Wynn finds an ace in $1.7 bln property sale

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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Editing by Robyn Mak and Thomas Shum