MGM Spins Off 10 Properties Into Real Estate Investment Trust
MGM Resorts International has spun 10 of its properties off into a publicly traded real estate investment trust (REIT) to be called MGM Growth Properties LLC, or MGP.
MGM is giving the new subsidiary MGP the real estate upon which Mandalay Bay, Luxor, Excalibur, New York New York, The Park, Monte Carlo, The Mirage, MGM Grand Detroit, Beau Rivage and Gold Strike Tunica sit PLUS the added bonus of absorbing $4 billion dollars worth of MGM's debt.
The properties that sit on the real estate will still be owned by MGM Resorts and operate normally. MGM will pay the new subsidiary rent for the usage of the real estate under a long term lease agreement.
Profits realized by real estate gains (the rent) are taxed differently than standard earnings (the drop). MGM funnels the profits from dining, hotel rooms, casino win etc, out of the properties as an expense (rent) to their "landlord" MGP. The landlord realizes this cash as real estate investment gains which are taxed at lower rates.
In the end, the entirety of MGM/MGP stands to make more profit on the same amount of income due to tax savings. The savings is then used to pay down the $4b in debt absorbed from MGM at a quicker pace. Additionally, MGM plans to refinance this debt with new debt, at better terms.
This agreement does not include Bellagio, MGM Grand, Circus Circus, City Center, Borgata, Grand Victoria, the Las Vegas Arena, the undeveloped parcels (the concert parking lots at either end of The Strip) or either of the Macau properties. Some of these properties could be holstered for future infusions and additions.
MGM says that the REIT split will take place in Q1 2016.
I find it fascinating that The Park is listed as an individual property asset. Perhaps MGM sees The Park as a potential development opportunity, beyond the benches, trees, shops and food trucks that it currently aspires to be.
Also interesting to note that Circus Circus is excluded. Circus Circus has been MGM's bastard child since the Mandalay acquisition in 2005. Do they see the big top's real estate as undervalued and worthless addition, non-core asset, or is it a long shot future bet being holstered along side sure bets Bellagio, Aria and MGM Grand.
I don't foresee the REIT having any direct implications to tourists. Ideally it gets the debt monkey off of MGM's back (a little) and unlocks some hidden values in tax savings. The windfalls could go into capital expenditures - the rebrand/renovation of Monte Carlo for example.
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