Tuesday, November 29, 2022

MGM Divesting Gold Strike Operating Rights For $450 Million

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Posted on: June 9, 2022, 02:43h. 

Last updated on: June 9, 2022, 04:02h.

MGM Resorts International (NYSE:MGM) is selling the operating rights to Gold Strike Hotel & Casino in Tunica, Miss. The buyer will be Cherokee Nation Entertainment Gaming Holdings, LLC for $450 million in cash.

Gold Strike
Gold Strike Hotel & Casino in Tunica, Miss. MGM is selling the venue’s operating rights for $450 million. (Image: FOX 13 Memphis)

The Las Vegas-based gaming company made the announcement after the close of US markets. The shares are little changed in after-hours trading after slumping 3% during standard market hours. Selling Gold Strike’s operating rights allows MGM to hone its Mississippi focus on Beau Rivage in Biloxi.

Gold Strike is a wonderful property with a bright future ahead,” said MGM CEO Bill Hornbuckle in a statement. “ Strategically, though, we decided to narrow our focus in Mississippi to a single resort — Beau Rivage — and dedicate more of our time and resources towards continuing to drive success at that leading, world-class resort and casino.”

The transaction is scheduled to close in the first half of 2023 and MGM is forecasting after-tax proceeds of $450 million.

Gold Strike a Solid Regional Casino

Gold Strike debuted in 1994 and was acquired by MGM Mirage in 2005 as part of the broader $7.9 billion purchase of Mandalay Resort Group. That deal also brought Mandalay Bay, Luxor, Excalibur, Circus Circus, and Slots-A-Fun in Las Vegas into the MGM portfolio. The company has since parted ways with Circus Circus and Slots-A-Fun.

While Mississippi casinos are not to be conflated with Las Vegas counterparts, Gold Strike is a solid performer among Gulf Coast regional gaming venues. In 2021, the casino-hotel posted net income of $81 million on adjusted property earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) of $115 million. That EBITDAR figure is well ahead of the $67 million generated in 2019 — the last year before the coronavirus pandemic.

“This is a great outcome for the company as we are able to reprioritize future capital expenditures toward opportunities that will enhance the customer experience at our other locations,” said MGM CFO Jonathan Halkyard in the statement.

This is the second time in seven months MGM announced the sale of operating rights to a tribal gaming entity. Last December, the company said it was selling the operating rights of the Mirage for $1.075 billion to Hard Rock International — the gaming arm of the Seminole Tribe.

VICI Involvement

As the owner of Gold Strike’s real estate assets, gaming real estate investment trust (REIT) VICI Properties (NYSE:VICI) is involved in the transaction as well.

MGM’s lease on the property is being transferred to Cherokee Nation Entertainment, meaning the former’s master lease agreement with VICI is being reduced by $40 million.

Cherokee Nation Entertainment obtains a rental accord with a 25-year base term and three 10-year tenant renewal options.

The contract includes “escalation of 2.0% per annum (with escalation of the greater of 2.0% and CPI, capped at 3.0%, beginning in lease year 11) and minimum capital expenditure requirements of 1.0% of annual net revenue,” according to VICI.

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