SkyCity keen to grow in two directions

Tourist drawcards such as the Sky Tower have people thronging to SkyCity, which plans to improve Federal St. Photo / Greg Bowker

SkyCity chief executive Nigel Morrison has hatched expansion plans that would swell the Auckland premises dramatically, sprawling out over three blocks and catering for about 13,000 people at any one time.

The plans come as analysts flag concerns about the company's core business - revenue from gaming.

Morrison wants to go east towards the Albert Park side of his site, expanding those meeting and conference facilities on level five by bridging over Federal St.

That venue can now cater for 1000 at meetings and 800 diners but plans are for more than 2000 at meetings and 1600 diners, up against nearest rival Langham Hotel's expanded venue, catering for 1400 at meetings and 900 diners.

Morrison wants more shops, cafes and bars to liven up the edge of Federal St, which he also wants to become a shared space for cars and pedestrians.

Then, in a second and much grander vision, he wants to head west towards Victoria Park, colonising 101 Hobson St which SkyCity already owns, to build a $200 million to $500 million international exhibition and conference centre, although that is only one of five bids now being considered by the Ministry of Economic Development.

Like malls such as the giant Sydney Castle Towers in the northern suburbs, this involves building airbridges over streets to provide people with seamless interior access.

SkyCity has just opened a refurbished restaurant, Jade Dragon, on level one in the atrium of its main building on the corner of Federal and Victoria Sts.

This month Morrison invited the media and food experts, including restaurant critics, hosting a dinner in the refurbished Cantonese-style restaurant, which he said would strongly appeal to Asian clientele.

He mentioned one Asian gambler flying in who bets $4 million an hour.

Auckland City, acknowledging SkyCity is the CBD's biggest private-sector employer, has some concerns about the venue's growth. The council has to give consent to allow airbridges and Ludo Campbell-Reid, city group manager urban design, said SkyCity's complex "does not engage well with the street: carpark entranceways, inactive blank concrete facades, large pillars, above-ground planter boxes".

Pedestrians were marginalised, sightlines obscured and safety issues created in the poorly landscaped and unattractive area.

Both the council and SkyCity want to change that and SkyCity has offered a deal: it will pay for a Federal St upgrade, paving it as a shared space for pedestrians and cars, in return for being allowed to build another, much more substantial airbridge.

Then, it can expand the existing convention centre.

Campbell-Reid supports that because the city has no budget for the street changes and he says all the works - bar the huge airbridge - would "enhance the public realm".

Whether or not SkyCity wins the international tender for 101 Hobson St, one thing is certain: its Auckland property is expanding rapidly.

Analysts might favour it more after next year's annual result.

Its eight years of underperformance on electronic gaming machines at the Auckland casino has incurred their wrath and poor decisions by management have been blamed.

UBS analysts Sam Theodore and Andrew Dempster said Auckland's lack of performance in SkyCity's portfolio here and in Australia was a longer-term trend that needed addressing. They called for more capital expenditure to fight off competition from pubs, clubs and bars.

"Electronic gaming machine revenues in Auckland have shown no growth for about eight consecutive years - what we consider to be an unacceptable outcome for shareholders.

"While management stated that they believe they have outperformed relative to pubs/clubs in Auckland, we would note this should not be a surprise given the stronger competitive positioning of the casino in terms of products versus the pubs and clubs and also the capital expenditure spend on the casino over this period," Theodore and Dempster wrote.

They were part of a group of analysts who have just released studies on SkyCity's performance, blasting Auckland's contribution compared with returns from SkyCity's other properties in Darwin, Adelaide and Hamilton.

Auckland needs to grow, the point analysts made after the business released its annual result for the June 2010 financial year, making $102 million net after-tax profit after tax expense relating to Government Budget changes. That was down 11.5 per cent on the June 2009 net after-tax profit of $115.3 million.

"Auckland disappoints, patience required," complained Credit Suisse analyst Rod Bode.

"A disturbing aspect of the result was the performance of the Auckland property. A marked weakness in the second half of 2010's premium table play at Auckland was the main reason for Auckland ebit contracting 8 per cent. The highlights were double-digit earnings growth from the Adelaide and Hamilton properties."

Similarly, Goldman Sachs' Marcus Curley carped about steeper declines in Auckland gaming revenues "as tables were significantly impacted by a large reduction in premium play. We continue to view this as a cyclical issue and note that similar trends were recently reported in Australia."

Curley downgraded SkyCity from a buy to a hold, "a hard decision. We continue to see significant valuation upside in SkyCity's long-term casino franchises but, without positive earnings momentum or catalysts, we struggle to see how this valuation gap will close quickly in the next six months."

Forsyth Barr's Jeremy Simpson emphasised the tough second half in Auckland and Darwin: "The themes coming through this result were largely as anticipated with Auckland under pressure from weaker local gaming and Darwin impacted by smoking bans and unseasonal weather."

SkyCity's expansion plans are much like Westfield's approach: draw or capture the crowds, please them, give them what they want, then keep them as long as possible.

But SkyCity can keep people for much longer. It's got two of Auckland's biggest hotels, the four-star SkyCity and five-star SkyCity Grand.