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Australia – Star back in profit but confirms asset sales and sell and lease back on Sydney casino

By - 19 August 2021

Australian casino group Star Entertainment has swung back to full-year profit but has confirmed it has been selling some non-core assets to survive the effects of COVID-19 and that it has also started the process of selling half of its Sydney casino and getting it back on lease. It is planning on selling a VIP jet and some property.

The company said the sale and leaseback model could also be applied to its casinos on the Gold Coast and in Queensland at a later date.

Whilst Star withdrew its $12bn merger offer to buy rival Crown, it has said it would be interested in buying just Crown’s Barangaroo casino in Sydney if Victorian commissioner Ray Finkelstein followed through on his desire to ensure Crown’s Melbourne casino was run by ‘Victorians for Victoria.’

Crown said early 1H FY2022 trading had been negatively impacted by property shutdowns and operating restrictions upon re-opening of the Queensland properties. The Star Sydney closed on June 25 2021 and remains shut.

The Queensland properties were shut from June 2021 30 for three to four days and re-opened with operating restrictions in place, including 1 person per 4m2, the mandatory wearing of masks,and patrons had to be seated while eating or drinking

The Queensland properties were again shut down from 31 July 2021 for a period of 8 days. When open in Queensland, the revenue trends were broadly consistent with 1H FY2021.

Chairman John O’Neill AO said: “The Group continued executing its strategy well in the context of the extraordinary COVID-19 related challenges. The fundamental earnings prospects for The Star’s domestic business remain attractive. They are underpinned by valuable long-term licences in compelling locations and the transformation of our properties into globally competitive entertainment destinations is nearing completion.

“The Star remains committed to maintaining a balance sheet that positions the Group for the post COVID-19 recovery. The Board has not declared a final dividend for FY2021 given the continuing impacts of COVID-19 on the business and, consistent with the June 2020 covenant waiver, cash dividends cannot be paid until gearing is below 2.5 times.”

In Sydney, earnings were significantly impacted by COVID-19 related operating restrictions, especially the 300 patron cap per area. Normalised EBITDA was down 26 per cent on pcp whilst operating expenses were well-managed, but still down 17 per cent on pcp to $409m.

On the Gold Coast, normalised EBITDA was up 17 per cent on pcp to $112m, margins improved from 18 per cent to 29.2 per cent. This led to record domestic earnings, domestic EBITDA up 86 per cent on pcp to $115m, margins improved from 20.4 per cent to 30.2 per cent. Domestic gaming revenue in the second half up 18 per cent on the comparative period in 2H FY2019 with slots up 22 per cent and tables up 13 per cent. The casino is on track to exceed investment return hurdles despite absence of VIP business.

Brisbane generated record performance with normalised EBITDA up 100 per cent on pcp to $114m, revenue up 34 per cent. Domestic gaming revenue in the second half was up three per cent on the comparative period in 2H FY2019 with slots up four per cent and tables up two per cent.

Managing Director and Chief Executive Officer, Matt Bekier said: “Execution of our long-standing growth strategy continued to plan over FY2021. Comprehensive actions to mitigate the impact of COVID-19 were implemented, safeguarding staff and customers. The properties reacted expediently to the many changes to operating conditions throughout the period.”

“Queen’s Wharf Brisbane was further de-risked with in excess of 90 per cent of total project costs now under lump sum terms. Queen’s Wharf Brisbane is now anticipated to open progressively in 1H CY2023, previously anticipated from late CY2022. The Dorsett hotel and apartments project at The Star Gold Coast is well advanced and set for completion in FY2022. Earlier this year, we broke ground on the construction of a further tower at The Star Gold Coast. A $400m investment with our JV partners, this 63-storey mixed-use tower will include a 210-room 5-star international hotel and 457 apartments.”

“The experience last year has demonstrated how resilient our business is and how quickly customers return when our properties are allowed to open. This gives us great confidence as vaccination levels increase and a return to normality approaches. We would like to thank all of our guests and staff who stayed with us through the difficult times last year and look forward to welcoming them back soon.”

The group could be about to operate 1,000 more slots in Sydney. Mr. Bekier said it was an ‘anomaly’ that The Star Sydney was only allowed 1,500 slot machines when Crown Melbourne, Perth and The Star’s Queen’s Wharf Brisbane had around 2,500.

“These machines would generate a lot more tax and do that in a safe environment because unlike some of the other players in the market we take responsible gaming very seriously,” Mr Bekier said. “From the government’s point of view and from our point of view, that seems like a reasonably good proposition”.

Goldman Sachs analyst Desmond Tsao said predicts that 1,000 more poker machines would add 11 per cent to revenue.

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