Realty Income announced on Feb. 15 that a definitive agreement was signed with Wynn Resorts.
Realty Income will acquire the Encore Boston Harbor Resort and Casino land and real estate assets for a reported $1.7 billion.
Details of the Realty Income and Wynn Resorts agreement
When the transaction closes, Wynn Resorts will also enter into a triple-net lease agreement with Realty Income for the Massachusetts casino and resort.
Wynn Resorts will lease Encore Boston Harbor from Realty Income for an initial rent of $100 million per year for a 30-year term. One 30-year renewal option will be available as well.
Rent will increase at a rate of 1.75% for the first 10 years of the term. For the remainder of the lease term, the increase will be 1.75% or the CPI increase of the previous year, capped at 2.5% (whichever is higher).
Real estate investment trusts benefit the casino industry
Selling casino real estate to real estate investment trusts (REITs) is not uncommon in the casino industry. Selling their real estate to REITs allows casinos to:
- Get rid of debt
- Gain capital for additional expansions
According to an employee memo from Wynn CEO Craig Billings, Wynn Resorts’ Las Vegas property is not being considered for a similar sale. However, other renowned Las Vegas hotels have taken advantage of these types of transactions.
For example, REITs currently own both Caesars Palace and Bellagio. Casinos often turn to REITs for help with creative financing options.
What the sale means for Wynn Resorts and Encore Boston Harbor
Encore Boston Harbor opened in 2019 after competitive and extensive bidding with the Massachusetts Gaming Commission (MGC). The casino resort was a $2.6 billion project that generated roughly 7,000 jobs for its construction, which included:
- 33 acres of scenery along the Mystic River
- A 600-room five-star resort
- A luxury spa
- A ballroom
- Meeting space
Amid the COVID-19 pandemic the following year, however, the resort casino closed for almost four months. Encore reported $53.8 million in revenue losses after the second quarter of 2020.
Billings sees the sale of Encore as a testament to the property’s exponential value. He said:
“Encore Boston Harbor is the premier gaming resort on the East Coast. And the valuation we achieved in this sale reflects the property’s quality,”
Billings is confident that the agreement will give Wynn Resorts the means to accomplish its expansion goals, saying:
“Proceeds of the transaction also provide us with liquidity for several of our upcoming development projects. And the potential to retire other debt.”
Wynn Resorts will still manage the Encore Boston Harbor property. It will also keep 13 acres of land adjacent to the resort located on the east side of Broadway.
That space will be used for a new parking garage and other non-gaming amenities. Billings continued:
“The bespoke structure and terms of the lease allow us to maintain a great deal of operating flexibility across economic cycles.”
In the agreement, Wynn Resorts maintains the option to sell that land to Realty Income and pay $20 million annually in additional rent.
What the sale means for Realty Income
Sumit Roy, President and CEO of Realty Income, also alluded to the high-quality value of Encore Boston Harbor when speaking of the agreement, saying:
“Our investment philosophy centers around generating favorable risk-adjusted returns by investing in strategically important properties with partners who are leaders in their respective industries.”
This will be Realty Income’s first investment in the casino and gaming industry. Roy is optimistic about what the new industry means for Realty Income.
“This transaction demonstrates our ability to utilize our platform and scale to acquire prime real estate assets across a variety of industries in alignment with our investment criteria.”
Roy added that Realty Income is “pleased to cultivate a new relationship with Wynn Resorts as we expand our universe of net lease investments.”
While the agreement is definitively signed, the transaction won’t close until the fourth quarter of 2022, according to Wynn Resorts.