Las Vegas: Dubai World set to end 14-year partnership in CityCenter with MGM Resorts

The Nevada Gaming Control Board Wednesday recommended that the Nevada Gaming Commission approve MGM’s buying out Dubai World, an investment arm of the Dubai government. Dubai World took a 50% stake in the $9 billion CityCenter development in November 2007, just prior to the Great Recession that devastated the real estate industry.

The project consisted of Aria Resort & Casino, the then-named Mandarin Oriental hotel and condo tower (now Waldorf Astoria), Veer Towers condos, and the Vdara condo-hotel. The $400 million Harmon condo tower was later demolished due to construction flaws. Only the casino, which opened in December 2009, and Vdara remain of the joint venture.

“Aria and Vdara are very successful businesses, and we’re looking forward to owning 100% of these businesses. The partnership has been a long and very successful one, but this will make it a more simplified structure for MGM Resorts to own all of CityCenter,” said Jonathan Halkyard, chief financial officer for MGM Resorts International.

In 2007, Dubai World paid $5 billion for 50% ownership in CityCenter, plus MGM stock. In 2009, Dubai World sued to protect its interests in the project, citing MGM’s management of the development and questioning its overall long-term health. After nearly landing in bankruptcy, the project struck an agreement with lenders to provide emergency financing and ultimately the project was completed.

MGM Resorts counsel Sean McGinnis, an attorney with the firm Butler Snow, told the board that the buyout is part of a two-step transaction, with MGM acquiring Dubai World’s 50% for more than $2 billion. The purchase price represents an implied valuation of $5.8 billion based on net debt of $1.5 billion.

The second step is the sale of assets to Blackstone Real Estate Investment Trust for $3.89 billion, while MGM leases back and continues to operate the properties. Blackstone will lease Aria and Vdara to MGM for an initial annual rent of $215 million.

Once that is completed, MGM Resorts will no longer have ownership of any of its properties on the Strip. “They will have either been sold to MGP (MGM Growth Properties) or Blackstone,” McGinnis said.

The only other property owned by MGM Resorts in its casino portfolio is in Springfield, Mass., and that will be sold to MGP by the end of 2021.

In August, MGM announced that MGP was being acquired by Vici Properties, a real estate investment trust, as part of a $17.2 billion sale. In 2020, Vici announced a deal to buy The Venetian and the Sands Expo and Convention Center (renamed the Venetian Expo) for $4 billion. Vici was formed as a spin-off from Caesars Entertainment.

In Dubai World’s presentation, its counsel, Jeff Silver with Dickinson Wright, talked about the country’s investment in CityCenter in November 2007, one month before the Great Recession started.

“It continued until the end of 2009, so throughout the Great Recession, Dubai World honored their commitment and created jobs for individuals on this major construction project that changed the nature of Las Vegas,” Silver said. “It was a massive undertaking, to the credit of MGM and their planners. Dubai World wasn’t afraid of major projects and have done a number of them on their own in Dubai and elsewhere. They considered it to be a wonderful opportunity.”

Silver described Dubai World’s relationship with MGM over the years as one of “openness and fairness” and that has been the basis for the sale as well.

“The opportunity was there and we felt it was time for us to step aside and allow MGM to complete their plans with respect to how they wish to hold their ownership in properties here in Nevada and elsewhere. Once the closing occurs, which we hope will be the end of this month, that will terminate the involvement of Dubai World and its relationship as a licensee found suitable in Nevada.”

In 2016, MGM Resorts and Infinity World sold off The Shops at Crystals to Simon Property Group for $1.1 billion. Mandarin Oriental was sold to Waldorf Astoria for $214 million in 2018.

Commission Chairman J. Brin Gibson said the partnership “began with a bang and is fairly quiet at this point, but it’s good to see you all and thank you for honoring your commitment.” He thanked Dubai World for working through the difficult times with MGM, the state’s largest employer, instead of allowing it to enter into protracted litigation.

William Grounds, president and COO of Infinity World, said Dubai World continues to hold a number of investments in the U.S. in the hotel and port industry, but probably won’t make new investments in casino companies.

“In terms of gaming in the United States, I think that is fairly unlikely,” Grounds said. “They are still a major shareholder in MGM with 4.3% of the stock. I don’t see them making further gaming investments, particularly in brick-and-mortar in the U.S. at this stage. It’s not on their radar. They are looking at more investments in emerging markets like Africa and places like that.”

By Buck Wargo