MGM Resorts moves to the Las Vegas Strip

Just a few years ago MGM Resorts (NYSE: MGM) had to contend with a complicated ownership structure in arguably the most valuable section of the Las Vegas Strip. The company owns the Bellagio Hotel & Casino, New York-New York and Park MGM, but it did not own the Cosmopolitan and only owned half of CityCenter, which was in the middle of the company’s row of properties in the heart of the Las Vegas Strip.

Over the past few months, MGM Resorts has resolved this issue. He bought the half of CityCenter he didn’t own for $ 2.125 billion and announced earlier this week the $ 1.625 billion acquisition of The Cosmopolitan’s operations in Blackstone. MGM Resorts now controls the territory from Mandalay Bay to Bellagio, allowing the company to connect and integrate its best assets on the Las Vegas Strip.

Image source: Getty Images.

MGM’s latest acquisition

MGM’s $ 1.625 billion acquisition of Cosmopolitan’s operations includes 3,032 hotel rooms, a 110,000 square foot casino, 243,000 square feet of meeting space, and more. The company will not own the real estate, but has agreed to pay $ 200 million per year in rent, which will increase between 2% and 3% per year over the next 30 years (with three renewal options of 10 years thereafter).

Management said the price was only eight times Adjusted EBITDA, an indicator of cash flow for a resort and casino. The multiple includes “expected operational synergies and identified revenue growth opportunities,” but if correct, the price is attractive given that casino stocks typically trade at around 10 to 15 times EBITDA.

The timing of the acquisition couldn’t be better for MGM Resorts. The Las Vegas Strip is reporting all-time record gaming revenue, and every casino company has talked about resuming corporate and convention bookings for later in 2021 and 2022. Integrate The Cosmopolitan with other offerings from the business will be an advantage for MGM.

The vision of the Las Vegas strip

Consolidation has been taking place in Las Vegas for more than two decades, but this movement brings together a large majority of the south end of the Las Vegas Strip as part of the operations of MGM Resorts. The north end of the Las Vegas Strip is controlled primarily by Caesars Entertainment (NASDAQ: CZR), along with a few other sprinkled owners, including MGM with The Mirage.

Owning adjacent complexes can help MGM reserve room blocks for conventions and other large events. For development purposes, it could also allow MGM Resorts and its real estate partners to develop new properties. Ultimately, controlling a chain of casinos on the Las Vegas Strip is an enviable position for MGM Resorts.

MGM grows aggressively

Over the past decade, we have seen MGM Resorts monetize real estate and add new casinos in Las Vegas and across the country. This is another step in that direction. I could imagine the expansion continuing and making MGM Resorts a real growth company.

The first thing to be resolved will be how MGM wants to develop in online gaming. The company must determine how it will play DraftKings’ (NASDAQ: DKNG) Offer of 22 billion dollars for the takeover of its partner 50/50 BetMGM Entain (LSE: ENT), an agreement to which he must consent. As I wrote last week, MGM could end up acquiring the half of BetMGM that it doesn’t own, another expansion in the gaming industry.

MGM Resorts occupies a powerful position in the gaming market, particularly on the lucrative Las Vegas Strip. If the game continues to explode in the United States, the title could continue its strong performance.

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