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MGM Resorts to Buy Rocksino From MGP, Strengthens Portfolio

Zacks Equity Research
Updated

MGM Resorts International MGM announced that it has signed an agreement with MGM Growth Properties LLC MGP, under which it will buy all the operating assets of Hard Rock Rocksino Northfield Park. MGM Resorts will also lease the real property connected with Rocksino from a subsidiary of MGP.

Located in Northfield, OH, Rocksino offers gaming, dining and entertainment facilities, and spreads across roughly 110 acres.

Details of the Deal

Under the agreement, MGM Resorts is supposed to pay MGM Growth Properties roughly $275 million. Rocksino will be included in the existing master lease between MGM Resorts and MGP. Further, annual rent payment to MGP will increase by $60 million, 90% of which will be fixed and contractually grow 2% per year until 2022.

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The transaction is expected to close in the first half of 2019, subject to customary closing conditions and regulatory approvals.

Synergies From Buyout

Rocksino, being the best-in-class gaming and entertainment destination, will be added to MGM Resorts’ global brand portfolio. In a year’s time, ending on Jun 30, 2018, Rocksino reported roughly $293 million in net revenues and $94 million in Adjusted EBITDAM. The company has proven leadership in the gaming industry.

The buyout will help MGM Resorts in terms of revenue and profit growth. MGM Resorts believe that addition of Rocksino will enhance its scale and operations. It is also expected to boost free cash flow generation. On the full integration of Rocksino, MGM Presorts expects to see six times improved EBITDA.

Our Take

The move underscores MGM Resorts’ focus on proliferating its business across segments like hotel, casino, food and beverage, and entertainment.  In the past few years, the company has taken various initiatives to bring every recognized brand under one global entertainment brand. MGM Resorts aims to build a disciplined business model, with extensive focus on non-gaming revenue opportunities, high-quality assets and attractive property locations.

Addition of Rocksino, therefore, is in line with the company’s focus on superior brand building in the face of intense competition from the likes of Las Vegas Sands LVS and Penn National Gaming PENN.

Continuous investments and commitment in diversifying its business should help the company to mitigate stiff competition and excess debt. Shares of the Zacks Rank #3 (Hold) company have lost 14.2% over the last year compared with the industry’s collective decline of 9.7%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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MGM Resorts International (MGM) : Free Stock Analysis Report
 
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
 
Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
 
MGM Growth Properties LLC (MGP) : Free Stock Analysis Report
 
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Zacks Investment Research