"Realty Income Corporation has entered into an agreement with Wynn Resorts Limited to purchase Encore Boston Harbor Resort and Casino for $1.7 billion. The property was built for $2.6 billion in 2019. Wynn Resorts is selling the property in a sale-leaseback transaction with an initial lease term of 30 years and annual rent growth of 1.75% for the first ten years. The deal marks Realty Income’s foray into the gaming industry.
Per the terms of the sale-leaseback agreement, the rent will escalate either 1.75% or CPI, whichever is greater, following the first 10 years of the lease term. The lease includes a 30-year option to renew upon expiration.
The parties involved expect the deal to generate a 5.9% initial cap rate, and it will generate attractive risk-adjusted returns with immediate earnings accretion. The property also offers an attractive growth model with strong in-place contractual rent growth. Once the transaction is complete, Wynn is expected to represent less than 3.5% of Realty Income’s annualized contractual rent.
While the hospitality market has been hampered by the pandemic, Boston has a strong gaming market with $2.6 billion of gross gaming revenues annually. Nationally, gaming revenues have fully recovered, and in Massachusetts, the two-year growth rate of gross gaming revenue in Massachusetts was double that of the overall industry at the end of 2021.
Located along the Mystic River, Encore Boston Harbor Resort and Casino has a 3.1 million-square-foot casino and 671 hotel rooms. It is LEED Platinum-certified with five-star dining, gaming, shopping and entertainment. The property is centrally located with 5.6 million gaming age residents live within a 90-minute drive of the property. Pending regulatory procedures, the sale should close in the fourth quarter of 2022.
The deal builds on significant hotel transactions in 2021. In April, Bally’s Corp. agreed to acquire Tropicana Las Vegas Hotel and Casino from Gaming and Leisure Properties. The transaction is estimated to value $308 million; and in December MGM Resorts International has entered into an agreement to sell The Mirage Hotel & Casino to Hard Rock International for $1.075 billion. The sales price includes the operating assets of the resort."