Empire City Casino features more than 5,200 slots and electronic table games, multiple dining outlets, and both live and simulcast horse racing.

YONKERS, NY—MGM Resorts International and MGM Growth Properties LLC have reached an agreement to acquire the Empire City Casino here in a deal valued at $850 million.

The sale, which is expected to close in the first quarter of 2019, calls for the MGM entities to acquire both the casino and raceway operations at the 97-acre Empire City property located off the New York State Thruway in southern Westchester County. MGM Resorts controls and holds a 73% economic interest in the operating partnership of MGM Growth Properties LLC (MGP).

As part of the deal, MGP will lease back the property to a subsidiary of MGM Resorts, which will operate the property.

A codicil of the agreement is that MGM Resorts has agreed to pay an additional $50 million if Empire City is awarded a license by New York State for live table games on or prior to Dec. 31, 2022 and MGM Resorts accepts such license by Dec. 31, 2024.

The acquisition will expand MGM Resort's reach into the high-density New York City region, says CEO and chairman Jim Murren in a prepared statement. The transaction should enhance the company's free cash flow profile and present attractive future opportunities, he also said.

Last November, the Rooney family, the owners of Empire City Casino, announced it hired JP Morgan Securities LLC to explore strategic alternatives, including the possible sale of the property. Tim Rooney, Sr., president and CEO of Empire City, says the agreement with MGM is the culmination of the JP Morgan study.

“Our vision for this property has always been to develop it into one of the world's greatest entertainment destinations,” Rooney says. “We have been a partner of New York State and its communities for 46 years, and it was important to us that we identify an entity that could build on the strong foundation we have established and bring our vision to fruition.”

Empire City Casino boasts the sixth largest gaming floor in the country, and reports approximately 8 million visitors annually and a workforce of more than 1,200. Empire City Casino features more than 5,200 slots and electronic table games, multiple dining outlets, and both live and simulcast horse racing.

The New York State Gaming Commission awarded three casino licenses in Upstate New York in December 2015, including one in Sullivan County. That casino, which now operates as Resorts World Catskills, is the furthest south of all the operating full casino gaming facilities in New York. At the time of the award, gaming analysts and some state officials contended that New York would perhaps award a downstate casino license in as little time as seven years to one location in the New York metro region that would include locations in Westchester County and further south to the five boroughs of New York City, Nassau and Suffolk counties. However, there is no clear timeline when and if the state would entertain further resort gaming license applications in the New York metro region.

Dan D'Arrigo, EVP and CFO of MGM Resorts International says that following the sale, the net purchase price to MGM Resorts will be approximately $225 million, which represents less than six times adjusted EBITDA.

For the 12 months ended March 31, 2018, Empire City reported approximately $230 million in net revenues and approximately $70 million in adjusted EBITDA.

The transaction's finer points include that MGM Resorts has agreed to sell the developed real property to MGP for total consideration of approximately $625 million, which will include the assumption of the approximately $245 million of debt refinanced by MGM Resorts and the balance through the issuance of operating partnership units to MGM Resorts based upon MGP's closing price of $29.38 as of May 25, 2018. In addition, MGM Resorts has agreed to give MGP a right of first offer with respect to certain undeveloped land adjacent to the property to the extent MGM Resorts develops additional gaming facilities and chooses to sell or transfer the property in the future.

Empire City will be added to the existing master lease between MGM Resorts and MGP, and the annual rent payment to MGP will increase by $50 million. Consistent with the master lease terms, 90% of the rent will be fixed and contractually grow at 2% per year until 2022. The purchase price represents a cap rate of 8.0%, or a 12.5x EBITDA multiple.

The MGM Resorts portfolio encompasses 28 hotel properties. The company in 2018 opened MGM COTAI in Macau and the first Bellagio-branded hotel in Shanghai. It also is developing MGM Springfield in Massachusetts.

MGM Growth Properties is a publicly traded REIT that currently owns a portfolio of 11 destination resorts in Las Vegas and elsewhere across the United States. As of Dec. 31, 2017, the properties collectively comprise more than 27,500 hotel rooms, 2.7 million convention square footage, 100 retail outlets, 200 food and beverage outlets and 20 entertainment venues.

Instant Insights /

MGM To Acquire Empire City Casino, Raceway For $850M

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