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Realty Income Invests $950M in Bellagio Casino

REAL ESTATE: Joint Venture with BREIT Marks Second Gaming Acquisition

Realty Income Corporation is betting big on The Bellagio Las Vegas.

The San Diego-based real estate investment trust announced Aug. 25 it had entered into a definitive agreement with Blackstone Real Estate Investment Trust, Inc. (BREIT) to invest $950 million to acquire a nearly 22% stake in the casino’s real estate assets. BREIT will retain just over 73% and MGM Resorts International, The Bellagio’s operator, will retain 5% interest in the property.

The 8.5 million-square-foot Bellagio sits on 77 acres and has nearly 4,000 guest rooms, 200,000 square feet of meeting/event space, 157,000 square feet of casino floor and 51 retail and restaurant spaces. The asset is valued at approximately $5.1 billion at a 5.2% cap rate.

Sumit Roy
President & CEO
Realty Income

“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,” said Realty Income President and CEO Sumit Roy.

Realty Income’s investment in The Bellagio follows last year’s acquisition of Encore Boston Harbor Resort and Casino  for $1.7 billion under a long-term net lease agreement with Wynn Resorts, Limited (NASDAQ: WYNN).

The Bellagio deal also represents Realty Income’s third investment this year over $900 million, which include the $1.5 billion acquisition of 415 single-tenant convenience store properties from EG Group in March and an up to $1 billion investment in Plenty Unlimited Inc.’s vertical indoor farming properties in February.

Deal Details

The Bellagio transaction is expected to close in the fourth quarter of this year. Upon closing, Realty Income will invest around $300 million of common equity and an additional $650 million for a yield-bearing preferred equity interest in the joint venture with BRIET. Realty Income’s common equity ownership interest will be subordinate to its preferred equity investment.

The Bellagio investment comes with a favorable existing 30-year lease structure (26 years remaining) with MGM – 2% annual rent escalators for the next six years; then greater of 2% or CPI, capped at 3% in years 11-20 and 4% in years 21-30. Additionally, the Bellagio has property-level debt with an outstanding principal balance of approximately  $3 billion with 6.2 years remaining and a fixed 3.67% interest rate.

In an investor presentation about the deal, Realty Income highlighted The Bellagio’s and Las Vegas’ favorable economic outlook. Citing Bloomberg, the company stated that for the 12 months ending March 31 of this year, The Bellagio’s net operating income was $735 million. Realty Income also cited Applied Analysis’ estimates on the economic impact of future events in Las Vegas, such as estimated $1.3 billion Las Vegas Strip revenue impact from the Formula 1 race in November and the estimated $600 million Strip revenue impact from Super Bowl LVIII in February of next year.

Q2 Results

The Bellagio deal announcement came just weeks after Realty Income (NYSE: O) released its second quarter report. Common stockholders earned $195.4 million in net income, or $0.29 per share. Other highlights from the quarter include raising $2.2 billion  from the sale of common stock and closing on  $3.1 billion  of investment volume for 710 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%

“Our investment efforts are supported by our well-capitalized balance sheet which was further bolstered through a successful debut Euro bond offering in July. In addition, we currently expect over  $650 million  of net proceeds from unsettled forward sales of our common stock to support our near-term growth initiatives,” Roy said. “Given our current liquidity position and healthy investment pipeline, we are increasing our acquisitions guidance to over  $7 billion.”

True to its trademarked motto “The Monthly Dividend Company,” Realty Income also announced in August its 638th  consecutive common stock monthly dividend.

Realty Income

FOUNDED: 1969
CEO: Sumit Roy
EMPLOYEES: 385
STOCK: O (NYSE)
REVENUE: $3.34 billion (2022)
ASSETS: $44.1 billion
HEADQUARTERS: San Diego
WEBSITE: realtyincome.com
NOTABLE: In November 2021, Realty Income closed a $11 billion merger with VEREIT, creating one of the country’s largest REITs.

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