Casino companies have been operating with the slow and steady growth of the industry over the last decade, and it has helped slowly to improve operations. However, billions of dollars have been unlocked by companies such as Penn National Gaming MGM Resorts (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR) at to sell property to REITs.
By selling real estate, companies can immediately unlock cash to pay off debt or return funds to shareholders. Wynn Resorts (NASDAQ: WYNN) is a company that so far has held onto most of the real estate, an opportunity it can use to unlock billions of dollars in the balance sheet and give it a boost.
Wynn Resorts' Valuable Properties
The valuations of casino properties in recent years have been staggering. MGM Resorts sold National Harbor's property for $ 1
Wynn Las Vegas sits on 215 acres of land, compared to 126 acres for Bellagio. To top it off, Wynn Las Vegas has traditionally been more profitable than Bellagio, so it is conceivable that the resort's property will be worth more than Bellagio's.
Encore Boston Harbor cost $ 2.6 billion to build, and its property is probably worth close to it. National Harbor is a $ 1.2 billion real estate agent, but it's likely that Encore Boston Harbor will be worth more.
At least Wynn Resorts could unlock $ 5 billion from its properties, and that sum is likely to increase to $ 8 billion based on comparable resorts.
How Wynn Can Spend the New Billions
Wynn Resorts has a total of $ 9.5 billion of debt in the balance sheet, consisting of $ 4.06 billion in Macau and $ 611 million consolidated from a joint venture for real estate. The remaining $ 4.9 billion can be paid in full on property sales if the above estimates are true.
The other two cash alternatives would be to fund a growth project such as a resort in Japan, which could cost $ 10 billion or more to build. Or it can pay a big dividend to the shareholders. $ 5 billion in cash will equal approximately $ 47 per share made available to shareholders, which will be a welcome payout for dividend investors.
Why Wynn Holds on Properties
As tempting as it is to sell properties, there are reasons why Wynn Resorts endure. One is that it doesn't really have enough real estate to launch its own REIT, as MGM and Caesars have, so it will probably need to work with a partner to make a deal.
The second, potentially larger, problem is that it would lose control of properties from a development perspective. Today, if Wynn Resorts wants to dig up the Wynn Las Vegas golf course to build a hotel tower, it can do so without the approval of other entities. It would change if the land was owned by a REIT, which complicated the development.
That's why Wynn Resorts has not yet sold the property it owns, but if an offer came in that was high enough, it will probably be difficult to decline. Unlocking billions of dollars in cash and returning it to shareholders or funding growth may be the right move for the company in the near future.