• MGM sells Bellagio and rents it back from a joint-venture with Blackstone Real Estate Income Trust
• Bellagio deal helps execute the company’s asset-high strategy
• Flexibility remains chief priority for MGM as the company relieves itself of debt

MGM sells both the Las Vegas Bellagio and Circus Circus Las Vegas casinos in a bid to boost operational flexibility, and possibly prepare for an expansion in Japan.

MGM Resorts Pushes Ahead with Bellagio Deal

On Tuesday, October 15, MGM Resorts International revealed two flagship deals – one involving a joint-venture with Blackstone Real Estate Income Trust for the sale and lease of the Las Vegas Bellagio Hotel, and one for the sale of Circus Circus Las Vegas Strip Casino for $825 million.

In the first deal, MGM Resorts agreed to form a joint-venture with Blackstone Real Estate Income Trust and then lease back the Bellagio to MGM Resorts in a deal that amounted to $4.2 billion. As a result, the MGM subsidiary will be expected to pay $245 million annually for renting the property.

MGM will hold 5% of the equity in the joint-venture, as the company tries to streamline its portfolio and dump debt that investors have been lucky to lap up for the sake of owning prime piece of real-estate on The Strip.

MGM is expecting to push ahead with plans to establish an Integrated Resort (IR) in Japan, which will need an estimated capital of at least $5 billion to develop a project in Osaka, one of the main prefectures, on time.

While it may seem counter-intuitive to drop ownership of the property and then rent it from another company, MGM said that this move came after a careful review of real estate portfolio, overall valuation and operational potential. Here’s what MGM said about the Bellagio deal in an official press release:

“MGM Resorts is evolving its business model away from primarily a capital intensive, brick and mortar real estate business towards a developer, manager and operator of leading gaming, hospitality and entertainment properties.”

Bellagio Deal Boosts Operational Flexibility

Bellagio was the other flagship deal that was announced and sealed on Tuesday. It pertained to the sale of the property for the total value of $825 million to an affiliate of Treasure Island owner Phil Ruffin.

MGM Resorts CEO Jim Murren, who arrived just a month ago on the MGM board, felt the need to explain the deal: “MGM Resorts has engaged in an exhaustive process to evaluate its owned real estate and remains committed to executing its asset-light strategy in a measured way that maximizes value for its shareholders.”

Murren cited MGM’s focus on operational flexibility as an absolute priority, which once again hinted about future investment moves that would probably relate to Japan.