Wynn Can Self-Fund UAE Casino Resort, Says Analyst

Posted on: June 19, 2024, 03:57h. 

Last updated on: June 20, 2024, 10:12h.

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

Wynn Resorts (NASDAQ: WYNN) is capable of self-funding its portion of the Wynn Al Marjan Island integrated resort in Ras Al Khaimah, United Arab Emirates (UAE).

A rendering of Wynn Al Marjan Island. Wynn can self-fund its $900 million contribution to the project, according to a research firm. (Image: Wynn Resorts)

Earlier this year, the gaming company, which is a minority investor in the project, forecast expenditures of $900 million. That’s out of a total expected cost of $4 billion. Wynn’s local partners in the UAE are Marjan LLC and RAK Hospitality Holding LLC., while Wynn Design and Development is running creative and design operations. In a note to clients Tuesday, CBRE Credit Research analysts Colin Mansfield and Connor Parks said Wynn can likely cover that $900 million tab without having to take on large amounts of new debt.

We estimate Wynn Al Marjan Island will be de-leveraging to Wynn on a pro forma basis relative to our 2026 estimates, declining to about 4.2x gross lease-adjusted leverage at project maturity,” wrote the analysts.

Although UAE regulators haven’t officially approved casino gaming, Wynn Al Marjan Island is already under construction, targeting an early 2027 opening. The hotel tower could be topped off as soon as late 2025.

UAE Casino Could Boost Wynn’s Free Cash Flow

While there are concerns about the possibility of the UAE approving multiple casino resorts, and how one located in Dubai — not a done deal — could affect the Wynn venue, Wynn Al Marjan Island will enjoy first-mover advantages.

Additionally, the venue is expected to be a profit generator. Earlier this month, CBRE forecast that when Wynn Al Marjan Island ramps up, the property could generate net revenue of $1.8 billion, gross gaming revenue (GGR) of $1.38 billion, and earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) of $921 million.

“Wynn’s FCF (free cash flow) profile will meaningfully improve, estimated at US$1.4 billion in 2026 (net of dividends and minority distributions). This forecasted 18% FCF margin will be best-in-class within global gaming,” added the CBRE analysts.

The analysts also pointed out that while it’s unlikely that the Las Vegas-based gaming company will ever control 100% of the UAE scheme, it’s noteworthy that its local partner sports an investment-grade sovereign credit rating.

UAE Casino Could Be Credit Positive For Wynn

As noted above, Wynn must contribute $900 million to bring Wynn Al Marjan Island to life, and expenditures of that level could weigh on any company’s credit outlook. CBRE’s Mansfield and Parks, however, don’t see the UAE scheme driving leverage significantly.

Wynn already generates $280 million to $300 million in annual licensing fees from its existing properties — figures that could increase when the UAE casino hotel comes online.

“Certain qualitative credit characteristics for Wynn will improve should our views on the UAE regulatory structure and Wynn Al Marjan Island’s return profile come to fruition. Wynn will add a high-quality property to its portfolio in an attractive international jurisdiction, further improving its already strong diversification position globally,” concluded the analysts.