Wynn equity partner, op in US$2bln UAE casino: analysts
A number of brokerages say they expect a Middle-East casino proposal, announced on Tuesday involving Wynn Resorts Ltd, to cost at least US$2 billion. The announcement by the promoters mentioned a target opening date of 2026.
One of the partners for the scheme, in Ras Al Khaimah in the United Arab Emirates (UAE), would be a local entity, RAK Hospitality Holding LLC, a hotel and leisure business operator.
JP Morgan Securities LLC said in a Tuesday note it anticipated a management contract for Wynn Resorts lasting 20 years.
Wynn Resorts would, said analysts Joseph Greff, Omar Sander, and Ryan Lambert, receive “a base fee of approximately 5 percent of total net revenue, with an incentive management fee” based on a percentage of earnings before interest, taxation, depreciation and amortisation (EBITDA). The casino group would also own a piece of the real estate venture, from which it could eventually receive dividends.
The current scope of the UAE proposal includes 1,000-plus hotel rooms, a shopping mall, a meeting and convention facility, a spa, more than 10 restaurants and lounges, and a “wide array of entertainment choices”, including a “gaming area”.
Brokerage Sanford C. Bernstein Ltd said in a Wednesday memo that the announcement of a Middle East scheme was a “surprise”, but likely “value creating” for Wynn Resorts in the “long run”; though the brokerage thought it was too early to ascribe value from it to the group’s stock price.
United States-based Wynn Resorts, which runs a gaming resort in Las Vegas, Nevada, and one in Boston, Massachusetts, is also the parent of Macau operator Wynn Macau Ltd, which sees its existing Macau rights expire on June 26 this year.
‘20pct ROI’ for Wynn
JP Morgan said it expected the UAE resort to be financed with “50 percent debt and the balance with equity funded by Wynn and its partners rateably over the three-year or so construction timeline”.
“Overall, the economics have the potential to be very attractive,” said the JP Morgan team, adding that they expected the project to “generate incremental equity value” for Wynn Resorts.
“We look at the stabilised cash-on-cash ROI [return on investment] to Wynn as in the low-20s-of-percent range,” stated the analysts. They added that their calculation included “the sum of US$70 million of management fees plus US$77.5 million stake of EBITDA post fees, divided by a one-third stake in a US$2 billion development, or US$667 million.”
Vitaly Umansky, analyst at Sanford Bernstein, observed in his memo: “As this will be the first large-scale casino in the Middle East, the customer demand profile is new and will need further analysis, but the luxury lodging, retail, food and beverage, and entertainment demand in the region is robust.”
The Marjan Island site in Ras Al Khaimah earmarked for the Wynn Resorts scheme is 15 minutes by car from the Ras Al Khaimah International Airport, and 45-minute drive from Dubai International Airport, in the neighbouring and better-known UAE destination, one of the world’s key air passenger hubs, noted JP Morgan.
The JP Morgan team added: “We understand that gaming regulation will be similar to what is in Singapore: reasonable low tax rate in the 10 percent to 13 percent range, fixed for at least 12 years, with entry fees for the casinos.”
The Ras Al Khaimah Tourism Development Authority will serve as the regulator for the integrated resort.
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