Las Vegas Casino Real Estate Investments Cannot Merge

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MGM Grand Hotels Las Vegas

MGM Resorts International offered a takeover of Vici Properties. The request is denied. Vici Properties is the landowner for Caesars Entertainment. Earlier in January, MGM made an offer to obtain common stock shares of Vici. The price would be $19.50 per share. Information states the deal would add up to $6 billion.

Vici Properties is a REIT or real estate investment trust that has several casino-hotel properties in Las Vegas. One of their top hotels is Caesars Palace. The REIT also has 20 other locations around the world. Vici Properties leases the land to casinos like Caesars, Harrah’s, Horseshoe, and Bally’s.

One of the reasons many casinos decide to “rent” land is for the tax savings. A REIT obtains special savings, which helps reduce the payout for casinos to governments around the world. REITs have been around for several decades as a way to avoid specific tax laws.

Numerous casinos around the world use REITs, whether it is through the parent company or leasing from a separate entity. Last year, Macau casinos were considering becoming REITs for the land, particularly with individual MGM holdings.

However, it is not always the best option from a financial standpoint. Vici Properties spoke with their legal and financial advisers before rejecting the deal from MGM Resorts International. They carefully assessed the business plan and unanimously decided it was not in the best interest of the company or the stockholders.

MGM Growth Properties sent the proposal to the company without any binding or solicited request. MGM made a media announcement that the offer was based on strategic and financial benefits for both companies.

Caesars is no stranger to trouble with regards to finances. It was nearing Chapter 11 bankruptcy and decided for protection to enter into the REIT with Vici Properties. The downside is the lack of equity interest in the REIT due to the financial trouble of the past.

The lack of merger may be a downside for MGM financially. Their statement alludes to this conclusion. Companies often make offers when things look promising regarding financial changes or tax law changes. There is nothing to indicate that Vici Properties or Caesars would benefit from the offer other than to gain money. REITs will continue to protect large corporations like casinos despite new tax laws and changes to the tax deductions for 2017. It is also noted that Trump is not after changing REITs and the special tax options they have.

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