It was only a few weeks ago that we learned that investment firm Blackstone Group (NYSE: BX) was looking to unload the Cosmopolitan on the Las Vegas Strip, with an asking price of at least $5 billion. Well, we just found out that Blackstone has officially found a buyer for the massive property -- sort of.
Here's an overview of the deal that Blackstone has made with one of the largest gaming companies in the world and what it means for the gaming industry.
Here's who is buying the Cosmopolitan
I won't keep you in suspense. MGM Resorts (NYSE: MGM) has entered into an agreement to acquire the business operations of the Cosmopolitan, but not the real estate, for a purchase price of $1.625 billion. So, Blackstone and a couple of other investors will retain the property itself and collect rent, but it will be operated as an MGM gaming property after the deal closes.
Specifically, MGM is going to net lease the property from Blackstone, Stonepeak Partners, and Cherng Family Trust with a 30-year initial term and a $200 million initial annual rent. So, instead of getting $5 billion for the property like Blackstone wanted, the firm is getting about one-third of that and will also get a steady stream of rental income going forward. The deal is expected to close in the first half of 2022.
It's also worth noting that the Cosmopolitan operates as a Marriott- (NYSE: MAR) affiliated property, and this is likely to change after the deal is done. It might not happen right away, but the Cosmopolitan will likely be absorbed into MGM's own loyalty program, M Life.
Why is MGM Resorts buying the Cosmopolitan?
Although it's certainly less than the $5 billion price tag Blackstone was reportedly looking for, more than $1.6 billion is a steep price tag to acquire just the operations of a casino. But this certainly fits into MGM's strategy. For one thing, it is one of the newer, more luxurious hotels on the Vegas Strip, and it is located right between two of MGM's other premier gaming properties: the Bellagio and the Aria.
The Cosmopolitan is geared toward the younger crowd, which could make it especially appealing as a way to bring the Cosmopolitan's customer base into MGM's ecosystem. It's also a massive property, with more than 3,000 rooms, 26 food and beverage outlets, a theater, 243,000 square feet of meeting space, and more.
Furthermore, at roughly eight times adjusted EBITDA of the Cosmopolitan, the transaction price may not be as expensive as it seems. As part of MGM's portfolio of properties, it could leverage the company's already loyal customer base and could potentially end up being a cheap price to pay.
To be sure, this was a bit of a surprise. When I wrote about the potential sale of the Cosmopolitan earlier in September, it seemed more likely that a real estate company would buy the property outright, although I didn't exactly think a $5 billion sale was a high probability at all.
As far as an acquisition of the business goes, MGM certainly seems like the best fit, considering the rest of the company's Las Vegas portfolio and it helps not only maintain, but build on MGM's relative dominance when it comes to the newer and more luxurious properties on the Strip. All in all, it's a deal for real estate investors to watch.