Blackstone is selling a 22% stake in Las Vegas’ Bellagio in a deal that values the asset at $5.1 billion. Realty Income, a company that owns over 13,000 properties in the U.S. and Europe, is paying $300 million for the stake in the major casino and resort, which is operated by MGM Resorts International under a long-term lease. The sale to Realty Income is scheduled to close in the fourth quarter of this year.
Realty Income is also investing in a $650 million preferred equity stake in the property, known for its 8.5-acre lake and fountain shows along the Las Vegas Strip. Upon closing, Blackston Real Estate Income Trust (BREIT) will retain a 73.1% indirect interest, and MGM will retain a 5.0% interest in the property. The latter agreed to pay rent that steadily increases during the 30-year term of the lease and then is renewed at fair market value.
Nadeem Meghji, Head of Blackstone Real Estate Americas, said: “Where you invest matters and this transaction demonstrates the strong investor demand for the high-quality assets we have assembled within BREIT.”
“The Bellagio is an iconic property in the heart of the Las Vegas Strip and we look forward to our continued ownership of this asset, now in partnership with Realty Income. This partial sale represents another terrific outcome for BREIT shareholders,” he noted.
For his part, Sumit Roy, Realty Income’s President and CEO, commented: “Realty Income seeks to invest in high-quality real estate at scale in partnership with operators who are leaders in their respective industries. This transaction to acquire an interest in the Bellagio, an iconic property, represents our second investment in the gaming industry and exemplifies the advantages of our size, scale, and access to capital.”
“We are pleased to initiate our Credit Investment platform through a preferred equity investment in the Bellagio joint venture. Credit Investments are a natural adjacency to our traditional business, allowing us to provide additional value to our clients while leveraging our core competencies in transaction sourcing and structuring, and real estate and credit underwriting and monitoring,” he added.
The existing Bellagio triple net lease structure with MGM includes 2.0% annual rent escalators for the next six years, the greater of 2.0% or CPI (capped at 3.0%) in years 7-16, and the greater of 2.0% or CPI (capped at 4.0%) in years 17-26.
Realty Income’s common equity ownership interest will be subordinate to its $650 million preferred equity investment in the venture. Additionally, the Bellagio has a property-level debt with an outstanding principal balance of approximately $3.0 billion, a remaining tenor of approximately 6.2 years, and a 3.67% (fixed) all-in interest rate.
The increase in The Bellagio’s value reflects the rebound of Las Vegas since the depths of the pandemic. Last year, visitor volume was 38.8 million, up from 32.2 million in 2021, although still below 42.5 million in 2019, according to the Las Vegas Convention and Visitors Authority.
Blackstone purchased the Bellagio in 2019 from MGM Resorts in a sale-leaseback transaction that valued the property at $4.25 billion. Blackstone invested in the Bellagio through a fund targeting individual investors named Blackstone Real Estate Income Trust, or Breit.
Like other nontraded real-estate investment trusts, Breit came under pressure late last year from investors wanting to cash out, requiring it to impose redemption limits under the fund’s rules. Since then Breit has redeemed about $9 billion to shareholders. Lately, redemption requests have slowed, with July requests 30% below the January peak, according to Blackstone. Breit reported $10 billion of liquidity earlier this summer.