Private equity behemoth Blackstone (BX -4.17%) has agreed to sell its interests in two casino properties to VICI Properties (VICI -0.79%), a real estate investment trust (REIT) focused on experiential properties. The transaction will boost VICI's cash flow, supporting its ability to sustain and expand its 4.6%-yielding dividend.

Meanwhile, it will provide Blackstone's non-traded REIT, BREIT, with a cash infusion that it can use to continue expanding in its highest growth areas. That growth should eventually flow down to Blackstone to help support its 5.9%-yielding payout. 

The deal could make both stocks more appealing long-term investments for income-seeking investors.

Cashing in its chips

BREIT has agreed to sell its 49.9% interest in a joint venture that owns the MGM Grand Las Vegas and Mandalay Bay to its partner VICI Properties. The non-traded REIT will receive $1.27 billion in cash. Meanwhile, VICI Properties will assume BREIT's proportional share of the $3 billion of property-level debt.

MGM Resorts (MGM -3.06%) leases both properties under a long-term triple net agreement (NNN) that will generate $310 million of annual rent at its next escalation in March. The lease has 27 years remaining with two 10-year renewal options. Rents grow at a 2% annual rate through 2035 and then expand at the greater of 2% or the consumer price index, subject to a 3% ceiling.

The sale will generate a more than $700 million profit for Blackstone in less than three years of owning the joint venture. In commenting on the deal, Blackstone COO Jon Gray stated: "VICI Properties has been an outstanding partner on these assets and we are incredibly pleased to have delivered such exceptional returns for our BREIT investors. Las Vegas continues to be a high conviction market for Blackstone."

Blackstone plans to use the proceeds from the sale to invest in assets that can grow rents faster, like apartments and industrial properties. That better aligns with its investment strategy of owning assets that benefit from inflation. It should enable the company's REIT to deliver faster income growth and higher returns. Those benefits will flow down to Blackstone's bottom line, giving it more money to return to shareholders through its dividend and share repurchase program. 

A low-risk, high-reward wager

The transaction is a very low-risk bet for VICI Properties. It already owns a 50.1% interest in both properties, mitigating integration risk. These are iconic properties located at the south end of the Las Vegas Strip, leased to a high-quality operator. Because of that, there's minimal risk that VICI won't receive rental payments. Furthermore, they'll supply the REIT with steadily rising rental income because the triple net lease features an annual escalation clause. That will enhance the experiential real estate owner's ability to sustain and grow its dividend.

The company expects to fund the deal with cash on hand, the proceeds of a recent equity sale, and the assumption of the property-level debt. That debt doesn't mature for another decade and carries a low fixed interest rate of 3.558%. This financing further reduces risk, especially in today's higher interest rate environment.

VICI Properties expects the deal will be immediately accretive to its adjusted funds from operations (FFO) per share. Add in the expected rent growth from the escalation clause, and the acquisition should enable VICI to continue growing its dividend in the future. The company recently boosted its payout by another 8.3%. It has now increased its dividend for all five years since its formation. 

This transaction continues what has been a very active year for VICI Properties. The company completed its $17.2 billion strategic acquisition of MGM Growth Properties, which, among other assets, gave it a stake in the Blackstone joint venture. The company has also continued to diversify away from casinos by expanding its partnership with Great Wolf Resorts, funding a new wellness resort development, and entering the destination golf experience sector. These investments should further support the company's ability to grow its high-yielding dividend. 

A winning outcome

Blackstone is cashing in on its casino joint venture by selling its stake to its partner VICI. The deal will enable Blackstone to invest in properties with more rental growth potential while giving VICI full ownership of two premier and stable income-producing assets. The transaction should support both companies' abilities to expand their big-time dividends, making it an excellent outcome for income-focused investors.