Casino companies have been riding the slow and steady gambling growth of the industry over the past decade, and that's helped slowly improve operations. However, billions of dollars of value has been unlocked by companies like Penn National Gaming, MGM Resorts (NYSE: MGM), and Caesars Entertainment (NASDAQ: CZR) by selling real estate to REITs.
Selling real estate allows companies to unlock cash immediately to pay down debt or return funds to shareholders. Wynn Resorts (NASDAQ: WYNN) is one company that's thus far held on to most of its real estate, an opportunity it could use to unlock billions of dollars on the balance sheet and give it a boost.
Image source: Wynn Resorts.
Wynn Resorts' valuable real estate
The valuations of casino real estate in the last few years have been staggering. MGM Resorts sold National Harbor's real estate for $1.12 billion in 2017 and recently announced an agreement to sell Bellagio's real estate for $4.25 billion. These propertied are good proxies for Wynn's real estate in Las Vegas and Boston.
Wynn Las Vegas sits on 215 acres of land, compared to 126 acres for the Bellagio. On top of that, Wynn Las Vegas has traditionally been more profitable than Bellagio, so it's conceivable the resort's real estate would be worth more than Bellagio's.
Encore Boston Harbor cost $2.6 billion to build, and its real estate is probably worth close to that. National Harbor is a proxy at $1.2 billion for the real estate, but it's likely Encore Boston Harbor would be worth more.
At the least, Wynn Resorts could unlock $5 billion from its real estate, and that sum could conceivably increase to $8 billion based on comparable resorts.
How Wynn can use its new billions
Wynn Resorts has a total of $9.5 billion of debt on the balance sheet, which consists of $4.06 billion in Macau and $611 million consolidated from a real estate joint venture for its mall. The remaining $4.9 billion could be paid off entirely with the sale of real estate if the estimates above are true.
The other two options with the cash would be to fund a growth project like a resort in Japan, which may cost $10 billion or more to build. Or it could pay a huge dividend to shareholders. $5 billion in cash would equate to about $47 per share made available to shareholders, which would be a welcome payout to dividend investors.
Why Wynn is holding on to real estate
As tempting as it may be to sell real estate, there are reasons for Wynn Resorts to hold out. One is that it doesn't really have enough real estate assets to launch its own REIT, like MGM and Caesars have, so it would probably need to work with a partner to get a deal done.
The other, potentially bigger problem is that it would lose control over real estate from a development perspective. Today, if Wynn Resorts wants to dig up the golf course at Wynn Las Vegas to build a hotel tower, it can do that without other entities' approval. That would change if the land was owned by a REIT, complicating development.
That's why Wynn Resorts has yet to sell the real estate it owns, but if an offer came in that was high enough, it would likely be tough to refuse. Unlocking billions of dollars in cash and returning it to shareholders or funding growth could be the right move for the company in the near future.
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