Private equity giant Blackstone has opted to sell The Cosmopolitan in Las Vegas for $5.65bn, with MGM Resorts taking over operations, while Cherng Family Trust, Stonepeak Partners and Blackstone Real Estate Income Trust (BREIT) will own the property itself.
MGM will pay $1.63bn in cash for the right to operate the property. This total, the operator said, is eight times the earnings before interest, tax, depreciation and amortisation (EBITDA) of the resort.
MGM will lease the property from its new owners for 30 years, with three 10-year renewal options. It will pay an initial $200m per year in rent, with this total then increasing at between 2% and 3% per year, depending on inflation rates.
“We are proud to add The Cosmopolitan, a luxury resort and casino on the Las Vegas Strip, to our portfolio,” said MGM Resorts chief executive and president Bill Hornbuckle. “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.”
BREIT is a real estate investment fund owned by Blackstone, while Stonepeak – which spun off from Blackstone in 2011 – is an alternative investments fund mostly focused on infrastructure. The Cherng Family Trust is an investment business run by Andrew Cherng, the co-founder and chief executive of Panda Express.
“Stonepeak, in partnership with the Cherng Family Trust, believes this transaction represents a fantastic opportunity to invest in the underlying real estate of The Cosmopolitan of Las Vegas, a solid asset with an irreplaceable location, durable cash flows and the potential for additional upside,” said Phill Solomond, head of real estate at Stonepeak, said.
Blackstone acquired the property in 2014, and invested $500m in a series of renovations and other enhancements. MGM Resorts chief financial officer Jonathan Halkyard said these improvements made the deal particularly attractive.
“With over $500m 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,” he said. “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.”
MGM added that The Cosmopolitan generated $959m of net revenue and $316m of adjusted earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) in the year ended February 29, 2020. In the quarter ended June 30, 2021, net revenue was $234m and EBITDAR $92m.
“This transaction underscores Blackstone’s ability to acquire and transform large, complex assets,” Tyler Henritze, head of acquisitions Americas for Blackstone Real Estate, said. “As owners of The Cosmopolitan, we invested strategic capital and brought our expertise and experience in the lodging space to create the most dynamic destination on the Las Vegas Strip.
“The management team and employees at The Cosmopolitan, led by CEO Bill McBeath, flawlessly executed an ambitious business plan, including navigating a challenging period for the entire industry, to position the property for such a high level of success.”
The deal is expected to close in early 2022, subject to regulatory approval.