MGM May Sell Bellagio and MGM Grand as Part of MGM 2020 Strategy

A Las Vegas casino operator is exploring the option of selling some of its assets as part of an attempt to restructure.

MGM Resorts International is weighing either the sale or leaseback of marquee properties such as Bellagio and MGM Grand.

Bloomberg reported that the company formed a committee at the start of the year to study ways to extract value from its real estate.

The committee is comprised of three independent directors – Paul Salem, John B. Kilroy Jr., and Keith A. Meister.

In January, New York-based investment adviser Starboard Value purchased a 0.54% stake in MGM and stated plans to pressure the company to restructure.

Casinos often choose this method to further expand the company through a smaller number of resorts. Macquarie Group analyst Chad Beynon believes that MGM could gain between $6B-$7B from the sale of Bellagio and MGM Grand.

This follows news of rivals Caesars and Eldorado Resorts announcing a  $17.3 billion partnership to create the largest casino company in the US. Together, the pair hope to open an extra 60 properties across the country.

Rumors have surfaced that regulators could ask Caesers to sell a strip property to help fund the project. The plan is very similar to that of MGM.

Treasure Island boss Phil Ruffin previously expressed interest in buying a strip property from the company.  It is thought he will also hold interest in MGM’s properties, both of which are located on the same high-end strip of casinos.

Sources close to the MGM discussions revealed that MGM has hired an advisor to seek potential buyers for both of the properties.

It is understood that MGM is willing to sell or lease back the properties either individually or as a pair. Macquarie’s Chad Beynon told Bloomberg that “on an after-tax basis, we believe MGM could repurchase over 150 million shares” from a sale-leaseback of its marquee properties.

It is believed that the initiative is part of the MGM 2020 strategy to reduce costs and cut debt.

Other parts of the strategy include slashing staff numbers, with plans to layoff around 2,000 people. Some of them, it seems, are to be replaced by robots.

Earlier in the month, it was reported that shares in the company dropped drastically after an announcement that the company was being downgraded.  

The expectation of low revenue for the second quarter of the year forced analyst Thomas Allen to downgrade his rating for MGM from “outperform” to “equal-weight”.

He also lowered his price estimate target slightly from $32 to $31, which was enough to see a drop in stock price.