MGM Could Break Ground on Osaka Integrated Resort in 2021, Complete it by 2025, Say Analysts

Posted on: September 27, 2019, 08:52h. 

Last updated on: September 27, 2019, 12:12h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Resorts International could commence construction on an integrated resort in Osaka in 2021, according to MGM CFO Corey Sanders. The company told Bernstein analysts it can wrap up the project by 2025 if it wins wins one of Japan’s three licenses.

Brian Sandoval’s efforts to help MGM win a Japan gaming license could result in the company breaking ground in two years if it’s a winning bidder. (Image: Zimbio)

A group of Bernstein analysts recently met with MGM CFO Sanders in Las Vegas. Former Nevada Governor Brian Sandoval (R), who took the reins as MGM’s president of global development when he left office in January, is leading the company’s charge to procure a Japanese gaming permit.

The Mandalay Bay and MGM Grand Operator is working with Orix, a Japanese firm with diverse business interests, to win permission to build an integrated resort in the country’s third-largest city, something analysts believe will be advantageous.

Currently, there are only three companies that are in the running for Osaka: MGM [Resorts], Genting Singapore [Ltd] and Galaxy [Entertainment Group Ltd],” said the Bernstein analysts. “MGM believes its strong local partnership with Orix Corp will give… an edge over… competitors.”

There are three gaming licenses up for grabs in Japan. But a recent government survey indicates at least eight regions, and maybe as many as 11, are interested in being homes to the country’s first integrated resorts. MGM’s ability to convince Japanese policymakers that it can have a gaming property in Osaka operational by early 2025 could go a long way toward boosting the company’s bid. The city hosts the World Expo that year, an event that spans six months, from May to November.

Costs And Comparisons

Bernstein sees Japan’s gaming market as being comparable to Singapore, and estimates that MGM could spend approximately $10 billion to build an integrated resort there.

“The Japan market should be structurally similar to Singapore and MGM is expecting a return on investment of up to 20 percent,” said the analysts.

The $10 billion cost estimate jibes somewhat with other analyst projections. Recently, a team of Fitch Ratings analysts that visited the Land of Rising Sun came away saying they believed operators would need to spend $10 billion to $15 billion to build gaming properties there, up from a prior estimate of $10 billion at the high end.

While MGM faces competitors in its Osaka effort, other rivals, such as Las Vegas Sands and Melco Resorts, recently said they are abandoning plans for that city to focus on Yokohama.

Other Priorities

Beyond Japan, MGM has other priorities, including deleveraging, according to the Bernstein analysts. The company is reportedly in talks to sell the Bellagio and MGM Grand on the Las Vegas Strip to private equity firm Blackstone, and the Circus Circus to real estate investor Phil Ruffin. MGM would leaseback Bellagio and MGM Grand from Blackstone.

Combined, sales of those three assets could command around $8 billion on a pre-tax basis, proceeds that would help the company reduce a debt burden that stood at $14.8 billion at the end of the second quarter.

Bernstein also noted that management is prioritizing growing its dividend over repurchasing stock. The shares currently yield 1.88 percent.