Banks line up US$9bn financing commitment for VICI's MGP acquisition

3 min read
David Bell

Morgan Stanley, JP Morgan and Citibank are providing a US$9.3bn financing commitment for VICI Properties' US$17.2bn acquisition of MGM Growth Properties, the casino real estate investment trust said on Wednesday.

The deal will create the largest private owner of meeting and convention center space in the US and the largest hotel owner in the US by number of rooms, with a market capitalization of US$45bn, VICI said in a presentation.

MGM Growth Properties is being sold by its majority owner MGM Resorts as the casino operator pursues an "asset light" strategy focused on developing sports betting and gaming as well as expanding in Asia. Casino landlord VICI, on the other hand, is looking to scale up and reap the benefits of having a bigger, more diversified real estate footprint.

VICI will finance the US$4.4bn cash portion of the acquisition with debt, and look to refinance the US$5.7bn of MGM Growth Property debt being assumed in the merger. In doing so, the combined company will position itself for investment-grade ratings by eliminating all secured debt and establishing an unencumbered asset pool, it said Wednesday.

Both VICI and MGM Growth Properties currently have sub-investment grade ratings, and carry weighted average interest rates of 4% and 4.5%, respectively, according to an investor presentation. The average yield in ICE BofA's investment grade corporate bond index is just 1.92% as of Tuesday.

"The ability to get an investment grade rating is a key aspect of the transaction," said Scott Merkle, managing partner at SLB Capital Advisors, which advises corporate owners of real estate and focuses on sale and leaseback deals. "The lower cost of capital is a nice competitive advantage."

As a combined company VICI will be able to improve its credit profile by adding scale and diversity to its tenant base, as well as attracting additional capital to MGP shares, which under its LLC structure are not currently eligible for a number of equity indices in which VICI is included. It also expects to deleverage ahead of the deal closing through equity transactions, joint ventures and asset sales, according to the company presentation.

"It's a tried and tested playbook in the REIT space," said Merkle. "I think the transaction will resonate with a lot of investors."

The deal marks another step in MGM Resorts' strategy of unlocking the value of its real estate assets. In July the company announced a US$3.9bn sale and leaseback deal with Blackstone on the Aria Resort & Casino and Vdara Hotel and Spa.

"This transaction unlocks the significant real estate value of our assets, enhances our financial flexibility and strengthens our ability to execute key growth initiatives," said Bill Hornbuckle, CEO and president of MGM Resorts on Wednesday.

The acquisition is expected to close in the first half of 2022. Morgan Stanley is acting as lead strategic and financial advisor to VICI Properties on the transaction, with Citigroup also acting as financial advisor to VICI. JP Morgan is acting as financial advisor to MGM Resorts.