Realty Income Corporation and Blackstone Real Estate on Monday announced an agreement under which Realty Income will make an $800 million equity investment in the real estate of CityCenter on the Las Vegas Strip. This transaction is expected to close on December 9 and represents Realty Income’s second investment with Blackstone, following the Bellagio Las Vegas joint venture completed in 2023.
CityCenter comprises the ARIA Resort & Casino and Vdara Hotel & Spa, which is owned by funds affiliated with Blackstone Real Estate. Blackstone will retain 100% of the common equity ownership of the property, which will continue to be operated by MGM Resorts International.
This perpetual preferred equity investment is expected to carry an initial unlevered rate of return to Realty Income of 7.4% with annual capped escalators starting on the fifth anniversary of the closing, the company announced. The preferred equity investment is subject to an early redemption premium payable to Realty Income of 3% of the preferred equity amount if redeemed prior to the first anniversary of closing or 2% of the preferred equity amount if redeemed after the first anniversary, but before the fourth anniversary of closing.
Upon redemption of the preferred equity amount, if Realty Income hasn’t received an 8.3% unlevered internal rate of return on the redeemed amount, it will receive a make-whole payment to ensure that such return is achieved. Realty Income will retain a right of first offer on a future sale of the common equity interests in the real estate by Blackstone, the company announced.
“We are pleased to build on our strategic relationship with Blackstone Real Estate to invest in one of the Las Vegas Strip’s iconic properties,” said Sumit Roy, Realty Income’s president and CEO. “This represents an immediately accretive investment for Realty Income with a favorable initial yield and IRR profile, further demonstrating the value of our size, scale, and diversification. This transaction adds to an active fourth-quarter investment pipeline, which is fully funded from an equity standpoint from a combination of cash, anticipated free cash flow, and equity, of which Realty Income had approximately $417 million of outstanding cash as of the end of the third quarter and approximately $1.3 billion of unsettled forward equity as of today.”
Jacob Werner, co-head of Americas Acquisitions for Blackstone, said they’re pleased to reach this agreement and grow their partnership with Realty Income.
“This preferred equity investment is a terrific outcome for our investors, as it returns significant capital, while preserving our ownership in a world-class resort at the heart of the Las Vegas Strip,” Werner said.
The property is subject to an existing triple-net lease with annual rent escalators and approximately 26 years remaining on the initial term, plus three 10-year extension options. In-place rent is significantly well-covered through existing property cash flows, officials said.
Located at the center of the Las Vegas Strip, the ARIA Resort & Casino and Vdara Hotel & Spa include gaming, lodging, luxury retail, and upscale dining space, with approximately 5,500 rooms and 500,000 square feet of convention space operated and maintained by MGM Resorts International.
J.P. Morgan, Citi, Deutsche Bank, Goldman Sachs, and Evercore are acting as financial advisors to Blackstone. Simpson Thacher & Bartlett LLP is acting as legal counsel to Blackstone. Latham & Watkins LLP is acting as legal counsel to Realty Income.
Realty Income, an S&P 500 company, is a real estate partner to the world’s leading companies. As of September 30, it had a portfolio of over 15,500 properties in all 50 U.S. states, the U.K., and seven other countries in Europe.
Blackstone’s real estate business was founded in 1991 and has $320 billion of investor capital under management. Blackstone is the largest owner of commercial real estate globally, owning and operating assets across every major geography and sector, including logistics, data centers, residential, office, and hospitality.
