- Gains full ownership of Atlantic City’s top-performing casino
- Related REIT will own property and lease back to MGM Resorts
MGM Resorts International, the largest casino operator on the Las Vegas Strip, agreed to buy Boyd Gaming Corp.’s 50 percent stake in Atlantic City’s Borgata hotel and casino for $900 million.
As part of the deal, MGM Resorts will sell the entire property for $1.18 billion to MGM Growth Properties LLC, a real estate investment trust it created earlier this year, and operate the Borgata under a lease-back accord, the companies said Tuesday in a statement.
The agreement consolidates ownership and operational control of the most successful casino in the New Jersey gambling market. Boyd expects to receive $600 million in net proceeds after deducting its share of the property’s debt. Borgata estimates it’s also entitled to tax refunds from the city totaling $180 million.
The deal represents a big bet by MGM on the future of Atlantic City, which has seen its annual casino revenue fall by half since 2005 to $2.41 billion last year, according to Bloomberg Intelligence. New casinos in New York, Pennsylvania and Maryland have eaten into New Jersey’s business. Governor Chris Christie last week signed a financial stabilization plan designed to avert a bankruptcy filing by the city.
MGM Resorts Chief Executive Officer Jim Murren said the deal would complement the company’s growing East Coast footprint, which includes a casino opening later this year in National Harbor, Maryland, just outside Washington, and another scheduled for 2018 in Springfield, Massachusetts. MGM can use its database of 60 million customers to promote the Borgata and achieve cost savings by making the property part of a larger enterprise, according to Murren.
“We viewed Borgata as what it is, a high-quality, high-performing property that’s bucked the trend in a very rough market,” Murren said.
A joint venture between Boyd and MGM, the Borgata brought a more upscale resort experience to Atlantic City when it opened in 2003. Modeled after higher-end properties in Las Vegas, it features a spa, restaurants and entertainment. It’s located in the marina district, away from the boardwalk where four of the city’s 12 casinos have closed since 2014.
While Borgata has taken market share as rivals closed, the casino still faces the threat that the state will legalize gambling in Northern New Jersey and create still more competition, Wells Fargo Securities analyst Cameron McKnight said in a research note after the deal was announced.
MGM Resorts, under pressure from activist investor Land & Buildings Investment Management LLC, created MGM Growth Properties as way to boost its stock price. Real estate investment trusts generally trade at higher valuations than regular corporations because they don’t pay income taxes, distributing profits instead directly to shareholders. MGM Growth raised over $1 billion in an April public stock offering.
The Borgata generated earnings of $212 million before interest, taxes, depreciation and amortization, and revenue of $812 million for the year ended in March, MGM Resorts said Tuesday. MGM Growth will receive rent of $100 million a year under the lease.
Boyd has also been taking steps to revamp its portfolio, acquiring three casinos in its Las Vegas hometown for $610 million since April.