MGM Resorts Mulls $250M Bid for its 50 Percent Stake in N.J. Casino

With the closing of the disposition of four long-term ground leases and their accompanying real property parcels totaling 11.3 acres, MGM Resorts International has just completed its first move to extricate itself from The Borgata Hotel Casino & Spa as mandated by the New Jersey Division of Gaming Enforcement.

November 5, 2010
By Barbra Murray, Contributing Editor

With the closing of the disposition of four long-term ground leases and their accompanying real property parcels totaling 11.3 acres, MGM Resorts International has just completed its first move to extricate itself from The Borgata Hotel Casino & Spa as mandated by the New Jersey Division of Gaming Enforcement. The company pocketed $71 million in cash on the $73 million sale and is now considering a $250 million offer for its 50 percent interest in the casino itself.

MGM Resorts and joint venture partner Boyd Gaming Corporation, which will continue to own its 50 percent stake in Borgata, developed the casino resort in 2003 at a cost of approximately $1 billion. The upscale property encompasses 2,300 guestrooms; 161,000 square feet of casino floor space; entertainment facilities consisting of a 2,400-seat event center and a 1,000-seat theater; a 54,000 square-foot spa; 12 restaurants; and 11 retail shops.

MGM Resorts’ sale of its share of Borgata’s land and leases and its impending sale of its economic interest in the hotel come as a result of a settlement agreement with DGE following an investigation of the company’s relationship with Pansy Ho Chiu-king, its joint venture partner in MGM Grand Macau. DGE had deemed MGM Resorts’ Macau partner “unsuitable” and advised that the global hospitality company either disassociate itself from Pansy Ho or walk away from its New Jersey operations.

The consummation of the land and lease deal marks the beginning of the end of MGM Resorts’ involvement in Borgata, but it also has its benefits, as the proceeds form the sale constitute another step in the company’s debt reduction plan. Dan D’Arrigo, MGM Resorts executive vice president and CFO, noted that the company’s recent capital-raising transactions had enhanced its liquidity, with debt reduction of $12.9 billion to $12.3 billion subsequent to quarter’s-end.

More cash may soon be rolling in, as MGM Resorts may very well have secured a buyer for its economic interest in the casino. The company revealed in October that it had received an offer of $250 million for its 50 percent ownership stake in Borgata, an offer that is below the carrying value of the company’s investment interest in the property. The proposal is based on an enterprise value of $1.35 billion for the entire asset. Borgata, like the other casinos in Atlantic City, continues to suffer from the economic crisis. The town’s 11 major gaming properties experienced a 22.6 percent drop in gross operating profits in the second quarter of this year, according to the New Jersey Casino Control Commission. While Borgata led the pack with a relatively admirable $44.5 million in gross operating profits, that figure marks a 10.5 percent decline from the second quarter of 2009.

Boyd, which had first right of refusal to acquire MGM Resorts’ half of the gaming destination, announced later in the month that it would not buy its partner’s non-controlling interest. Boyd explained that, although it has great faith in Borgata’s future, “Given other opportunities and our current focus on deleveraging our balance sheet, the current offer would not provide a sufficient return on investment for our shareholders.”

MGM Resorts is currently in negotiations with the original bidder for its half of Borgata. With the closing of a sale, MGM Resorts will no longer have a presence in New Jersey as a casino owner, but it will not mean the end for the company in the Garden State. MGM Resorts still owns approximately 85 acres of developable land in Atlantic City and, as per terms of its settlement, the company will be free to apply for a New Jersey gaming license 30 months following the completion of the sale of its remaining interest in Borgata.