Question of the Day - 28 December 2019

Short answers: Yes to the first, no to the second. It’s complicated, so bear with us.

Bellagio, although sold to Blackstone, will continue to be leased by MGM Resorts International. As such, M Life will remain in place. And while it might make sense for Blackstone to rent the Cosmopolitan to MGM in a similar arrangement, none that we know of has been contemplated. Thus, the Cosmo remains an island unto itself where loyalty programs are concerned. (Also, Blackstone is continuing to shop the Cosmo, seeking to relieve itself of operating costs.)

As MGM Director of Corporate Media Relations Brian Ahern puts it, “Only the real estate was sold. There will be no changes to the operation of Bellagio. MGM Resorts will continue to operate the resort as we do for other properties that have been sold into real estate trusts. Guests and employees should see no difference in their Bellagio experience as a result of this transaction.”

While MGM retains a 5% equity stake in Bellagio, Blackstone will pay $4.25 billion for the megaresort (or 17 times rent) and MGM will shell out $245 million a year to sublet it.

MGM’s goal in the transaction is partly to guard against a potential recession by having “a fortress balance sheet,” as the company puts it, one that is almost entirely deleveraged. It also wants to raise cash for a potential venture into Japan, a project to which CEO Jim Murren is prepared to commit at least $10 billion.

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

The only question at this point is when namesake MGM Grand will be sold. It was rumored that Murren was trying to package it with Bellagio, but at the end of the day, the Green Monster remained with its namesake company.