With landlord Realty Income

Wynn enters $1.7B sale-leaseback deal for Encore Boston amid venue expansion plans

Encore Boston Harbor in Everett, Massachusetts.
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Las Vegas-based gaming and hospitality giant Wynn Resorts is set to sell the real estate of its Encore Boston Harbor resort and casino in Everett, Massachusetts for $1.7 billion through a sale-leaseback transaction, the company announced on Tuesday. The announcement came the same day the operator reported 53.5% operating revenue growth to $1.05 billion for the fourth quarter of 2021.

The business has entered “into a definitive agreement” to sell all of the land and real estate assets of the luxury property to California-based real estate investment trust Realty Income for $1.7 billion in cash, representing a 5.9% cap rate. Following the transaction, Wynn Resorts will continue to operate the venue.

Simultaneous with the closing of the transaction, Wynn will enter into a triple-net lease agreement for the property with the NYSE-listed investment trust. 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.

Rent under the least will escalate at 1.75% for the first ten years of the lease and the greater of 1.75% and the CPI increase during the prior year (capped at 2.50%) over the remainder of the lease term, a press release explains.

"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,” commented Craig Billings, CEO of Wynn Resorts, about the transaction.

The deal is subject to the customary closing conditions, including required regulatory approvals, and is expected to be completed “during the fourth quarter of 2022.” Kirkland & Ellis LLP and Latham & Watkins LLP acted as legal advisors to Wynn Resorts in connection to the transaction.

“Equally important, the bespoke structure and terms of the lease allow us to maintain a great deal of operating flexibility across economic cycles,” further explained Billings. “The proceeds of the transaction also provide us with liquidity for several of our upcoming development projects and the potential to retire other debt.”

As part of the deal, Wynn will retain its 13-acre developable land assemblage on the east side of Broadway in Everett, a portion in which the company plans to construct an expansion to its current facility. The site is expected to include additional covered parking, along with other non-gaming amenities.

But as part of the deal, Wynn has also secured an option to sell the related land and real estate assets of the proposed expansion to Realty Income for up to $20 million of additional rent, the gaming operator explains, at a specified cap rate, for up to six years following the closing of the transaction.

Rendering for the proposed entertainment district across Encore Boston Harbor

Wynn’s plans to develop an entertainment district across its Encore Boston Harbor venue have been in discussion for some time now. The company was set to pitch its project to the Massachusetts Gaming Commission last month, but executives decided to pause the process to reassess their proposal. In February, a slightly scaled-back version was unveiled, which has now been presented to regulators in the state.

“We’re really trying to make this a vibrant neighborhood,” said Chris Gordon, the president of Wynn Resorts Development, according to the Boston Herald. “You go from an industrial zone with small local shops that were maybe not thriving, and you come up with something like this, which we think could be a big addition.”

Wynn’s updated plan calls for the development of 20,000 square feet of retail space, around 800 hotel rooms -in two or three large hotels-, nearly 50,000 square feet of restaurant space -between five and seven restaurants-, a 2,300-plus-sport parking garage, warehouse and green space, plus a concert venue with up to 999 seats, reduced from 1,800 in the original plan.

Q4 financial results

The transaction announcement comes alongside financial reports for the fourth quarter and full year 2021, posted on Tuesday. The company saw operating revenues increase 53.5% to $1.05 billion in Q4, and up 79.6% for the full year 2021 to $3.76 billion.

"I’m proud of our teams at both Wynn Las Vegas and Encore Boston Harbor for delivering record Adjusted Property EBITDA at both properties during the fourth quarter," said Billings. "Our relentless focus on five-star hospitality and world-class experiences allowed us to further extend our leadership positions in Las Vegas and Massachusetts in 2021.”

In regards to the company’s operations in Macau, which were impacted by the ongoing Covid-19 pandemic and travel restrictions, Wynn “remains confident” that the market will benefit from the return of visitation “over the coming quarters.”

Wynn Las Vegas

In this regard, operating revenues decreased $27.5 million and $50.2 million in Q4 at Wynn Palace and Wynn Macau respectively from the fourth quarter of 2020. Adjusted Property EBITDA also decreased $30.1 million and $35.2 million at Wynn Palace and Wynn Macau respectively in Q4.

Going forward, Wynn’s CEO expressed confidence in the company’s plans to develop and manage a luxury integrated resort in the United Arab Emirates, along with partners Marjan and RAK Hospitality Holding. Scheduled to open in 2026, the project calls for the creation of a multibillion-dollar resort on the man-made Al Marjan Island in Ras Al Khaimah.

“The project further diversifies our business, extending our brand into the Middle East and Europe,” Billings commented. “We look forward to creating the one-of-a-kind guest experiences for which Wynn Resorts is renowned, and contributing to tourism and employment growth in the region."

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