(Reuters) - MGM Resorts International (MGM.N) said on Thursday that it would form a publicly traded real estate investment trust made up of 10 properties, including the Mirage and Mandalay Bay, and its shares rose as much as 7.5 percent.
MGM had been under pressure from shareholder Land and Buildings earlier this year to convert its real estate assets into a REIT and spin off its business in China.
“We wanted to create a vehicle and a financing platform by which we could lower our cost to capital and raise funds for future growth opportunities,” Chief Executive Officer Jim Murren said on a conference call.
The company, whose long-term debt was $12.80 billion as of Sept. 30, said it would transfer $4 billion of that to the new REIT, MGM Growth Properties LLC.
MGM, which will own about 70 percent of the REIT, said the 10 properties together have more than 24,000 hotel rooms. For the part of the REIT it will not own, the company will offer shares that it will list on the New York Stock Exchange, Murren added in an interview.
Murren will be chairman of the REIT, which will have a separate board and CEO.
MGM’s balance sheet has been overleveraged since the recession, and this deal will help the company reduce debt that would have been difficult to pay down because of its high cash flow needs, Macquarie Research analyst Chad Beynon said.
Apart from the Mirage and Mandalay Bay, four other Las Vegas resorts - Monte Carlo, New York-New York, Luxor and Excalibur – will be a part of the REIT. They accounted for about 42 percent of MGM’s wholly owned domestic resorts’ revenue so far this year.
The REIT will also include MGM’s Park entertainment district in Las Vegas and three other U.S. resorts.
The company said it expected to complete the REIT transaction in the first quarter of 2016. It plans to retain full ownership of the Bellagio and MGM Grand Las Vegas properties.
MGM also reported a higher-than-expected quarterly profit. Earnings came to 12 cents per share in the third quarter, three times more than the analysts’ average estimate.
The company also said it was considering selling all or part the Las Vegas mall Crystals, which had attracted “quality” offers.
“We think it is worth over $1 billion,” Murren said on the call.
(Adds dropped word “chairman” in paragraph 6)
Reporting by Ankit Ajmera in Bengaluru and Liana B. Baker in New York; Writing by Sayantani Ghosh; Editing by Don Sebastian and Savio D'Souza