority interest in
the REIT and would continue to operate the properties. It would lease them from
MGM Growth Properties under 10-year leases that would each include four
five-year extensions.
MGM Resorts CFO Dan D’Arrigo, in discussing the REIT’s
debt-to-equity ratio, said on Thursday’s call that “it would be very middle,
down the fairway, in terms of leverage compared to its peers in its market.”
MGM Resorts reported Thursday that its
third-quarter net income was $66.4 million, up from a net loss of $20.3 million
a year earlier. MGM said the combination of lower costs and an income-tax
benefit boosted the company to a profit. Revenue fell 8.2%, to $2.28 billion.