MGM Growth Properties LLC, the casino company’s real estate investment trust, redeemed around $23.5 million operating partnership units of MGM Resorts International for $700 million.
That redemption price constitutes the remainder under a cash deal for the real estate investment trust to purchase up to $1.4 billion units in MGM Resorts. MGM Resorts plans to use the proceeds for general corporate purposes.
Once the redemption closes, MGM Resorts will have around 149 million units, or economic ownership of 53% in MGM Growth Properties.
The casino giant will also keep substantial real estate holdings, including a 50% interest in CityCenter in Las Vegas, a stake in MGM Springfield in Massachusetts, and a 56% interest in MGM China Holdings Ltd.
Bill Hornbuckle, MGM Resorts President, and CEO, said the transaction should help the casino company continue to follow up on its strategic goals as MGM deals with the impact of the coronavirus shutdowns on its US operations and properties. However, James Stewart, MGM Growth CEO, said he thinks the redemption will be a single-digit accretive to MGM’s adjusted funds from operations per share.
“This announcement reflects our continuing focus on enhancing our balance sheet and strengthen our financial flexibility,” said Bill Hornbuckle, MGM Resorts CEO and President. “As the pandemic restrictions continue to impact our operations and our properties across the U.S., we think the opportunistic exercise of our redemption right and our recent senior notes offering to allow the company to continue pursuing its strategic goals while navigating the coronavirus crisis.”
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MGM Resorts Closes Las Vegas Properties Mid-Week
In November, MGM Resorts announced that it would close three of its hotels, The Mirage, Mandalay Bay, and Park MGM midweek. However, the casino floors, restaurants, and other amenities will remain open throughout the week.
While MGM Resorts did not anticipate that the mid-week hotel closures would continue past December, the company stated that it would “continue to evaluate business levels to determine how long the mid-week closures remain in effect.”
Similarly, Wynn Resorts also announced that Encore would operate on a reduced schedule until tourism increases.
“We’ll go through an exercise, which we’re doing now, to think about what do we keep open and what do we close,” Hornbuckle said. “There are certain towers, there are certain amenities and certain brands that will potentially face closure from mid-November, possibly through the holiday season. We’ll see how it goes.”
“Pre-COVID, during slow times, we would close down towers, close down rooms, adjust our staffing,” said Corey Sanders, MGM Resorts COO. “We’re actually expert at it now, as a result of the COVID restrictions and managing mid-week verse weekends. We’re pretty confident that we can be very flexible on adjusting occupancy based on volumes and what’s going on in the market. I think there’s an opportunity to reduce hotel rooms and towers during the slower period.”
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MGM Stock Takes a Tumble
At the open of trading on December 21, shares of MGM Resorts International fell 5%. However, MGM stock had been on a run after falling more than 75% in early 2020. Currently, the stock is down around 10% for the year.
But MGM is not the only entertainment, travel, and hospitality related stocks to fall, including other casino companies, movie theater chains, and cruise lines.
The good news is, investor sentiment towards hospitality and travel stocks has begun to improve since the depths of the Covid-led bear market during the depths of the pandemic. The approval and distribution of a vaccine have helped confidence that the travel industry will bounce back. This seems to bode well for companies like MGM that rely on tourism.
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