Wall Street Journal - July 28, 2010
As part of its exit strategy from Atlantic City, MGM Resorts International is selling about $80 million of land to a partnership led by Vornado Realty Trust, one of the largest commercial real-estate owners in the country, people familiar with the matter said Tuesday.
The four parcels the Vornado group is buying from MGM Resorts are connected to the Borgata Hotel Casino & Spa in Atlantic City, N.J.
New Jersey-based Vornado is buying four pieces of land connected to the Borgata Hotel Casino & Spa, including parcels underneath an 800-room hotel, convention center and parking garage. The owner of the land collects rent from a venture of MGM and Boyd Gaming Corp., which owns the hotel, garage and other buildings on the land.
The Las Vegas-style Borgata, one of Atlantic City, N.J.'s most popular casinos, which also is owned jointly by MGM and Boyd, wasn't part of the purchase. Representatives for Vornado and MGM declined to comment.
The deal marks the first wave of asset sales under an MGM agreement with the state of New Jersey's Division of Gaming Enforcement, approved in March, in which MGM promised to sell most of its Atlantic City assets in 18 months. The division required this because it believes MGM has a business partner in Macau with ties to organized crime. MGM has denied this.
In the wake of the agreement with the state, MGM placed its 50% stake in the casino, the four parcels and other assets in a divestiture trust with the company as the sole beneficiary. The sale to Vornado is the first deal out of that trust.
The deal with Vornado is an unusual step for the real-estate giant, one of the country's largest landlords of retail and office space. Vornado is making its first entrance into the Atlantic City market during one of the gambling town's most brutal downturns. The market has been hurt as cash-strapped gamblers stay away amid the recession, or go to casinos and slot parlors closer to home in Pennsylvania and New York.
Casino revenue plunged to $3.9 billion in 2009, the lowest level since 1997, from a high of $5.2 billion in 2006. Employment dropped from 50,000 to 38,000 jobs. Earlier this month, New Jersey Gov. Chris Christie proposed a state takeover of the Atlantic City casino district to salvage the industry.
Vornado's investment is relatively safe, though, because the Borgata has consistently outperformed the other 10 casinos. But, it has seen its share of revenue declines, including an 11.7% drop in June versus a year earlier.
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