VICI Properties Inc. (VICI) Announces Strategic $ 17.2 Billion Acquisition of MGM Growth Properties LLC (MGP)
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VICI Properties Inc. (NYSE: VICI) (“VICI Properties” or “VICI”), MGM Growth Properties LLC (NYSE: MGP) (“MGP”) and MGM Resorts International (NYSE: MGM) (“MGM Resorts”), MGP’s majority shareholder announced today that it has entered into a definitive agreement (the “Master Transaction Agreement”) under which VICI Properties will acquire MGP for a total consideration of $ 17.2 billion, including assuming approximately $ 5.7 billion in debt. Upon completion of the merger, VICI will have an estimated enterprise value of $ 45 billion, thereby firmly strengthening VICI’s position as the largest experiential net rental REIT while advancing VICI’s strategic goals of improvement. and portfolio diversification.
Under the Master Transaction Agreement, MGP Class A shareholders will receive 1,366 newly issued VICI shares in exchange for each MGP Class A share. The fixed exchange ratio represents an agreed price of $ 43.00 per share of MGP Class A shares based on the 5-day volume weighted average price of VICI of $ 31.47 as of July 30, 2021 and represents a 15.9% premium over MGP’s closing share price in August. 3, 2021. MGM Resorts will receive $ 43.00 per unit in cash for the redemption of the majority of its units of MGP Operating Partnership (“OP units”) that it holds for a total cash consideration of approximately 4.4 billion dollars and will also retain approximately 12 million stakes in a newly formed operating partnership of VICI Properties. The MGP Class B share held by MGM Resorts will be canceled and cease to exist.
Concurrently with the closing of the transaction, VICI Properties will enter into a modified and reformulated triple net head lease with MGM Resorts. The lease will have an initial aggregate annual rent of $ 860.0 million, including MGP’s ongoing acquisition of MGM Springfield, and an initial term of 25 years, with three 10-year tenant renewal options. The rent under the amended and restated head lease will increase at a rate of 2.0% per annum for the first 10 years and thereafter at the greater of 2.0% per annum or the price index at consumption (“CPI”), subject to a ceiling of 3.0%. In addition, VICI will retain MGP’s existing 50.1% interest in the joint venture with Blackstone Real Estate Income Trust, Inc. (“BREIT JV”), which owns the real estate assets of MGM Grand Las Vegas and Mandalay Bay. BREIT JV’s lease will remain unchanged and provides for a current annual base rent of approximately $ 298 million and an initial term of 30 years, with two 10-year tenant renewal options. The rent under the BREIT JV lease increases at a rate of 2.0% per annum for the first 15 years and thereafter at the greater of 2.0% per annum or CPI, subject to a 3.0% cap. On a combined basis, the MGM head lease and the BREIT JV lease will provide VICI with an initial attributable rent of approximately $ 1.0 billion.
The transaction has been approved by the board of directors of each of MGM Resorts, MGP and VICI Properties (and, in MGP’s case, the Conflicts Committee). The parties expect the transaction to close in the first half of 2022, subject to customary closing conditions, regulatory approvals and shareholder approval of VICI Properties. The board of directors and management team of VICI Properties will remain unchanged.
- Immediate generation of AFFO per share: The transaction extends VICI Properties’ track record of creating consistent value since its inception in 2017 and is expected to provide an immediate and high quality increase in AFFOs per share at closing.
- Improves the quality, size and scale of the portfolio with a significant discount from the cost of replacement: VICI Properties will add 15 Class A entertainment resort properties across 9 regions comprising 33,000 hotel rooms, 3.6 million square feet of meeting and convention space, and hundreds of food, beverage and entertainment at an estimated 30-40% reduction in replacement cost. As a result of the transaction, approximately 55% of VICI’s rental base will be generated by market-leading regional properties, while the remaining 45% will come from properties on the Las Vegas Strip.
- Dramatically diversifies the tenant base: On at closing, the concentration of the main tenants of VICI Properties will be reduced to ~ 41% (compared to 84% currently) while 84% of the rents of VICI Properties will come from the tenants of the S&P 500 who have already paid 100% of the rent, time and in cash throughout the COVID-19 pandemic
- Adds a world leader in hospitality and entertainment to the tenant list: The transaction adds a 55-year head lease, including tenant renewal options, with inflation protection through a CPI and corporate guarantee from MGM Resorts, a global S&P 500 entertainment company with venues national and international
- Stimulates retained cash flow and strengthens the capacity to finance accretive growth: As a result of the MGP acquisition and the ongoing real estate acquisition of the Venetian Resort and Sands Expo Center, VICI Properties is expected to retain approximately $ 500 million in annualized free cash flow, after payment of dividends, which could be deployed to very attractive growth opportunities. through play and other experiential sectors
- Position report for investment grade status: The transaction will position VICI Properties’ balance sheet for investment grade status as VICI eliminates all of its existing secured debt and establishes a pool of unencumbered assets.
- Amplified index demand and trading liquidity: The transaction unlocks significant new index eligibility for MGP Class A shareholders while allowing investors in the combined company to benefit from a rebalancing of the index, given the significantly larger size and positioning strong for inclusion of the S&P 500 and improved trading liquidity.
- Lower cost of capital considering the larger scale, diversity, better credit profile and better inclusion in the index: With the improvement in the cost of capital and retained cash flow, VICI is positioned to continue to develop its portfolio in an accretive manner in the gaming and non-gaming sectors.
Further details can be found in the Transaction Overview presentation posted on the VICI Properties website.
“Through this transformative strategic acquisition, we are merging MGP’s premier portfolio with VICI’s best-in-class management and governance platform, creating America’s premier gaming, entertainment and leisure REIT,” said Ed Pitoniak , CEO of VICI Properties. “We would like to thank James Stewart, Andy Chien and the MGP Board of Directors for building and managing such an exceptional quality portfolio, and going forward we are honored to become a key real estate and financial partner for Bill Hornbuckle and the management team of MGM Resorts and Consulting. We look forward to supporting their strategic growth goals for decades to come. “
“After many years of growing our two portfolios, combining them into one company will generate the best results for shareholders of both companies,” said James Stewart, CEO of MGP. “The combined company will create a superior platform to deliver exceptional returns to existing MGP shareholders, improving diversification, increasing scale, reducing cost of capital and taking advantage of future growth. “
Bill Hornbuckle, CEO and President of MGM Resorts, said, “This transaction unlocks significant real estate value in our assets, improves our financial flexibility and strengthens our ability to execute key growth initiatives. We look forward to our long term partnership with VICI.
VICI Properties has secured a $ 9.3 billion financing commitment from Morgan Stanley, JP Morgan and Citibank.
Morgan Stanley & Co LLC is acting as lead strategic and financial advisor to VICI Properties in connection with the transaction. Citigroup Global Markets Inc. also acts as financial advisor to VICI Properties. Hogan Lovells US LLP and Kramer Levin Naftalis & Frankel LLP are legal advisers to VICI Properties. Baker Botts LLP is legal counsel to MGP. Evercore acts as financial advisor and Potter Anderson & Corroon LLP acts as legal advisor to the Disputes Committee of the MGP Board of Directors. JP Morgan is acting as financial advisor and Weil, Gotshal & Manges LLP as legal advisor to MGM Resorts.
VICI Properties also announced today that its board of directors has declared a regular quarterly cash dividend of $ 0.36 per common share, which represents an annualized amount of $ 1.44 per share and an increase of 9, 1% from the current dividend rate. The dividend will be payable on October 7, 2021 to shareholders of record at the close of business on September 24, 2021.
Conference Call Information
VICI Properties will host a conference call and audio webcast on Wednesday, August 4, 2021 at 8:00 a.m. Eastern Time (ET). The conference call can be accessed by dialing 844-200-6205 (domestic) or +44 208 0682 558 (international) and entering conference ID 582076. An audio replay of the conference call will be available until midnight ET on August 11, 2021 and can be accessed by dialing 929-458-6194 (national) or +44 204 525 0658 (international) and entering the access code 840028.
About VICI Properties
VICI Properties Inc. is an experiential real estate investment trust with one of the largest portfolios of leading gaming, hospitality and entertainment destinations in the market, including the world-renowned Caesars Palace. VICI Properties’ national and geographically diverse portfolio comprises 28 gaming facilities representing more than 47 million square feet and includes approximately 17,800 hotel rooms and more than 200 restaurants, bars, nightclubs and sports betting. Its properties are leased to major gaming and hospitality operators including Caesars Entertainment, Inc., Century Casinos, Inc., Hard Rock International Inc., JACK Entertainment LLC and Penn National Gaming, Inc. VICI Properties also has an investment in the Chelsea Piers, New York, and has four championship golf courses and 34 acres of undeveloped land adjacent to the Las Vegas Strip. VICI Properties’ strategy is to create the highest quality and most productive experiential real estate portfolio in the country. For more information, please visit www.viciproperties.com.