The partnership between MGM Resorts International and Dubai World concerning the development of Las Vegas’ very own CityCenter is ending on good terms. On Wednesday, the Nevada Gaming Control Board (NGCB) recommended that the Nevada Gaming Commission should approve the purchase of Dubai World by MGM. Dubai World is a Dubai government investment arm.
MGM Resorts International is Looking Forward to Owning These Businesses
In November 2007, Dubai World was heavily involved in the development of the CityCenter project, which cost $9 billion. Its share was 50% and the company took it just before the Great Recession hit.
At the time, CityCenter consisted of the then-named Mandarin Oriental Hotel, Aria Resorts & Casino, Waldorf Astoria (then condo tower), Vdara condo-hotel and Veer Towers condos. Due to construction flaws, the Harmon condo tower, which cost $400 million, was later demolished. Of the joint venture, Vdara and the casino, which opened in December 2009, remain.
The chief financial officer of MGM, Jonathan Halkyard, stated that both Vdara and Aria are extremely successful and that the company is thrilled to own 100% of these businesses. Even though the partnership with Dubai World was very successful and fruitful, MGM owning CityCenter makes things much simpler.
CityCenter Hits a Snag
Dubai World paid $5 billion back in 2007 to own 50% of CityCenter and MGM stock. To protect its interests in the projects, Dubai World filed a lawsuit in 2009. The lawsuit questioned the overall long-term health of the management of development by MGM.
Since the lawsuit, the project almost ended up being bankrupt; however, an agreement with lenders was made to provide emergency funding, which is what helped the project to be finalized. Recently, Brett Torino even purchased an $80 million plot here.
Sean McGinnis, a Butler Show attorney and MGM’s counsel, informed the board the purchase is a part of a transaction that has two steps. The first one is MGM acquiring the 50% share that Dubai World has for a price of $2 billion and it represents a valuation of $5.8 billion based on net debt of around $1.5 billion.
The second step involves selling the assets to Blackstone Real Estate Investment Trust for a price of $3.89 billion. MGM will lease the properties and continue to operate them. The initial annual rate that Blackstone gave MGM is $215 million.
After these two steps are completed, MGM will no longer own any of its properties on the Strip, as they will be sold to Blackstone or MGP, as told by McGinnis.
Springfield, MA, is the only other property that is owned by MGM, but this facility will be sold to MGP by the end of 2021. MGM announced that Vici Properties was acquiring MGP, as a part of a sale that cost $17.2 billion. Additionally, Vici announced a deal to acquire the Sands Expo and Convention Center and the Venetian for a price of $4 billion. Vici is a Caesars Entertainment spin-off.
Dubai World’s Relationship with MGM was Open and Fair
Jeff Silver, the counsel for Dubai World, gave a presentation in which he talked about the investment that the country made in 2007, just before the Great Recession rocked the world. He said that the Great Recession continued until the end of 2009 and throughout it, Dubai World was extremely committed and managed to change the nature of Las Vegas by creating numerous jobs on the major construction project.
Silver added that to the credit of MGM and the planners, this project was a massive undertaking. Dubai World is no stranger to massive projects such as that one as it has done a number of them around the world, Dubai included. Moreover, Silver said that the relationship between MGM and Dubai World was open and fair and that has been the basis of the sale.
Speaking on the sale, the attorney said that since the opportunity was there, Dubai World felt like this was the perfect time to step away from the project and allow MGM to fulfill its goals and that Dubai World was respectful of the way that MGM wanted to hold ownership of the properties. Dubai World expects the closing to occur this month and hence, terminate its involvement and its relationship as a Nevada licensee.
MGM Resorts and Infinity World’s property, The Shops at Crystals, was sold to Simon Property Group in 2016 for a price of $1.1 billion. Waldorf Astoria purchased Mandarin Oriental in 2018 for a price of $214 million.
J. Brin Gibson, the NGCB Chairman, stated that the partnership started on the right foot and so far, it has been amazing. He also thanked everyone for their commitment, including Dubai World, for staying with MGM through the hardest of times and not letting it enter protracted litigation.
The president and COO of Infinity World, William Grounds, stated that Dubai World still holds many investments in the US in the port and hotel industry; however, it is unlikely for the company to invest in the casino industry.
Grounds acknowledged that the company is still a major MGM shareholder, with 4.3% of the stock. He added that he does not see the company making any further investments in the gaming sector, especially in US brick-and-mortar casinos, as it is not on the radar at this point. He finished by saying that Dubai World is more focused on investing in surging markets like Africa.