Rooney Family to Sell Empire City Casino to MGM for $850M

John Jordan | May 2018

Empire City Casino track

YONKERS—A study that began last November on the future of the Empire City Casino property here has resulted in a sales agreement valued at $850 million. The deal, which is expected to close in less than 12 months, will put an end to 46 years of the Rooney family owning the iconic casino and harness racing complex in Southern Westchester County.

Las Vegas-based MGM Resorts International and MGM Growth Properties LLC announced this morning they had reached an agreement to acquire the Empire City Casino here in a deal valued at $850 million.

The deal, which is expected to close in the first quarter of 2019, calls for the MGM entities to acquire both the casino and raceway operations at the 97-acre Empire City property located off the New York State Thruway. MGM Resorts controls and holds a 73% economic interest in the operating partnership of MGM Growth Properties LLC (MGP).

MGM Resorts and MGP have entered into a definitive agreement whereby MGP will acquire the developed real property associated with Empire City from MGM Resorts and lease it back to a subsidiary of MGM Resorts, which will operate the property.

MGM Resorts has also agreed to pay an additional $50 million if Empire City is awarded a license by New York State for live table games on or prior to Dec. 31, 2022 and MGM Resorts accepts such license by Dec. 31, 2024.

Jim Murren, chairman and CEO of MGM Resorts International, says, “This acquisition represents an excellent opportunity to further solidify our presence on the East Coast, and in particular, expand our reach into the high-density New York City region. We believe this transaction enhances our free cash flow profile and presents attractive future opportunities for the company, and we look forward to welcoming the Empire City team and guests to the MGM Resorts family.”

Last November, the Rooney family, the owners of Empire City Casino, announced it hired JP Morgan Securities LLC to explore strategic alternatives, including the possible sale of the property. Tim Rooney, Sr., president and CEO of Empire City, says the agreement with MGM is the culmination of the JP Morgan study.

“Our vision for this property has always been to develop it into one of the world’s greatest entertainment destinations,” Rooney says. “We have been a partner of New York State and its communities for 46 years, and it was important to us that we identify an entity that could build on the strong foundation we have established and bring our vision to fruition. We are confident we have found that in MGM Resorts, one of the premier gaming entities in the world.”

Empire City Casino boasts the sixth largest gaming floor in the country, and reports approximately eight million visitors annually and a workforce of more than 1,200. Empire City Casino features more than 5,200 slots and electronic table games, multiple dining outlets, and both live and simulcast horse racing.

Empire City Casino

The New York State Gaming Commission awarded three casino licenses in Upstate New York in December 2015, including one in Sullivan County, which now operates as Resorts World Catskills. That casino resort is the furthest south of all the operating full casino gaming facilities in New York. At the time of the award, gaming analysts and some state officials contended that New York would perhaps award a downstate casino license in as little time as seven years to one location in the New York metro region that would include locations in Westchester County and further south to the five boroughs of New York City, Nassau and Suffolk counties. However, there is no clear timeline when and if the state would entertain further resort gaming license applications in the New York metro region.

“With Empire City’s approximately 40% share of gross gaming revenues in the market, we believe there are significant opportunities for MGM Resorts to further drive growth,” says Dan D’Arrigo, EVP and CFO of MGM Resorts International. “We believe the transaction will be value-accretive within its first year of closing, with incremental revenue synergies expected to support growth in 2020 and beyond.”

He added that following the sale, the net purchase price to MGM Resorts will be approximately $225 million, which represents less than six times adjusted EBITDA that is inclusive of expected operational synergies and identified revenue growth opportunities.

“We are thrilled to welcome MGM to Yonkers as it’s committed to building upon Empire City Casino’s successes and taking the next steps into developing it into a world class entertainment destination,” says Yonkers Mayor Mike Spano. “There is no doubt the dialogue about Yonkers is changing and that our city’s ongoing renaissance attracted MGM’s first class operations. We look forward to working with MGM in continuing to make Yonkers a great place to live, work and play.”

For the 12 months ending March 31, 2018, Empire City reported approximately $230 million in net revenues and approximately $70 million in adjusted EBITDA.

The transaction’s finer points include that MGM Resorts has agreed to sell the developed real property to MGP for total consideration of approximately $625 million, which will include the assumption of the approximately $245 million of debt refinanced by MGM Resorts and the balance through the issuance of operating partnership units to MGM Resorts based upon MGP’s closing price of $29.38 as of May 25, 2018. In addition, MGM Resorts has agreed to give MGP a right of first offer with respect to certain undeveloped land adjacent to the property to the extent MGM Resorts develops additional gaming facilities and chooses to sell or transfer the property in the future.

Empire City will be added to the existing master lease between MGM Resorts and MGP, and the annual rent payment to MGP will increase by $50 million. Consistent with the Master Lease terms, 90% of the rent will be fixed and contractually grow at 2% per year until 2022. The purchase price represents a cap rate of 8.0%, or a 12.5x EBITDA multiple.

The MGM Resorts portfolio encompasses 28 hotel properties. The company in 2018 opened MGM COTAI in Macau and the first Bellagio-branded hotel in Shanghai. It also is developing MGM Springfield in Massachusetts.

MGM Growth Properties is a publicly traded REIT that currently owns a portfolio of 11 destination resorts in Las Vegas and elsewhere across the United States. As of Dec. 31, 2017, the properties collectively comprise more than 27,500 hotel rooms, 2.7 million convention square footage, 100 retail outlets, 200 food and beverage outlets and 20 entertainment venues.

Representatives of two major Westchester County business organizations stated that the deal could foster job creation in the county.

John Ravitz, executive vice president of the Business Council of Westchester, said in a prepared statement that the sale agreement between Empire City and MGM Resorts “promises to be a major economic milestone for the City of Yonkers, Westchester County and New York State. The iconic property has been operated with pride and foresight by the Rooney family since 1972 and under their stewardship evolved from its origins as Yonkers Raceway to today’s multi-faceted entertainment complex. Empire City has emerged a major economic driver with more than 1,200 employees and a $45 million annual payroll, nearly eight million annual visitors and one of the most successful gaming operations in the nation.”

He later added, “Gaining a full gaming license for Empire City has long been a top legislative priority. We look forward to continuing these efforts with the new ownership. MGM is a global player with the resources and expertise to carry forward the work of the Rooney family and to bring the full potential of Empire City to fruition. We thank the Rooneys for their deep commitment to Westchester County and for creating the solid foundation for future success.”

William M. Mooney, Jr. president and CEO of the Westchester County Association, stated, “The fundamentals for economic development in any region are access to a high-quality workforce and opportunities for smart growth. These same characteristics are what set Westchester apart as the best place in the Tri-State area to live, work and play. MGM Resorts’ purchase of the Empire City Casino and Yonkers Raceway is an energetic proposal that could potentially create new jobs, spur investment, and attract tourism to the area.”

John Jordan
Editor, Real Estate In-Depth