Realty Income Corp. has gone all in, making the real estate investment trust’s first foray into hotels and gaming with a $1.7 billion sale-leaseback deal for Wynn Resorts property near Boston, signaling escalating nationwide investor interest amid a rebounding hospitality climate.
The company announced it signed a definitive agreement to acquire the Encore Boston Harbor Resort Casino from Wynn, a prominent Las Vegas-based operator of gaming-related properties. The all-cash deal is slated to close in the fourth quarter of 2022 pending regulatory approvals, with Wynn to pay an initial annual rent of $100 million for 30 years, with a one 30-year renewal option, according to statements from the buyer and seller.
With a property portfolio valued at more than $24 billion, San Diego-based Realty Income is among the nation’s largest investors in properties operated under “net lease” arrangements, where the tenant not only pays rent but other regular operating costs such as maintenance, taxes and insurance.
Realty Income’s 52-year history has been focused primarily on retail and industrial distribution properties, currently housing more than 650 tenants in 60 industries in the U.S., U.K., Spain and Puerto Rico. Many of its tenants are national and global companies such as Walgreens, Walmart, Home Depot and FedEx.
Several of the REIT’s acquisitions in the past decade have been made through sale-leaseback transactions. The arrangement allows the seller to obtain a significant influx of operating capital while the buyer gets dependable, long-term rental income as it minimizes costs to own and operate properties.
“Our investment philosophy centers around generating favorable risk-adjusted returns by investing in strategically important properties with partners who are leaders in their respective industries,” Realty Income CEO Sumit Roy said in a statement Tuesday. Realty Income officials said the transaction “represents an external growth channel unconstrained by industry, property type or geography.”
Follow-On Deal Possible
The 671-room Encore Boston Harbor was built in 2019 at 1 Broadway in Everett, Massachusetts, just north of Boston, and includes 16 dining and lounge venues, a premium spa, specialty shops, ballroom, meeting spaces and a 6-acre public park and Harborwalk.
According to Realty Income, the resort was built at a total cost of $2.6 billion. It said it is "the only integrated resort and casino" in the Boston metropolitan area and holds one of only two Class I gaming licenses that have been granted in Massachusetts.
Wynn officials said the company would retain its 13 acres of developable land near the resort property, where it is planning an expansion slated to include new covered parking and other nongaming amenities. Wynn Resorts has also secured an option to sell that land to Realty Income after it is redeveloped.
“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,” Wynn Resorts CEO Craig Billings said in a statement.
“Equally important, the bespoke structure and terms of the lease allow us to maintain a great deal of operating flexibility across economic cycles,” he said. “The proceeds of the transaction also provide us with liquidity for several of our upcoming development projects and the potential to retire other debt.”
Like its gaming and resort competitors, Wynn Resorts is gradually digging out from a pandemic that hit hotels and casinos particularly hard as tourism dried up for several months in gambling capitals including Las Vegas and Atlantic City.
As pandemic restrictions subside, hotels are seeing rapidly rising interest from investors who had stayed away for much of the pandemic. California, among the nation’s most active travel and tourism markets, saw hotel property sales hit a record of nearly $10 billion in 2021, up 204% from 2020, according to hotel brokerage and research firm Atlas Hospitality Group.
The deal for the Wynn property marks continued expansion for Realty Income despite a still challenging climate for some types of real estate. The company last year acquired rival investor Vereit for $11 billion and subsequently spun off Vereit’s office holdings into a separate investment entity where it retains interests.