For Sale sign at Tropicana Las Vegas

Nov 6, 2019 3:00 AM

MGM Resorts International recently made headlines when it announced the potential sale and leaseback of the MGM Grand Las Vegas.

Not to be outdone, Penn National Gaming COO Jay Snowden said the company continues to receive unsolicited bids for its Tropicana resort, located on 34-acres across the street from the MGM Grand.

“We are continuing to engage in those conversations. We will see where they take us. But nothing is done until it’s done,” said Snowden, who takes over as Penn CEO in January.

SunTrust Robinson Humphrey gaming analyst Barry Jonas said deleverage remains a key focus, while Penn management noted several assets, they could see monetizing.

Penn operates 41 casinos in 19 states, as well as video gaming terminal operator Prairie State Gaming in Illinois. A majority of the property is owned by Gaming and Leisure Properties, a real estate investment trust, which the company spun off in 2013.

Penn also owns M Resort, which is located south of the Las Vegas Strip in Henderson.

“Potential sales of wholly-owned assets could drive incremental leverage,” Jonas said in a research note.

Among the recent deals in Las Vegas were Caesars Entertainment’s sale-leaseback transaction for $516.3 million with Imperial Companies for $516 million.

MGM sold the real estate associated with Bellagio for $4.25 billion to Blackstone Real Estate Income Trust to Treasure Island owner Phil Ruffin for $825 million.

During a third-quarter earnings conference call, MGM CEO Jim Murren said he expects to announce a buyer for MGM Grand by the end of the year. Murren referred to the Bellagio sale as “one of the most sophisticated agreements” the company has ever entered into, considering its partnership with Blackstone.

“The Bellagio real estate transaction represents more to us than a smart financial deal,” Murren said. “It provides a likely blueprint for the future.”

Murren told analysts the company is looking to sell and lease back the operations of Aria and Vdara at CityCenter.

The Circus Circus and Bellagio transactions were “key deals, but by no means the end of the journey,” said Murren, with MGM expecting in the next year or two to complete its transition “from a capital-intensive real estate business towards a developer, manager and operator.”

Murren said MGM’s strategy to become an “asset-light business” would involve recycling capital into high return-on-investment opportunities, including growing its plans to develop an integrated resort in Japan.

“Positively, we see the transaction de-leveraging MGM from 4.9 times to 4 times a net lease-adjusted basis,” said Thomas Allen, equity analyst with Morgan Stanley. “With investors increasingly concerned about potential for a recession, we view reduced leverage as a positive.”

Once the Circus Circus deal closes, MGM would still operate 13 properties, as well as T-Mobile Arena and three other event centers along the Strip.

Penn with one Strip asset in their portfolio is taking a little bit of a different approach.

“I would call it the evolution of our thought process,” Snowden said, “It doesn’t mean that the hub-and-spoke model Las Vegas Strip with regional assets across the country is flawed. We don’t think it’s flawed.”

Snowden said the plan is to offer patrons a variety of options from a singular property, such as the convergence of the casino and resort with internet gaming and sports betting.

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