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MGM real estate spinoff wants to buy Caesars real estate company


Steve Marcus

An exterior view of the Mirage Thursday, Feb. 26, 2015.

Updated Wednesday, Jan. 17, 2018 | 10:58 a.m.

MGM Growth Properties, the company that acts as landlord for many MGM properties, wants to combine with VICI Properties, the company that owns land and resorts operated by Caesars Entertainment.

MGM Growth and VICI are REITS, or real estate investment trusts. In both cases, the REITS own the land and properties of the resorts and lease it back to the companies that operate the hotels and casinos.

MGM Growth today issued a statement saying it had approached the management of VICI and offered to “acquire 100 percent of VICI’s outstanding common stock for $19.50 per share, and to date, VICI has elected not to engage in meaningful discussions.”

On Wednesday, VICI released a statement about the deal explaining why it was rejecting the proposal.

In the statement, VICI CEO Edward Pitoniak said the decision of its board was unanimous, and it “believes that our prospects as a standalone independent company will deliver significantly superior results for our shareholders.”

Neither MGM nor Caesars representatives would comment on the proposed deal.

But in its release discussing the deal, MGM Growth Properties included the text of a letter it sent to VICI outlining the benefits of the deal, saying it would "create one of the largest triple net lease REITs, with an unmatched portfolio of high quality leisure, entertainment and hospitality assets. A combination would also create a larger and better capitalized company with greater scale and an enhanced financial profile.”

MGM Growth is offering to buy all outstanding common stock of VICI for $19.50 per share.

Dr. Tony Alamo, chairman of the Nevada Gaming Commission, described the proposed merger as essentially a business transaction between two landlords. Although the commission sometimes requires landlords to testify at hearings, it’s unlikely this deal would come under review, he said.

“There is no regulatory oversight or approval required if this is a straight ahead real estate REIT purchase,” Alamo said.

Because MGM Growth Properties is affiliated with MGM Resorts International, it may seem odd that it would want to be the landlord for properties operated by Caesars Entertainment.

Alex Bumazhny, a gaming analyst with Fitch Ratings, said yes, it’s unique for a REIT to have all of its tenants in one industry, let alone one of its competitors. But it probably won’t be an issue. “There should not be any conflicts of interests in theory. Caesars’ leases, and other agreements such as the right of first refusal on certain assets, should dictate the nature of the relationship between Caesars and VICI or MGP,” he said

Companies like MGM Resorts International form REIT spinoffs because of the their unique tax advantages. REITS get significant tax breaks as long they distribute at least 90 percent of their income to their unit holders or shareholders.

MGM Growth Properties was formed in 2016 and owns the land and buildings of the following MGM Resorts International Properties: Mandalay Bay, the Mirage, the Monte Carlo, New York-New York, Luxor, Excalibur and The Park, all in Las Vegas, the MGM Grand in Detroit, the Borgata in Atlantic City, MGM National Harbor in Maryland, the Beau Rivage in Biloxi, Miss., and the Gold Strike in Tunica, Miss.

VICI was formed as part of the post-bankruptcy reorganization of Caesars Entertainment Operating Company. In addition to four golf courses, VICI owns the following casinos and race tracks: Harrah’s and Caesars Palace in Las Vegas, Caesars in Atlantic City, the Horseshoe in Hammond, Ind., Harrah’s and Harveys in Lake Tahoe,

Harrah’s Louisiana Downs, Bluegrass Downs in Kentucky, the Roadhouse and Horseshoe in Tunica, Miss., the Horseshoe in Southern Indiana, the Horseshoe and Harrah’s in Council Bluffs, Iowa, the Horseshoe in Bossier City, La., Harrah’s in Reno, Harrah’s in North Kansas City, Harrah’s in Metropolis, Ill., Harrah’s in Joliet, Ill., Bally’s in Atlantic City and Harrah’s in Biloxi, Miss.

This version of the story has been updated to include comments from VICI and Bumazhny.