Blackstone is selling the operations of the Cosmopolitan to MGM and the building to a partnership that includes a Blackstone real-estate investment trust according to details revealed Monday.
Monday morning, MGM Resorts International announced it has entered into a definitive agreement to acquire the operations of The Cosmopolitan of Las Vegas from Blackstone for cash considerations of $1.625 billion. Minutes later, The Wall Street Journal publicized a Blackstone letter to fund investors it reviewed revealing a partnership will be purchasing the building for about $4 billion, according to the Blackstone investor letter.
The deal separates ownership of the property from the hotel and casino operations.
The total purchase price is $5.65 billion, with Stonepeak Partners, Cherng Family Trust and Blackstone Real Estate Income Trust acquiring the Cosmopolitan’s real estate assets for $4 billion. When the transaction closes, MGM Resorts will sign a 30-year lease agreement, with three 10-year renewal options with the partners. MGM Resorts will pay an initial annual rent of $200 million, which escalates annually by 2% for the first 15 years and the greater of 2% or the consumer price index increase, capped at 3%, afterwards.
“We are proud to add The Cosmopolitan, a luxury resort and casino on the Las Vegas Strip, to our portfolio,” said MGM Resorts CEO & President Bill Hornbuckle in a statement. “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. We look forward to welcoming The Cosmopolitan’s guests and employees to the MGM Resorts family.”
According to the Wall Street Journal, Blackstone acquired the Cosmopolitan for approximately $1.8 billion seven years ago and spent $500 million on upgrades including renovation of 3,000 guest rooms, and adding luxury suites, restaurants and bars. The WSJ states that total profits after the sale will be $4.1 billion, including cash flow from the property’s operations, making the sale Blackstone’s most profitable of a single asset in its history.
“With over $500 million of capital invested to upgrade the property since 2014, The Cosmopolitan offers an incredible opportunity to expand our customer base and will provide greater depth of choices for our guests in Las Vegas,” said MGM Resorts CFO Jonathan Halkyard in a statement. “We believe that we can leverage MGM Resorts’ expertise, operating platform and other highly achievable synergies to continue providing best-in-class service, while driving growth for the property.”
The deal is the latest in the series of real estate transactions on the Strip. In August, Vici Properties agreed to buy MGM Growth Properties. The Las Vegas Sands in March agreed to sell its properties in Las Vegas to Apollo Global Management, and Resorts World Las Vegas, the first all-new casino and resort property on the Strip, opened in June.
Noting that Blackstone first bought the asset in 2014 and started marketing the property earlier this month, Jeffries equity analyst David Katz wrote in an analyst’s statement that the deal is “exemplary of the current dynamics whereby operating company and property company structures have a valuation edge in property transactions, which limits the field of bidders.
“Moreover, the deal is consistent with our view ofoperating company and property company structures whereby the inherently high cost of capital requires high cash flow growth. MGM is indicating its ability to grow the $116M of cash flow after rent to an 8X multiple or ~$203M. In this regard, we view the deal positively.”
Analyst Barry Jonas of Truist Securities wrote in an analyst’s statement that the deal signifies “the end of what we believe to have been a long-dated process to sell Cosmo.
While one could argue MGM has enough Las Vegas exposure and management has discussed potential regional expansion,” Jonas also wrote, “we think the deal makes sense from a strategic perspective (strong brand/property adjacent to MGM properties) while offering modest financial accretion.”
