Wynn Could Generate 20 Percent ROI on $2B UAE Project

Posted on: January 27, 2022, 09:16h. 

Last updated on: January 28, 2022, 12:59h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

On Tuesday, Wynn Resorts (NASDAQ:WYNN) surprised many in the gaming industry when it revealed plans for an integrated resort on Al-Marjan Island in the United Arab Emirates, a region not synonymous with casino gaming. But it could be a lucrative endeavor for the Las Vegas-based operator.

Wynn UAE
Al-Marjan Island in the UAE, seen from above. Wynn’s planned integrated resort there could generate ROI of 20 percent. (Image: FOX Business)

In announcing the project, Wynn didn’t reveal a price tag. But analysts are estimating a cost of at least $2 billion while noting the Encore operator could generate return on investment (ROI) of at least 20 percent. Wynn is partnering with RAK Hospitality Holding LLC — a local hotel developer — on the project, and it’s estimated the US company’s stake is going to be around a third.

We look at the stabilized cash-on-cash ROI to Wynn as in the low-20s-of-percent range,” said JPMorgan analysts in a recent note. “Overall, the economics have the potential to be very attractive.”

The analysts estimate that when the UAE integrated resort is up and running — 2026 is the expected opening date — Wynn will earn a fee equivalent to five percent of net revenue and an incentive-based management fee based on a percentage of the venue’s earnings before interest, taxes, depreciation and amortization (EBITDA). Wynn will also own a portion of the real estate, potentially enabling it to receive dividends in the future.

JPMorgan’s 20 percent ROI forecast is arrived at by “the sum of $70 million of management fees plus $77.5 million stake of EBITDA post fees, divided by a one-third stake in a $2 billion development, or $667 million.”

Wynn in UAE: More Vegas, Less Macau

Wynn’s current portfolio consists of its eponymous venue and Encore on the Las Vegas Strip, Encore Boston Harbor, and two integrated resorts in Macau.

While Macau accounts for an outsized portion of the operator’s EBITDA and revenue, analysts expect the company’s UAE venture will be more inspired by a Las Vegas template and less by the gaming-centric way of doing things in Macau.

“Wynn’s foray into a new geography that has virtually no gaming history and limited competition (at least for now) allows the company to expand its presence doing what it does best — developing and running luxury integrated resorts built around a casino and entertainment lifestyle,” said Bernstein analysts.

Wynn and Encore are often among the highest-rated Las Vegas resorts, and frequently score excellent marks in broader hotel surveys because of the company’s reputation for emphasizing amenities and luxury.

Bernstein said that in 2019, 75 percent of Wynn’s Las Vegas revenue was derived from non-gaming activities, and that could serve as a model for the UAE project.

Cautious Tone

Owing to the vast oil wealth in the UAE, the region’s established reputation as a tourist destination, and no competing gaming options — at least for now — the Al-Marjan Island integrated resort could add incremental value to Wynn’s share price over time.

However, CBRE Equity Research analyst John DeCree notes it’s possible the gaming side of the project could take years to come to life or may not be realized at all. But he’s optimistic about the impact if gaming is approved for the venue.

“Should the proposed resort get approval to authorize typical gaming activities (slots, tables), the ROI could be significant, given the limited gaming options and amount of wealth and tourism in the region,” he said in a note to clients.