Blackstone Selling Bellagio Stake to Realty Income for $950M

Posted on: August 25, 2023, 10:15h. 

Last updated on: August 25, 2023, 10:23h.

Blackstone’s (NYSE: BX) Blackstone Real Estate Income Trust (BREIT) is selling 21.9% of its interest in the real estate of Bellagio on the Las Vegas Strip to Realty Income (NYSE: O) for approximately $950 million, valuing the iconic venue at $5.1 billion.

Realty Income
Bellagio on the Las Vegas Strip. BREIT is selling a stake in the real estate to Realty Income for roughly $950 million. (Image: YouTube)

That’s well above the $4.25 billion BREIT paid for 95% of the real estate of Bellagio in 2019. Friday’s announcement ends several months of speculation regarding BREIT’s plans for the property. Dating back to last year, the real estate investment vehicle has been hit with investor redemptions, forcing it to liquidate some holdings. Those departures stoked chatter that a deal involving Bellagio could be afoot.

Upon closing, Realty Income will invest approximately $300 million of common equity in the joint venture, subject to certain adjustments, to acquire a 21.9% indirect interest in the property, BREIT will retain a 73.1% indirect interest,” according to a statement. “Realty Income will also invest $650 million to acquire a yield-bearing preferred equity interest in the joint venture.”

The transaction is slated to close in the fourth quarter. MGM Resorts International (NYSE: MGM), the operator of Bellagio, will maintain a 5% interest in the real estate.

Las Vegas Strip Has Been Good to Blackstone

The price Realty Income is paying for its interest in Bellagio’s property assets implies the venue is worth 20% more today than what BREIT paid for it in 2019.

Add that to the list of Blackstone’s success stories on the Las Vegas Strip. Last December, the private equity firm sold its 49.9% interests in Mandalay Bay and MGM Grand to VICI Properties (NYSE: VICI) for $4.27 billion.

In September 2021, Blackstone announced the sale of Cosmopolitan for $5.65 billion meaning it nearly tripled its investment on the Strip venue seven years after acquiring it. MGM paid $1.6 billion for the operating rights of that casino hotel while a consortium consisting of the Cherng Family Trust, Stonepeak Partners, and Blackstone Real Estate Income Trust (BREIT) paid approximately $4 billion for the property assets.

Cosmopolitan had previously been mentioned as a possible sale candidate for BREIT. Blackstone also owns the property assets of Aria and Vdara, both of which are also operated by MGM.

Another Gaming Deal for Realty Income

When it comes to casino real estate, the primary players among listed real estate investment trusts (REITs) are VICI and Gaming and Leisure Properties (NASDAQ: GLPI). However, Bellagio isn’t Realty Income’s first move into the space.

In February 2022, the REIT announced the $1.7 billion purchase of the real estate of Wynn Resorts (NASDAQ: WYNN) Encore Boston Harbor. The two sides have a 30-year lease agreement for that venue with an option for another 30 years at the end of the initial term.

“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 Consumer Price Index (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,” according to the statement. “Realty Income’s common equity ownership interest will be subordinate to its $650 million preferred equity investment in the venture.”

The venue has property-level debt of $3 billion.