Wynn Resorts announced Tuesday that it is selling the real estate under Encore Boston Harbor for $1.7 billion through a sale-leaseback transaction. Wynn will not only continue to operate the resort, but also plans to use some of those proceeds to expand the property with non-gaming amenities.
Simultaneous with the closing of the transaction, Wynn will enter into a triple-net lease agreement for Encore Boston Harbor with Realty Income.
Wynn will pay an initial annual rent of $100 million over an initial term of 30 years, with one 30-year tenant renewal option. Rent under the lease will escalate at 1.75% for the first 10 years of the lease, then the greater of 1.75% and the Consumer Price Index increase during the prior year (capped at 2.5%) over the remainder of the lease term.
Wynn will retain its 13 acres of developable land on the east side of Broadway in Everett, on a portion of which the company plans to construct an expansion that is expected to include additional covered parking, restaurants, and an entertainment venue.
The company has secured an option to sell the related land and real-estate assets of that 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, Wynn announced.
The transaction is expected to be completed during the fourth quarter of 2022.
Encore Boston Harbor opened in June 2019 at a cost of $2.6 billion. The resort has 671 hotel rooms, an ultra-premium spa, specialty shopping, 16 dining and lounge venues, state-of-the-art ballroom and meeting spaces, a six-acre public park, and Harborwalk.
“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.”
Operating revenues from Encore Boston Harbor were $204.0 million for the fourth quarter of 2021, a 96.4% increase from $103.9 million for fourth quarter 2020. Adjusted Property (earnings) for fourth quarter 2021 was $68.2 million, compared with $16.7 million for fourth quarter 2020. Table-games win percentage was 22.2%, above the property’s expected range of 18% to 22% and above the 20.9% experienced in the fourth quarter of 2020.
“Boston had an unbelievable quarter with gaming volume and (revenue per room), resulting in $68 million in (adjusted earnings) in the fourth quarter,” Billings said. “Our team in Boston has done a tremendous job, especially in the casino, but we’re just getting started.”
Billings said the next phase in Boston will be driven by database growth, particularly outside of adjacent areas. The expansion project across the street from the property will also drive that growth, he added.
“That expansion will see us add additional amenities and, importantly, additional parking,” Billings said. “Parking, especially on the weekend, remains a constraint for us.”
Billings cited the potential, saying Encore Boston Harbor has a higher run-rating than a number of Las Vegas Strip properties. “Encore still has a tremendous amount of growth ahead of it,” Billings said.
