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9/17/2019
InstaGamingGram

Presented by: Gaming USA Corporation
Alan R. Woinski, Editor
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Does Blackstone Think Casino Real Estate Has More Value Than Casinos?
The Bloomberg story that Blackstone Group is in advanced talks to buy and lease back the Bellagio and MGM Grand casinos is getting a very lukewarm response from the Sell Side while we were initially very skeptical on the report.

After all, if Blackstone is trying to sell Cosmopolitan, albeit at a price that there will most likely be few buyers, why would they want to increase their exposure to Las Vegas? If they did want more LV exposure, why not bid on CityCenter instead of MGM Grand so they wind up having CityCenter, Cosmo and Bellagio, something we suggested as a nice fairy tale a long time ago.

After spending an evening digesting this bit of news and assuming there is some truth to it, we believe Blackstone Group may be sending a message that they like Las Vegas, just not operating the casinos.

Let’s assume that some of this Bloomberg story is true and the two casinos Blackstone is in discussions about actually are MGM Grand and Bellagio, it seems to us that this would be a sign Blackstone is betting on LV real estate, and in a sense, future cash flow, but also a sign they just don’t want to own and operate casinos anymore. This would make sense given how in the past we have said over and over again that there never is a shortage of those who think it is easy, who buy casinos, especially in Las Vegas, and leave with their tails tucked between their legs and a much lighter wallet.

The developer of Cosmo, Bruce Eichner, is an example, Jeffrey Soffer of Fontainebleau is another and of course there is George Clooney and even the legendary Barry Sternlicht who tried to be successful in Las Vegas and just couldn’t do it. Then we have all the private equity firms that bought into the casino industry back in the good old days when real estate values were at their highest. Colony Capital, Apollo, Chatham Asset Management and Oaktree Capital Management have lost billions trying to develop or own casinos and casino companies.

If this story is true, Blackstone is saying the real estate and assets are the better investment and that they should leave the casino operations to those who are experienced at it.

What does this mean for the industry?

On the surface it sounds like a negative for the Gaming REITs, particularly MGM Growth Properties. For the REITs, it means we have another contender for what is a small pool of properties. For MGP, it looks like someone is muscling in on their main tenant.

We believe that if true it means there is more value in the Gaming REITs than they are getting credit for and even better, it will mean they can now have some credibility as there is nobody out there with intelligence that will say Blackstone has not been the king of real estate and buying and selling the hospitality business. For MGP specifically, it means there will be some independence from MGM, something we feel will increase their value. At the same time, it means it is a matter of time before the rumors start that Blackstone could be looking to acquire MGP. We believe Blackstone will focus on resort real estate like Las Vegas. We also feel this could start building that bridge we have been asking for, the one where gaming and hospitality REITs combine, either organically or by merger.

For the C-Corps, it just means there is another buyer. That is positive for MGM short term, VERY positive for Eldorado Resorts/CZR, and it just shows the value that is not being reflected in Las Vegas Sands and Wynn Resorts.

Then again we may find out Blackstone was the buyer of the Tracinda-owned MGM shares and then the whole group goes into play and Blackstone becomes the savior of Las Vegas that we hoped they would be.
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