Blackstone Real Estate Income Trust (BREIT) sold $950 million in common and preferred equity interests in the real estate assets of The Bellagio Las Vegas to Realty Income Corporation.
For Blackstone, which has $333 billion in real estate assets, the deal represents continuing activity on the Las Vegas Strip. In 2021, Blackstone Real Estate Partners VII (BREP) has sold The Cosmopolitan of Las Vegas for $5.65 billion to a consortium that includes the BREIT.
The deal is for a new joint venture that owns a 95% interest in the Bellagio property. Upon the closing of the deal, Realty Income will invest roughly $300 million of common equity in the joint venture to acquire a 21.9% indirect interest in the property. BREIT will retain a 73.1% indirect interest and MGM Resorts International will retain a 5% interest in the property.
Realty Income will also invest $650 million to acquire a yield-bearing preferred equity interest in the joint venture.
The valuation of Bellagio Las Vegas now sits at $5.1 billion.
“Where you invest matters and this transaction demonstrates the strong investor demand for the high-quality assets we have assembled within BREIT,” said Nadeem Meghji, head of Blackstone Real Estate Americas. “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.”
He added that the partial sale represents another terrific outcome for BREIT shareholders.
When it comes to performance, Blackstone’s opportunistic real estate is still struggling with losses of 3% during the second quarter. The write downs on the portfolio meant that opportunistic funds were flat in the quarter and declined, while core plus funds appreciated 1.7% in the quarter and were up a meager 0.9% over the last year. Assets in real estate grew by 4% thanks to $7.9 billion in inflows and despite the negative headlines involving BREIT’s liquidity troubles surfacing in late 2022.
The Bellagio is subject to an exiting triple net lease with approximately 26 years of remaining term and is operated and maintained by MGM. The property has 4,000 guestrooms and suites across two towers. The resort is known for its iconic ‘Fountains of Bellagio’ and multiple Michelin Star restaurants.
The triple net lease structure with MGM includes 2% annual rent escalators for the next six years, the greater of 2.0% or CPI (capped at 3%) in years seven through 16, and the greater of 2.0% or CPI (capped at 4.0%) in years 17 through 26. Realty Income’s common equity ownership structure will be subordinate to its $650 million preferred equity investment in the venture.
Also, Bellagio has property-level debt with an outstanding principal balance of approximately $3 billion.
Sumit Roy, Realty Income’s president and CEO, said: “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.”
