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Realty Income (O) Closes $1.7B Encore Boston Harbor Purchase

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Realty Income (O - Free Report) announced the completion of its $1.7 billion sale-leaseback of Encore Boston Harbor. This marks the company’s first acquisition in the gaming industry. Upon completion of the transaction, Wynn Resorts (WYNN - Free Report) will carry on operating the gaming-integrated resort operations of Encore Boston Harbor under a triple net lease with Realty Income.

The transaction reflects Realty Income’s strategy of utilizing its platform and scale, purchasing prime real estate assets across an array of industries and partnering with industry blue chips. In fact, Wynn Resorts is an S&P 500 company and one of the preeminent developers and operators of integrated resorts in the world.

This super-regional resort and casino, which provides five-star dining, gaming, shopping and entertainment, was constructed in 2019 at a total cost of $2.6 billion. Situated along the Mystic River and less than five miles from downtown Boston, this property enjoys an advantageous location. It boasts 5.6 million gaming-age residents within a 90-minute drive of the property.

Moreover, Realty Income’s investment in Encore Boston Harbor makes sense because, per the company’s initial press release on this transaction in February, the “existing Boston-area regional gaming market currently generates approximately $2.6 billion of gross gaming revenues annually. Encore, with EBITDA still ramping given its relative youth as an operating asset, is expected to grow with the overall market by appealing to underserved premium regional customers.”

The acquisitions of well-located commercial properties add to Realty Income’s scale, offering a competitive edge to its net lease industry. During the nine months ended Sep 30, 2022, the company invested $5.1 billion in 766 properties and properties under development or expansion. This included properties in both the United States and Europe. Realty Income expects a full-year 2022 acquisition volume of more than $6 billion.

With a diversified tenant base and top industries selling essential goods and services, this retail REIT is well-poised to ride the growth curve. Also, its accretive buyouts, capital-recycling efforts and solid balance sheet bode well. However, substantial exposure to single-tenant assets raises the risks related to tenant default. Rising interest rates add to its woes.

Shares of this Zacks Rank #4 (Sell) company have gained 7.9% so far in the quarter. However, it underperformed the industry’s rally of 19.9%.

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Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Regency Centers Corporation (REG - Free Report) and Tanger Factory Outlet Centers (SKT - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share has been revised marginally upward over the past week to $3.99.

The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ 2022 FFO per share has been revised marginally north in the past week to $1.81.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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