Realty Income to buy Encore Boston Harbor, sees future opportunities in gaming

San Diego-based Realty Income Corp. made waves last week when the company revealed plans to buy the Encore Boston Harbor Resort and Casino in Everett, Mass., and executives have signaled that they are open to potentially expanding further into the gaming real estate space.

The real estate investment trust, traditionally known for retail and industrial real estate holdings, announced Feb. 15 that it would purchase its first gaming real estate asset, the Encore gaming facility, for $1.7 billion in a sale-leaseback transaction with Wynn Resorts Ltd.

On a Feb. 23 earnings call, Realty Income CEO Sumit Roy said the property met key investment criteria and illustrated the company's investment strategy to avoid being constrained by a particular property type.

"We did our first transaction in this particular space, so we are very hopeful that we can continue to grow this area," Roy said. "And as long as we feel like we can structure transactions for the right properties with operators, we are very happy to grow this area of our business."

Sale-leaseback transactions are not unusual in the gaming sector, where a REIT will purchase the real estate from a casino operator and then lease the property back to them. The Encore transaction includes an initial lease term of 30 years with Wynn Resorts and is expected to close in the fourth quarter.

Roy noted that Realty Income's ability to pursue and absorb such a large transaction with a single client was supported by the firm's recent merger with VEREIT Inc., which increased the size and scale of the company.

"The Encore Boston Harbor acquisition will add further diversification to our industry and client roster. After closing this transaction, we expect Wynn Resorts will become one of our top 10 clients," Roy said.