Why Borgata Sale Is A Win For Each Of Boyd, MGM, MGM Growth Properties

After market close on May 31, Boyd Gaming Corporation BYD, MGM Resorts International MGM and MGM Growth Properties LLC MGP made a joint announcement that Boyd Gaming would sell its 50 percent equity interest in Borgata to MGM Resorts.

“Win-Win-Win”

Barclays’ Felicia R. Hendrix believes that this could be a “win-win-win” situation for all parties, given that “BYD gets to exit AC at a fair price, which allows the company to delever: MGM gets full access to Borgata on a leverage neutral basis as the acquisition cost basically equals what MGP paid for the rental stream.”

While the acquisition is expected to be immediately accretive, Hendrix expects MGM Resorts to be able to grow EBITDA at the property due to the “eventual inclusion” of the M Life loyalty card system and cost savings.

With this deal, MGM Growth Properties will acquire a rental stream worth $100 million, which would be accretive to its AFFO/share, while further diversifying the company away from Las Vegas.

The Deal

Boyd Gaming has agreed to sell its 50 percent stake in Borgata to MGM Resorts for $900 million, netting $600 million in cash proceeds, after deducting the former company’s share of Borgata’s debt.

The transaction is expected to close in 3Q an d is valued at 8.5x LTM EBITDA of $212 million. “The proceeds should reduce debt by ½ turn, offsetting the increased leverage driven by the Aliante/Cannery acquisition,” Hendrix stated.

Hendrix believes that this acquisition is strategically significant for MGM Resorts, especially given the opening of National Harbor in early December.

“These two properties plus Springfield, which opens in late 2018, will provide MGM with a significant East Coast foothold,” according to the Barclays report.

Once the deal has been closed, MGM Resorts intends to sell all of Borgata’s real estate to MGM Growth Properties for $1.175 billion, including Borgata’s debt.