VICI announces $17.2bn deal to acquire MGM Growth properties

The real estate investment trust VICI Properties has agreed on a deal to acquire MGM Growth Properties for $17.2bn.

VICI was spun off from Caesars Entertainment in 2017 while MGM Growth Properties was also spun off from MGM Resorts.

The deal

Under the deal, MGM Growth Properties Class A shareholders will receive 1.366 shares of newly issued VICI stock for every MGM Growth Properties share they hold.

VICI’s shares have traded at an average of $31.47 in the five days before the deal, suggesting a price of $43 per MGM Growth Properties share. 

MGM Resorts, the controlling shareholder in MGM Growth Properties, will receive $43 in cash for the redemption of the majority units of stock it holds for a total consideration of $4.4bn. Furthermore, MGM Resorts will also hold on to 12m units.

The total $17.2bn figure also includes VIVI’s assumption of approximately $5.7bn in MGM Growth Properties’ debt.

In its announcement, VICI said the deal would bring the combined operation’s enterprise value to $45bn, making the new entity the largest “experiential REIT (Real Estate Investment Trust)” in the US.

When the deal closes, VICI plans to enter into a new master lease agreement with MGM for the MGM properties it will own, which includes the Mirage and Park MGM.

The new master lease agreement will have a total annual rent of $860m, inclusive of MGM Growth Properties’ pending acquisition of MGM Springfield. This will be for an initial 25 year period, and comes with three 10-year tenant renewal options.

Rent will increase 2.0% per year for the first 10 years and then between 2% and 3% depending on inflation.

VICI will also continue the MGM Growth Properties’ joint venture with the Blackstone Real Estate Investment Trust (BREIT).

The joint venture made a number of property acquisitions from MGM Resorts in 2019 and 2020, which included the Bellagio and Mandalay Bay.

According to the announcement, the deal will be financed through a $9.3bn financing commitment from Morgan Stanley, J.P. Morgan, and Citibank.

What VICI and MGM Growth Properties had to say

VICI expects the deal to allow it to diversify its portfolio in terms of clients. At the time of writing, Caesars makes up 84% of VICI’s revenue, but after the merger is complete, Caesars’ would contribute 41%.

Ed Pitoniak, CEO of VICI Properties said: “Through this transformative strategic acquisition, we are merging MGP’s best-in-class portfolio into VICI’s best-in-class management and governance platform, creating the premier gaming, entertainment and leisure REIT in America. 

“We want to thank James Stewart, Andy Chien and the MGP Board for building and stewarding a portfolio of such exceptional quality, and going forward we are honored to become a key real estate and capital partner for Bill Hornbuckle and the MGM Resorts management team and Board. We look forward to supporting their strategic growth objectives for decades to come.”

Bill Hornbuckle, CEO and President of MGM Resorts, said: “This transaction unlocks the significant real estate value of our assets, enhances our financial flexibility and strengthens our ability to execute key growth initiatives. We look forward to our long-term partnership with VICI.”

James Stewart, CEO of MGM Growth Properties said:“After many years of growing both of our portfolios, combining them into one company will generate the best results for the shareholders of both companies. The combined company will create a superior platform for delivering exceptional returns to MGP’s existing shareholders, by improving diversification, increasing scale, lowering cost of capital and benefiting from future growth.”