Wynn Resorts announced that it has entered into a definitive agreement to sell all of the land and real estate assets of Encore Boston Harbor to the real estate investment trust Realty Income for $1.7 billion in cash, representing a 5.9 percent cap rate.
Wynn Resorts will continue to operate the property.
Simultaneous with the closing of the transaction, Wynn will enter into a triple-net lease agreement for Encore Boston Harbor with Realty Income. The lease will have an initial total annual rent of $100 million and an initial term of 30 years, with one 30-year tenant renewal option. Rent under the lease will escalate at 1.75 percent for the first 10 years of the lease and the greater of 1.75 percent and the CPI increase during the prior year (capped at 2.5 percent) over the remainder of the lease term.
Wynn will retain its 13-acre developable land assemblage on the east side of Broadway in Everett, Massachusetts, on a portion of which the company plans to construct an expansion that is expected to include additional covered parking along with other non-gaming amenities. The operator has secured an option to sell the related land and real estate assets of the expansion to Realty Income for up to $20 million of additional rent, at a specified cap rate, for up to six years following the closing of the transaction.
The transaction is subject to customary closing conditions, including required regulatory approvals, and is expected to be completed during the fourth quarter of 2022.
“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,” said Craig Billings, CEO of Wynn Resorts. “Equally important, the bespoke structure and terms of the lease allow us to maintain a great deal of operating flexibility across economic cycles. The proceeds of the transaction also provide us with liquidity for several of our upcoming development projects and the potential to retire other debt.”
Kirkland & Ellis LLP and Latham & Watkins LLP acted as legal advisers to Wynn Resorts in connection with the transaction.
During the operator’s fourth-quarter earnings call, Billings said some of the net proceeds from the sale could be used as “capital to deploy on attractive greenfield projects like our development in the United Arab Emirates (UAE).” Billings said Wynn will likely have a 25-40 percent interest in that project on the UAE’s Al Marjan Island, announced in January.
In response to a question during the call, Billings said the REIT model could be employed by Wynn elsewhere, ““if it’s a gateway city, has a limited number of licenses, reasonable tax rates and reasonable regulations.”
One place it will not be employed is for the Wynn and Encore resorts on the Las Vegas Strip. “Las Vegas is a very different market compared to regional markets,” Billings said, according to CDC Gaming Reports. “Additional market deleveraging in an economic downturn is more extreme, as we saw in 2009 (with the Great Recession), and the need for continuous and sizable reinvestment in order to stay relevant is high.
“It is fundamental that we maintain consistent service levels and (capital expenditures) through the business cycle. I never want to be in a position where, in the midst of a downturn, we have to choose between our world-class service and escrowing rent or paying rent and investing in our property.”
