Wynn finds an ace in $1.7 bln property sale

The Encore Casino, built by Wynn Resorts, stands beside the Mystic River in Everett
The Encore Casino, built by Wynn Resorts, stands beside the Mystic River in Everett, Massachusetts, U.S., April 1, 2019. REUTERS/Brian Snyder

HONG KONG, Feb 16 (Reuters Breakingviews) - Wynn Resorts’ (WYNN.O) boss Craig Billings has been dealt a tough hand. Covid-19 is slamming its business in Macau, and new ventures read more need cash. Net debt is already at $9.4 billion, more than 16 times 2021 EBITDA. So selling its Encore Boston Harbour property to raise funds and becoming a tenant makes sense.

As part of the deal, Wynn will offload the real estate for $1.7 billion in cash. The casino has also agreed to an initial annual rent of $100 million and a 30-year term. That works out to a cap rate, or the rental yield that the buyer collects, of 5.9% - in line with a similar leaseback deal in 2019 between MGM International Resorts and Blackstone (BX.N) for the iconic Bellagio estate in Las Vegas.

To compare, Wynn’s weighted average cost of capital is 9.2%, Morningstar analysts estimate. And the business it operates in Encore Boston, which opened just before the pandemic, should be a relatively stable and predictable revenue generator for the company. Tuesday’s results show it earned $68 million EBITDA in the fourth quarter alone. The odds look appealing. (By Katrina Hamlin)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Robyn Mak and Thomas Shum

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