Wynn Selling Encore Boston Harbor Property Assets to Realty Income for $1.7 Billion

By | February 16, 2022

Wynn Resorts (NASDAQ:WYNN) is selling the real estate assets of Encore Boston Harbor to Realty Income (NYSE:O) for $1.7 billion — the equivalent of a 5.9 percent cap rate.

Encore Boston Harbor
Wynn’s Encore Boston Harbor. The company is selling the real estate assets of that venue for $1.7 billion. (Image: New York Times)

In the latest sale-leaseback deal in the gaming industry, the gaming company will continue operating the Massachusetts casino and pay rent to Realty Income, which is a real estate investment trust (REIT).

The lease will have an initial total annual rent of $100 million and an initial term of 30 years, with one thirty-year tenant renewal option,” according to a statement issued by Las Vegas-based Wynn.

Under the terms of the lease agreement, rent will increase at a rate of 1.75 percent for the first decade and the greater of that percentage and the Consumer Price Index (CPI) increase in the prior year (capped at 2.5 percent) over the other 20 years. The transaction is scheduled to close in the fourth quarter.

As part of the accord, Wynn is keeping its 13 acres of land on the east side of Broadway in Everett, Mass., which the operator “plans to construct an expansion that is expected to include additional covered parking along with other non-gaming amenities.”

The gaming company has an option to sell that land to the REIT for up to $20 million in rent credits for up to six years following the transaction closing.

Wynn Latest Entrant in Sale-Leaseback Bonanza

Wynn is the latest gaming company to monetize some of its real estate while not parting with operational control of the venue in question.

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, including more acquisitions, shareholder rewards such as buybacks and dividends, or to reduce debt.

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.

“The proceeds of the transaction also provide us with liquidity for several of our upcoming development projects and the potential to retire other debt,” said Wynn CEO Craig Billings in the statement.

Wynn announced the sale of Encore Boston Harbor’s property assets in conjunction with the release of its fourth-quarter results. At the end of last year, the company had $2.52 billion in cash and cash equivalents and debt of $11.93 billion.

Billings didn’t comment on specific projects proceeds from the sale could be allocated, but it’s possible some of the proceeds will be directed to Wynn’s recently announced plans for an integrated resort on Al-Marjan Island in the United Arab Emirates.

Wynn Q4 Update

For the final three months of 2021, Wynn said it lost $1.37 a share on revenue of $1.05 billion. Analysts expected a loss of $1.18 a share on sales of $1.04 billion.

“Operating revenues from Encore Boston Harbor were $204 million for the fourth quarter of 2021, a 96.4 percent increase from $103.9 million for the fourth quarter of 2020,” according to the company.

The $2.6 billion integrated resort opened in June 2019.

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