SJM Grand Lisboa Palace Could Be Swift EBITDA Driver

Posted on: January 18, 2021, 03:29h. 

Last updated on: January 18, 2021, 04:20h.

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

SJM Holdings’ Grand Lisboa Palace is forecast to be a quick contributor to the operator’s bottom line.

Grand Lisboa Palace
SJM Holdings’ Hotel Lisboa in Macau. The company’s Grand Lisboa Palace is expected to be highly profitable. (Image: South China Morning Post)

Fitch Ratings projects the property will drive earnings before interest, taxes, depreciation and amortization (EBITDA) of $258 million in 2022, with that figure surging to $450 million in 2023.

Fitch forecasts adjusted net debt/earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) will recover to 3.5x and 1.8x by 2022 and 2023, respectively, driven by the opening of Grand Lisboa Palace (GLP), the group’s integrated resort in Cotai, in early 2021, and a recovery from the pandemic,” said the research firm in a report.

SJM completed construction on the $5 billion Palace last October. But the official debut of the venue was pushed back to the current quarter because of the coronavirus pandemic. Grand Lisboa Palace is the operator’s first property on the Cotai Strip, which is home to most of Macau’s most modern and highest-grossing gaming venues. The company’s other integrated resorts in the special administrative region (SAR) are Grand Lisboa Hotel in downtown Macau, Jai Alai Hotel, and Sofitel Macau at Ponte 16.

Decent Comps

Founded by the late Stanley Ho, the godfather of Macau’s gaming industry, SJM once controlled 100 percent of the SAR’s casino business. That was before it opened to international competition earlier this century.

Today, Las Vegas Sands (LVS) and Galaxy Entertainment are the two largest operators in the Chinese territory. In 2019, that pair combined for more than 45 percent of Macau’s gross gaming revenue (GGR), while SJM’s slice was just 14.9 percent. The Palace could rejuvenate SJM’s footprint in its home market.

“Fitch believes GLP will allow SJMH to gain a foothold in Cotai and raise its market share,” said the ratings agency.

Fitch’s 2022 and 2023 EBITDA forecasts of $258 million and $450 million for GLP assume 330 table games in 2022 and 380 the following year.

The research firm notes Wynn Palace, which debuted in August 2016, generated $644.80 million in EBITDA in 2019 with 325 tables. MGM Cotai, which came online in February 2018, posted EBITDA of almost $310 million in 2019 with 259 tables.

Operational Efficiencies

SJM has a reputation for operating in lean fashion. For example, GLP was funded with just 50 percent debt, and all outstanding payments tied to the property will be completed this year. Once the Palace officially opens, annual maintenance costs are forecast to be less than $65 million, enhancing the appeal of the aforementioned EBITDA projections.

SJM’s balance sheet should remain firm because Macau expansion opportunities are currently limited, and it’s unlikely the company will pursue acquisitions outside of that market.

“Fitch does not expect the company to make any major investments in the foreseeable future, as there is no more land available for gaming development in Macau, and overseas investments are unlikely,” according to the ratings agency.

Fitch has a BB+ grade with a “negative” outlook on SJM’s credit profile.