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Realty Income (O) to Invest $950M in Las Vegas Casino Resort
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Realty Income Corporation (O - Free Report) recently unveiled that it will invest around $950 million in The Bellagio, situated at the center of the Las Vegas Strip in Las Vegas, NV, at a valuation of $5.1 billion. It signed a definitive agreement to acquire common and preferred equity interests from Blackstone Real Estate Income Trust, Inc. (“BREIT”) in a new joint venture (JV) that owns a 95% interest in the real estate assets of the AAA Five Diamond Resort.
This marks the retail REIT’s second investment in the gaming industry and a first through its Credit Investments platform. Moreover, the latest move is in sync with the company’s portfolio diversification efforts.
The Bellagio boasts a 77-acre campus featuring around 4,000 guestrooms and suites across two towers. The gaming space encompasses 157,000 square feet while the state-of-the-art meeting and event facilities span 200,000 gross square feet. It also includes the iconic Fountains of Bellagio and several Michelin Star restaurants.
Upon completion of the deal, expected to close in the fourth quarter of 2023, The Monthly Dividend Company will invest roughly $300 million of common equity in the JV to purchase an indirect stake of 21.9% in the property. The remaining $650 million will be utilized to buy a yield-bearing preferred equity interest in the JV.
While BREIT will retain 73.1% of indirect interest in the Bellagio after the deal materializes, MGM Resorts International (“MGM”), which operates and maintains the property, will hold 5.0% of the stake.
Currently, The Bellagio’s triple net lease with MGM has roughly 26 years of residual term and includes 2.0% annual rent escalators for the next six years. For years 7-16, annual rent escalators will amount to the greater of 2.0% or CPI (capped at 3.0%) and for years 17-26, it will be the greater of 2.0% or CPI (capped at 4.0%).
In addition, Bellagio’s property-level debt has an outstanding principal balance of almost $3.0 billion with a remaining tenor of roughly 6.2 years and a 3.67% (fixed) all-in interest rate.
Per Sumit Roy, president & CEO of 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.”
In December 2022, Realty Income acquired Encore Boston Harbor Resort and Casino from Wynn Resorts for $1.7 billion, its first buyout in the gaming industry. The property operates under a 30-year triple net lease with favorable annual rent increases.
With robust retail demand and muted new supply continuing to drive the recovery in the retail real estate industry, Realty Income seems well-poised to benefit from its portfolio comprising major industries that sell essential goods and services.
O’s well-diversified portfolio with respect to tenant, industry, geography and property type assures stable rental revenues for the company, aiding top-line growth. Notably, its tenants operate in 85 different industries. As of Jun 30, 2023, the gaming industry accounted for 2.7% of the company’s total portfolio annualized contractual rent.
Further, Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. During the six months ended Jun 30, 2023, it invested $4.8 billion in 997 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. This included properties in the United States and Europe.
Nonetheless, higher e-commerce adoption and a high interest rate environment pose concerns for the company.
Shares of this Zacks Rank #3 (Hold) company have lost 6.3% in the quarter-to-date period compared with the industry’s decline of 3.0%.
The Zacks Consensus Estimate for Regency Centers’ 2023 funds from operations (FFO) per share has moved marginally upward in the past week to $4.15.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past week to $1.88.
The Zacks Consensus Estimate for Saul Centers’ ongoing year’s FFO per share has been revised 1.6% northward over the past week to $3.12.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Realty Income (O) to Invest $950M in Las Vegas Casino Resort
Realty Income Corporation (O - Free Report) recently unveiled that it will invest around $950 million in The Bellagio, situated at the center of the Las Vegas Strip in Las Vegas, NV, at a valuation of $5.1 billion. It signed a definitive agreement to acquire common and preferred equity interests from Blackstone Real Estate Income Trust, Inc. (“BREIT”) in a new joint venture (JV) that owns a 95% interest in the real estate assets of the AAA Five Diamond Resort.
This marks the retail REIT’s second investment in the gaming industry and a first through its Credit Investments platform. Moreover, the latest move is in sync with the company’s portfolio diversification efforts.
The Bellagio boasts a 77-acre campus featuring around 4,000 guestrooms and suites across two towers. The gaming space encompasses 157,000 square feet while the state-of-the-art meeting and event facilities span 200,000 gross square feet. It also includes the iconic Fountains of Bellagio and several Michelin Star restaurants.
Upon completion of the deal, expected to close in the fourth quarter of 2023, The Monthly Dividend Company will invest roughly $300 million of common equity in the JV to purchase an indirect stake of 21.9% in the property. The remaining $650 million will be utilized to buy a yield-bearing preferred equity interest in the JV.
While BREIT will retain 73.1% of indirect interest in the Bellagio after the deal materializes, MGM Resorts International (“MGM”), which operates and maintains the property, will hold 5.0% of the stake.
Currently, The Bellagio’s triple net lease with MGM has roughly 26 years of residual term and includes 2.0% annual rent escalators for the next six years. For years 7-16, annual rent escalators will amount to the greater of 2.0% or CPI (capped at 3.0%) and for years 17-26, it will be the greater of 2.0% or CPI (capped at 4.0%).
In addition, Bellagio’s property-level debt has an outstanding principal balance of almost $3.0 billion with a remaining tenor of roughly 6.2 years and a 3.67% (fixed) all-in interest rate.
Per Sumit Roy, president & CEO of 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.”
In December 2022, Realty Income acquired Encore Boston Harbor Resort and Casino from Wynn Resorts for $1.7 billion, its first buyout in the gaming industry. The property operates under a 30-year triple net lease with favorable annual rent increases.
With robust retail demand and muted new supply continuing to drive the recovery in the retail real estate industry, Realty Income seems well-poised to benefit from its portfolio comprising major industries that sell essential goods and services.
O’s well-diversified portfolio with respect to tenant, industry, geography and property type assures stable rental revenues for the company, aiding top-line growth. Notably, its tenants operate in 85 different industries. As of Jun 30, 2023, the gaming industry accounted for 2.7% of the company’s total portfolio annualized contractual rent.
Further, Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. During the six months ended Jun 30, 2023, it invested $4.8 billion in 997 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. This included properties in the United States and Europe.
Nonetheless, higher e-commerce adoption and a high interest rate environment pose concerns for the company.
Shares of this Zacks Rank #3 (Hold) company have lost 6.3% in the quarter-to-date period compared with the industry’s decline of 3.0%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Regency Centers (REG - Free Report) , Tanger Factory Outlet Centers (SKT - Free Report) and Saul Centers, Inc. (BFS - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ 2023 funds from operations (FFO) per share has moved marginally upward in the past week to $4.15.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past week to $1.88.
The Zacks Consensus Estimate for Saul Centers’ ongoing year’s FFO per share has been revised 1.6% northward over the past week to $3.12.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.