Blackstone Real Estate Fund Completes $4.25 Billion Bellagio Buy From MGM Resorts Just A Month After it Was Announced

Posted on: November 18, 2019, 10:56h. 

Last updated on: November 18, 2019, 11:49h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The Blackstone Group (NYSE:BX), one of the world’s largest private equity firms, completed its $4.25 billion purchase of the Bellagio on the Las Vegas Strip from MGM Resorts International (NYSE:MGM) barely more than a month after the transaction was announced.

The deal, which was announced on Oct. 15, is believed to be the largest-ever in terms of price for a Strip integrated resort. When the asset sale was revealed, MGM said it expected the transaction would close in the current quarter.

As part of the transaction, MGM Resorts has leased the property from the joint venture and continues to manage, operate, and be responsible for all aspects of the property on a day-to-day basis,” according to the companies.

Blackstone Real Estate Income Trust (BREIT), a real estate fund operated by the private equity company, is the formal buyer of the Bellagio. MGM is taking a five a percent stake in BREIT and will lease back the property from the real estate entity.

Under the terms of the deal, the gaming company will rent the property starting at $245 million on an annual basis, meaning the $4.25 billion represents 17.3x the yearly lease tab.

More Sales Could Be Coming

As part of the company’s transition to what CEO Jim Murren has dubbed as an “asset-light” model, MGM is actively shopping the MGM Grand and Mandalay Bay on the Strip. The operator’s interest in a potential sale-leaseback deal for the MGM Grand was initially reported alongside early speculation about the fate of Bellagio, as industry observers expected the operator would like to package both properties in a single deal.

Obviously, that didn’t happen. But on MGM’s recent third-quarter earnings conference call, Murren was quick to point out that even after the announced sales of Bellagio and Circus Circus, MGM retained “valuable” assets, such as MGM Grand and MGM Springfield.

Billionaire Phil Ruffin, the owner of Treasure Island, is paying $825 million for Circus Circus on the north end of the Strip. That deal is also expected to close this year. Between the sales of that property and Bellagio, MGM will garner $4.3 billion in after-tax proceeds, capital the company is expected to use to reduce debt and increase shareholder rewards, such as buybacks and dividends.

No Stranger To Vegas

For its part, Blackstone is intimately familiar with the Las Vegas real estate scene, gaming and otherwise. The private equity giant owns the Cosmopolitan on the Strip, which it is rumored to be shopping and could fetch up to $4 billion in a sale.

Blackstone is also one of the largest owners of residential real estate in and around the city, holding more than 3,000 single-family units at the end of the second quarter, along with thousands of apartments. The company also owns commercial and industrial properties in Southern Nevada.

The company’s real estate arm has $157 billion in assets under management, making it one of the world’s largest property investors.