VICI Properties, the real estate investment trust spun off from Caesars Entertainment in 2017, has agreed to acquire MGM Growth Properties, itself spun off from MGM Resorts, for $17.2bn.
Under the deal, MGM Growth Properties Class A shareholders will receive 1.366 shares of newly issued VICI stock for every share of MGM Growth Properties they hold. With VICI’s shares trading at an average of $31.47 in the five days before the deal, this suggests a price of $43.00 per MGM Growth Properties share, a 15.9% premium compared to its share price before the deal.
MGM Growth Properties’ controlling shareholder, MGM Resorts, will receive $43.00 in cash for the redemption of the majority of units that it holds, for a total consideration of $4.4bn. However, it will keep 12 million units.
The $17.2bn total consideration figure also includes VICI’s assumption of around $5.7bn in MGM Growth Properties’ debt.
VICI said the deal would bring the combined entity’s enterprise value to $45bn, making the new business the largest “experiential REIT (Real Estate Investment Trust)” in the US.
When the deal closes, VICI will then enter into a new master lease agreement with MGM for the MGM properties it will own, such as 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, and an initial term of 25 years, with three 10-year tenant renewal options. Rent will escalate at a rate of 2.0% per year for the first 10 years and between 2% and 3%, depending on inflation, afterwards.
VICI will also continue MGM Growth Properties’ joint venture with the Blackstone Real Estate Investment Trust (BREIT). This joint venture made a number of property acquisitions from MGM Resorts in 2019 and 2020, such as the Mandalay Bay and Bellagio as the operator moved to a less property-heavy portfolio.
The deal will be financed through a $9.3bn financing commitment from Morgan Stanley, J.P. Morgan, and Citibank.
VICI said the deal would allow it to diversify its portfolio in terms of clients. Currently, Caesars makes up 84% of VICI’s revenue, but following the merger, the new business’ top client will contribute only 41%.
Last week, VICI reported a year-on-year increase in revenue and net profit during the first half of its 2021 financial year.
Revenue for the six months to June 30 amounted to $750.7m, up 46.4% from $512.9m in the same period last year.