Las Vegas Review-Journal (Sunday)
Spreading the wealth
The $4.2 billion Bellagio sale-leaseback agreement seemed to be positive news not only for MGM Resorts International and The Blackstone Group, but also for those not involved in the deal.
On a call with investors Wednesday, Eldorado Resorts CEO Thomas Reeg said his company was happy to see what MGM was able to do with the Bellagio real estate. “We’re even happier that there’s new capital in the real estate investment arena that’s coming into the space,” Reeg said. “We think that that’s the tip of the iceberg.”
The agreement is thought by many to help increase the value of gaming real estate all across the Strip. At 17 times the annual rent of $245 million, it appears to have broken the record for the most expensive sale of a Las Vegas resort. By comparison, MGM Resorts completed a sale-leaseback involving Park MGM and NoMad Las Vegas with MGM Growth last year for just under 13 times the property’s annual rent.
“We think that the value of Vegas real estate is going to continue to climb as you have more capital that becomes interested in making those types of investments,” Reeg said. “But both the Bellagio trade and the Circus Circus trade were spectacular trades from our standpoint.”
Bailey Schulz Las Vegas Review-Journal next few years — could deal a major blow to operators; if they don’t have the rent money on-hand, they could default, allowing a new operator to step in.
But Parks said it’s hard to know how these transactions will play out, given there were no gaming REITs the last time the country experienced a significant downturn.
“Hopefully, we never get to see that here in Las Vegas, but it’s a new business model in the casino industry. Everyone’s waiting to see how things shake out in a down cycle,” he said.
Jefferies analyst David Katz said that, while operating companies are able to take some variability out of their balance sheet, “time will tell how good a corporate strategy” these sale-leasebacks are and whether more companies follow suit.
“I doubt that it becomes an important aspect of the companies that have not done it so far,” Katz said. “They are more likely in positions where they don’t need the money. They don’t have a valid use of proceeds for selling their real estate.”