Wynn Resorts Wraps $1.7B Sale of Encore Boston Harbor Property Assets

Posted on: December 1, 2022, 04:39h. 

Last updated on: December 1, 2022, 05:50h.

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

Wynn Resorts (NASDAQ: WYNN) said Thursday it completed the previously announced sale of Encore Boston Harbor’s real estate to Realty Income (NYSE: O) for $1.7 billion.

Encore Boston Harbor
Visitors waiting to enter Encore Boston Harbor. Wynn completed the $1.7 billion sale of the real estate of the venue to Realty Income. (Image: Time Out)

The transaction, revealed in February, is all cash and comes at a cap rate of 5.9%. It also marks Realty Income’s initial foray into gaming real estate. Under the terms of the lease agreement, rent will increase at a rate of 1.75% 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%) over the other 20 years. The transaction is scheduled to close in the fourth quarter.

The lease has an initial annual rent of $100 million for a term of 30 years, with one 30-year renewal option. The rent will escalate annually at a rate of 1.75% for the first 10 years and the greater of 1.75% or CPI (capped at 2.5%) over the remaining initial lease term,” according to a statement issued by Wynn.

The Las Vegas-based casino company will continue operating the Boston-area integrated resort. As part of the accord, Wynn is keeping its 13 acres of land on the east side of Broadway in Everett, Mass. 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 the 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.

Win-Win for Wynn and Realty Income

Wynn noted net proceeds from the deal will enhance its liquidity position, which currently stands at $4.4 billion. That’s pivotal at a time when operators with Macau exposure, of which Wynn is one, are allocating capital to those units to comply with the special administrative region’s (SAR) new gaming laws.

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.

For Realty Income, the real estate investment trust (REIT) bolsters tenant diversity by acquiring Encore Boston Harbor. The REIT controls over 11,700 real estate properties owned under long-term net lease agreements with commercial clients, according to a statement.

It remains to be seen if Realty Income delves further into owning gaming real estate. But plenty of operators are looking to monetize property holdings, so it’s a possibility. Wynn maintains ownership of the property assets tied to Wynn and Encore on the Las Vegas Strip.

Busy Day for Gaming Real Estate Deals

In addition to Realty Income and Wynn announcing the finalization of the Encore Boston Harbor transaction, Thursday brought more gaming real estate news.

VICI Properties (NYSE: VICI) said earlier today it’s buying the 49.9% of the Mandalay Bay and MGM Grand on the Las Vegas Strip it didn’t previously own.

The REIT is paying $4.27 billion in cash and debt to Blackstone Real Estate Income Trust (BREIT) for the 49.9% interest in those integrated resorts.