Wynn Resorts has agreed to sell its Encore Boston Harbor casino to Reality Income, a real estate investment trust (REIT) for $1.70 billion cash. The sale is of the land and real estate assets only; Wynn will continue to operate the property, so customers should not see any changes to their experience.
The continued operation is part of a triple-net lease agreement in which Wynn will lease Encore Boston Harbor from Reality Income for 30 years. The initial rent will be $100 million for the first year. From there, it will increase by 1.75% for the first ten years and then the greater of 1.75% or the CPI (consumer price index) increase, capped at 2.50%, for the rest of the lease.
The “triple-net” terminology means that Wynn will also pay the property’s real estate taxes, insurance, and maintenance.
Not part of the deal is a 13-acre piece of land that Wynn owns across the street to the east. The company plans to use that for a new parking structure and non-gaming amenities. Wynn does have the option to sell the land and real estate to Reality Income and then enter into similar $20 million lease agreement for up to six years after the Encore Boston Harbor purchase closes.
“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, in a press release. “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.”
The primary upcoming development project referenced is a multi-billion resort in Ras Al Khaimah in the United Arab Emirates. It would be the first global beach resort developed by Wynn.
The sale of Encore Boston Harbor is another in a long line of casino sales to REITs over the last few years. This is Reality Income’s first gaming property, though many of the previous sales have been to REITs that were spun off from casino companies to specifically handle real estate, separate from the original company’s gaming business.
The REIT benefits because it gets another asset for its portfolio, while at the same time adding a stable income stream. It also pushes many of the expenses, as mentioned, over to the seller/tenant. The gaming company essentially benefits from the opposite: it gets the real estate off its books, allowing it to focus on its core competency of gaming and hospitality. There are several other financial advantages and disadvantages to such an arrangement for both parties, but we won’t get into those here.
Encore Boston Harbor reopened its poker room on January 31, nearly two years after closing it because of the COVID-19 pandemic. It has gotten largely awful reviews because of a lack of tables (it went from 74 to 12), high rake, and long waiting lists.
Image credit: Massachusetts Office of Travel & Tourism