Wynn Resorts' (NASDAQ:WYNN) $2.6 billion Encore Boston Harbor is one of the most expensive resorts ever built in the U.S. outside of Las Vegas. Its biggest draw is the only full casino in the Boston area, and the 671 hotel rooms, 15 food and beverage venues, and a 26,000 square-foot salon and fitness area will make this a destination for a variety of guests.
For the property to be a financial success for Wynn Resorts, it needs to generate nearly $1 billion in revenue. I think at least $260 million in annual EBITDA, a proxy for cash flow, or a 10% EBITDA return is what should be seen as a minimum return on investment for the property. Ideally, management would like to see a 20% return, but that may be a bridge too far. Here's what we might expect from the company's results in the Boston area.
Encore Boston Harbor's hotel is small at just 671 rooms, but it's intended to be a very high-end resort. Standard rooms are 650 square feet, and there are 18 two-bedroom residences that are 3,350 square feet and two 5,800 square foot villas. In a presentation to investors, Wynn compared Ritz Carlton's $595 nightly rate and Four Seasons' $775 per night, and given prices of $1,000 around its opening, that may be a good range to expect.
If we assume the resort can command $600 in revenue per available room, there would be nearly $150 million in potential revenue from the hotel itself. That's not a bad foundation to start from, but it's not going to be the biggest money maker for the property.
According to Wynn Resorts' estimates, gross gaming revenue in the Boston area -- including Massachusetts, Connecticut, and Rhode Island -- was $2.6 billion over the past year. That's a proxy for the market potential that Encore Boston Harbor will try to tap into.
We don't know exactly what revenue from the casino will be, but there are 144 table games, and the most similar recent casino opening at National Harbor generated $5,648 per day, which would be about $300 million in casino revenue from tables. There are also over 3,100 slot machines; National Harbor generated $340 per slot machine per day, so that would be another $385 million of revenue if results are similar.
Given Wynn's high-end clientele and prime location in Boston, I don't think the $685 million of gaming revenue outlined above is out of the question. I think it's possible that gross gaming revenue could be over $1 billion at Encore Boston Harbor, which would then have 25% removed in taxes to get to net casino revenue. At $750 million of net casino revenue, the resorts could be very profitable.
Other revenue generators
There aren't great projections for how much money restaurants and shopping could generate at Encore Boston Harbor, but if we use Las Vegas as a guide it could be around the same as hotel revenue. If we assume $150 million in revenue for these business lines, it's a decent estimate to use for now.
What management expects
So far, I've laid out how Encore Boston Harbor could get to around $1 billion in revenue, depending on what you expect from the casino.
In its estimates for investors, management laid out $900 million in revenue at the low end and $1.1 billion at the high end, so you can see how management gets there. As for EBITDA, management sees the low end at $225 million per year, with a high end of $325 million per year. That's a relatively low return on investment at the low end, and even the high end isn't going to blow investors away.
There's value in Wynn Resorts just having a presence on the East Coast, and that needs to be factored in. But even with high room rates and lucrative gambling tables, this isn't a slam dunk investment for the company, and a lot will have to go right for it to be considered a financial success.