Bally’s Sells Chicago Casino Land to Unidentified Investor for $500 Million

Posted on: November 21, 2022, 04:19h. 

Last updated on: November 21, 2022, 04:55h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Bally’s (NYSE: BALY) announced Monday it sold the property of its upcoming Chicago casino resort to an unidentified investor for $500 million. It is entering a sale-leaseback transaction with the real estate owner.

Bally's Chicago
A rendering of Bally’s upcoming Chicago casino. The company announced a $500 million sale-leaseback deal on the property today. (Image: Bally’s)

Bally’s sold the 30-acre Tribune Publishing Center site for $200 million. The property investor will also fund up to an additional $300 million in development costs for the first gaming venue in the third-largest US city.

The initial rental rate under the ground lease is calculated to yield the Investor an 8.5% annual capitalization rate, adjusting to a 7.0% annual capitalization rate upon the receipt by Bally’s of certain development entitlements and gaming approvals.  The rent is also subject to periodic Consumer Price Index (CPI) increases,” according to a statement.

Bally’s doesn’t identify its soon-to-be landlord for the Chicago casino. But Chairman Soo Kim is part of “one of Chicago’s leading real estate private equity firm(s)” while another source describes the property owner as a real estate-focused private equity company without mentioning its home city. It’s common for private equity shops to have dedicated real estate arms, and some of those entities own gaming real estate around the world, including Las Vegas.

Bally’s Needs Chicago Cash

While Bally’s is gaining exclusive rights for the first integrated resort in the Windy City, the $1.7 billion price tag on the project isn’t cheap.

In fact, it’s well in excess of the company’s market capitalization of $1.16 billion. That’s to say, some analysts previously speculated the operator needed to raise capital in some fashion for the Chicago venture. The sale-leaseback is an effective way of accomplishing that objective because it doesn’t involve Bally’s diluting existing shareholders with an equity sale or taking on more debt with high interest rates by heading to the bond market.

Sale-leaseback deals, or SLBs, are commonplace in the industry, and often viewed as win-wins for casino operators and real estate companies. Through these agreements, a gaming company can monetize land assets, often garnering large, upfront sums of cash to use for anything.

Likewise, the real estate firm that leases the land back to the operator gets the benefit of long-term tenant agreements that often include gradually increasing rates without having to be financially responsible for building enhancements.

Bally’s Can Buy Land Back

Chicago notwithstanding, and even with some recent transactions involving Gaming and Leisure Properties (GLPI), Bally’s owns the bulk of the land on which its gaming venues reside. That’s a plus because, should the company need capital in the future, it could part with some of its land holdings.

In Chicago, Bally’s could reacquire the casino property should it so desire. While capital-intensive to start, such a move would remove a long-term bill.

Bally’s has the option to repurchase the Land from the Investor at a fixed capitalization rate during years four through eight of the lease term.  In addition, if certain milestones are not achieved or Bally’s defaults under the lease, the Investor may require Bally’s to reacquire the Land at a specified price,” according to the statement.

The operator’s initial lease term is 99 years, with 10 separate 20-year renewal options.