MGM Resorts has doubled down on its bet on Atlantic City, striking a deal with its partner in the Borgata Hotel Casino, fellow casino-operator Boyd Gaming Corp., to buy out Boyd's 50% interest and gain full ownership over the upscale gaming property for $900 million.
The transaction, which is expected to net out for Boyd Gaming as $600 million in cash and approximately $300 milion in debt relief, includes the Borgata casino and its non-gambling Water Club hotel standing next door in the city's Marina District.
The property won't be on MGM Resorts' books for long, however. In a nifty piece of financial engineering, after completing the acquisition of Boyd Gaming's interest, MGM Resorts will sell the Borgata to its newly spun-off REIT, MGM Growth Properties (NYSE: MGP), for approximately $1.175 billion, and leaseback the property through a subsidiary.
The resort will be added to the master lease agreement between MGM Resorts and MGP, with the initial rent payment to MGP increased by $100 million. Under terms of the agreement, 90% of the rent will be fixed and contractually grow at 2% per year until 2022.
As for Boyd Gaming, the sale will enable it to reduce debt after it acquired three casinos in its home market of Las Vegas as part of a portfolio restructuring this year.
The transactions are expected to close in the third quarter of 2016, subject to regulatory approvals and other customary closing conditions.
MGM, which has designs on expanding its gaming operations across the east coast, is opening a major new casino just outside Washington DC later this year and another opening in Massachusetts in 2018. The Las Vegas firm is banking on a brighter future for Atlantic City, where four of the city’s 12 casinos have closed since 2014.
After opposing any bailout, New Jersey Governor Chris Christie relented last week and signed a financial rescue plan as the city teetered on the edge of bankruptcy.
"Borgata is the premier resort in Atlantic City and a great addition to our growing presence in the Northeast," said Jim Murren, Chairman and CEO of MGM Resorts International. "While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city."
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