The Blackstone Group is selling the Cosmopolitan of Las Vegas in a $5.65 billion deal that will extend MGM Resorts International’s footprint along the Strip.
MGM agreed to purchase the resort’s operations for $1.625 billion, while the underlying real estate of The Cosmopolitan will be sold to a group of buyers that includes a Blackstone real estate investment trust.
The sale comes seven years after Blackstone purchased the resort for $1.73 billion and marks a major return on the $500 million the company invested into the property to renovate nearly 3,000 guest rooms, complete several high-end luxury suites, and upgrade the bar and restaurant offerings.
MGM plans to enter into long-term lease with the group of buyers, which also includes the Cherng Family Trust, an office investment firm from Panda Express founders Andrew and Peggy Cherng, and Stonepeak, an investment firm that specializes in infrastructure and real estate assets.
Deal continues trend
The deal is the latest in a spurt of transactions involving resort properties along Las Vegas Boulevard as investment groups look to buy up choice real estate along the Strip, while gaming operators such as MGM use the freed-up cash to invest further into their operations and into expansion efforts as online gambling and sports betting grow at an exponential rate across the country.
Last month, Vici Properties announced that it would acquire MGM’s real estate investment company MGM Growth Properties in a massive $17.2 billion deal, with MGM continuing to operate the properties that Vici is acquiring. MGM expects to receive roughly $4.4 billion in cash from that transaction.
MGM last week got regulator approval to buy out Dubai World’s 50 percent stake in CityCenter for roughly $2.1 billion, giving MGM full ownership of the Aria and Vdara resorts. Once that deal closes, MGM intends to sell both properties to Blackstone for $3.89 billion as part of a lease-back deal, with MGM paying $215 million in rent annually.
And in 2019, Blackstone bought the Bellagio’s real estate for $4.2 billion from MGM and leased it back to the company at an initial rent of $245 million in annual rent.
MGM Chief Financial Officer Jonathan Halkyard said in a statement the deal for The Cosmpolitan offers the company “an incredible opportunity to expand our customer base.”
“The Cosmopolitan brand is recognized around the world for its unique customer base and high-quality product and experiences, making it an ideal fit with our portfolio and furthering our vision to be the world’s premier gaming entertainment company,” MGM CEO and President Bill Hornbuckle added in a statement.
Once the transaction is closed, MGM Resorts will enter into a 30-year lease agreement, with three 10-year renewal options. MGM will pay an initial annual rent of $200 million, which will increase by 2 percent annually for the first 15 years and the greater of 2 percent or the Consumer Price Index (up to 3 percent) from then on. The transaction is expected to close in the first half of 2022.
Separating real estate from operations
A news release from Blackstone noted that the company considered a wide range of options but decided to separate the resort’s operations and real estate because it would result in “an optimal outcome.”
“This transaction underscores Blackstone’s ability to acquire and transform large, complex assets,” Tyler Henritze, head of acquisitions, Americas, for Blackstone Real Estate, said in a statement.
“As owners of The Cosmopolitan, we invested strategic capital and brought our expertise and experience in the lodging space to create the most dynamic destination on the Las Vegas Strip. The management team and employees at The Cosmopolitan, led by CEO Bill McBeath, flawlessly executed an ambitious business plan, including navigating a challenging period for the entire industry, to position the property for such a high level of success,” Henritze said.
This is a developing story. Check back for updates.
Contact Colton Lochhead at clochhead@reviewjournal.com or 702-383-4638. Follow @coltonlochhead on Twitter.
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