Bellagio Stake Sale Could Bode Well for Caesars, VICI, Says Analyst

Posted on: August 28, 2023, 02:23h. 

Last updated on: August 29, 2023, 11:45h.

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

Blackstone’s (NYSE: BX) Blackstone Real Estate Income Trust (BREIT) recently announced the sale of a 21.9% interest in the property assets of Bellagio on the Las Vegas Strip to Realty Income (NYSE: O) for approximately $950 million.

MGM stock
Bellagio on the Las Vegas Strip. An analyst says the recent sale of a portion of the venue’s real estate could benefit other Las Vegas operators. (Image: BuzzFeed News)

That price point implies the casino resort is worth $5.1 billion, or about 20% more than the $4.25 billion BREIT paid for 95% of the real estate of Bellagio in 2019. That rapid increase in value has positive implications for other Strip entities, including Caesars Entertainment (NASDAQ: CZR), Bellagio operator MGM Resorts International (NYSE: MGM), and VICI Properties, according to Jefferies analyst David Katz.

The valuation on the property is reset to $5.1 billion from $4.25 billion when the original sale to Blackstone was executed in November 2019, which is supportive for Caesars, MGM, and VICI,” wrote the analyst in a new report to clients.

The purchase of the Bellagio stake is the second move into gaming property by Realty Income. In February 2022, the REIT announced the $1.7 billion purchase of the real estate of Wynn Resorts’ (NASDAQ: WYNN) Encore Boston Harbor.

How Bellagio Sale Could Benefit Caesars, VICI

A 20% increase in Bellagio’s value in about four years could benefit Caesars and VICI, the largest gaming real estate investment trust (REIT).

VICI is the largest owner of Las Vegas Strip gaming real estate. The REIT owns the bulk of MGM-operated Sin City venues, Caesars Palace, and the Venetian. The Bellagio transaction could imply that the value of VICI’s Las Vegas real estate is higher today than when the company acquired it. Katz also sees positive implications in the Bellagio deal for alternative capital structures used by VICI.

“Validation of alternative funding structures by real estate investment trusts in gaming, which is supportive of VICI and its development loans in experiential leisure,” added the analyst.

As for Caesars, appreciation in Bellagio’s real estate could be a signal that if Caesars decides to unload a Strip venue — a long-running rumor — it could fetch a higher price than previously expected. Additionally, the involvement of Realty Income in the Bellagio transaction could be a sign that sellers of casino real estate could find a broader pool of potential buyers than they have in years past.

MGM Benefits, Too

The positives for MGM in the Bellagio stake sale are clear: the operator maintains a 5% interest in the venue’s property assets, and could likely command an attractive price should it choose to monetize that stake.

The deal also confirms there’s strong demand for the real estate associated with the Las Vegas integrated resorts run by MGM.

That’s relevant, because there’s also been speculation that BREIT could look to monetize its stake in the Cosmopolitan, and also because the Blackstone entity owns the property of MGM-operated Aria and Vdara.