1ST JUN 2016 | WRITTEN BY: CHRIS SIEROTY
Less than a week after investor Eric Green declared he would “not put any money into Atlantic City” knowing that northern New Jersey could get casinos, MGM Resorts International is doubling down on its investment in the Borgata casino.
MGM has agreed to acquire Boyd Gaming’s 50 percent stake in Marina District Development Holding Co., the parent company of Borgata Hotel Casino & Spa, for $900m.
Before Tuesday’s announcement, the gaming companies had been 50-50 partners in Borgata, one of Atlantic City’s most successful casinos.
As part of the deal, MGM will sell the entire property to MGM Growth Properties LLC (MGP), a real estate investment trust the Las Vegas-based company created earlier this year and went public in April, for $1.175bn and operate the Borgata, the companies said Tuesday in a statement.
Boyd expects to receive $600m in net proceeds after deducting its share of the property’s debt.
Borgata estimates it is entitled to tax refunds totaling $180m from the cash-strapped Atlantic City government.
“While we are pleased with the performance of this property, this transaction is an attractive opportunity to immediately unlock significant value for our shareholders,” said Keith Smith, president and CEO of Boyd, in a statement.
Smith said the Las Vegas-based gaming company would “use the proceeds to reduce debt.” The deal is expected to close in the third quarter.
The sale of Boyd’s 50 percent stake in Borgata is the company’s third transaction since the beginning of 2016. In April, Boyd spent $230m to acquire Cannery Casino Resorts’ two Las Vegas casinos, and in a separate deal, $380m to buy Aliante Casino in North Las Vegas.
Smith told analysts during an April 27 conference call that first-quarter net revenues at Borgata were $190.3m, an increase from $182.6m in the same period last year. The company attributed the increase to Borgata’s ability to capture new business since the closure of four of 12 Atlantic City casinos in 2014.
For the last 12 months ended March 31, Borgata reported $812m in revenues.
“Borgata is … a great addition to our growing presence in the Northeast,” said Jim Murren, chairman and CEO of MGM.
“While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city. Our decade-long partnership with Boyd Gaming has been a great one.”
MGM’s deal to buy out its long-time partner in the Borgata was announced less than a week after the 20th annual East Coast Gaming Congress in Atlantic City. During the two-day conference, a panel of Wall Street investors and analysts were mixed about Atlantic City’s future.
“I’m comfortable in Borgata and its ownership between Boyd and MGM,” Eric Green, senior managing partner with Penn Capital Management, said Thursday. “We see Atlantic City as a locals market. Borgata will be fine.”
Green told attendees of the panel discussion that he was “very nervous about putting new money into Atlantic City.”
Neither MGM nor Boyd on Tuesday would discuss the timing of the sale, which comes just a few months before a November referendum that could legalize casinos in northern New Jersey.
If approved by voters, two new gaming permits would be issued for planed casinos in separate counties at least 75 miles away from Atlantic City.
But analysts believe the economic impact on Atlantic City would be severe.
“Adding new competition will not be good for Atlantic City,” Green said. “Atlantic City has to do everything to change itself, no matter any other markets.”
Andrew Zarnett, managing director at Deutsche Bank Securities, said if Atlantic City were to lose another casino, Borgata would win a majority share of the business left behind.
MGP expects to fund its acquisition of the Borgata and its debt with a combination of cash and borrowing. After the deal closes, MGP will lease back the real property to a subsidiary of MGM, after which a subsidiary of MGM will operate the Borgata.
“We are excited to add Borgata to the MGP portfolio, further diversifying our geographic presence,” said James Stewart, CEO of MGP. “With this transaction, we are executing on our core growth strategy in prudently building a portfolio of high-quality assets with market leading competitive positions.”