Dive Brief:

• Realty Income Corporation announced today it has signed a definitive agreement to invest approximately $950 million to acquire common and preferred equity interests in the Bellagio Las Vegas. The firm will acquire the interest from Blackstone Real Estate Income Trust Inc. in a new joint venture that owns a 95% interest in the Vegas property. 
• Realty Income will invest $300 million of common equity into the joint venture, acquiring 21.9% indirect interest in the Bellagio. BREIT will retain a 73.1% indirect interest in the property, while MGM Resorts International retains a 5% interest. Realty Income will also invest $650 million to acquire a yield-bearing preferred equity interest in the joint venture, according to a release. The deal is expected to close in the fourth quarter. 
• The investment positions Realty Income to benefit from the Bellagio’s appreciating real estate value from capital expenditures by MGM as well as increasing demand for the Las Vegas market, expected in the next year to see heightened tourism from several prominent sporting events. 

Dive Insight:

When the deal closes, MGM will continue to operate and maintain the Bellagio under the triple net lease it holds at the property. The lease, which has 26 years of remaining term, is the result of a 2019 sale-leaseback deal with BREIT, at the time valued at $4.25 billion. 

Realty Income will benefit from “attractive annual rent escalators” on the lease and “a full corporate guarantee for all rent payments,” according to a presentation the firm shared with investors. 

The Bellagio is also expected to benefit from “revenue-enhancing capital expenditures funded by MGM” during the lease, the presentation said. Currently, all 819 guest rooms and 104 suites at the Bellagio’s Spa Tower are undergoing a $100 million redesign. 

Further making The Bellagio a desirable investment opportunity is its position within the Las Vegas market, which stands to benefit from strong growth fundamentals “supported by healthy long-term supply-demand trends,” the presentation said. 

Realty Income pointed to the inaugural Formula 1 Las Vegas Grand Prix in November, the proposed relocation of the MLB’s Athletics franchise and the Super Bowl in February as upcoming demand drivers in the market. The firm estimates F1 will generate approximately $1.3 billion in revenue, while the Super Bowl generates approximately $600 million. 

During MGM Resorts’ second-quarter earnings call this year, CEO Bill Hornbuckle said he is “encouraged” by both Formula 1 and the Super Bowl, referring to Las Vegas as “the world’s premier sports and entertainment destination.” 

Realty Income’s asset valuation for the Bellagio sits at $5.1 billion in its investor presentation. With 1,450 feet of frontage along the Las Vegas Strip, the resort has approximately 4,000 guest rooms and suites across two towers, 157,000 square feet of gaming space, 200,000 square feet of meetings and event space and multiple Michelin-starred restaurants. 

Realty Income declined to comment beyond the investor presentation.