SkyCity Entertainment Group, New Zealand's only listed casino company, is looking to free up cash from its existing assets during a period of heavy investment while it commits to protecting dividend payouts.
The Auckland-based company is investing $350 million in the redevelopment of its underperforming Adelaide casino, $703m in a convention centre and Hobson St hotel in Auckland, and has committed to buy the neighbouring AA Centre for $47m and flagged the potential for further development in accommodation, food and beverage, new gaming spaces and entertainment.
It's also considering enhancement at its Hamilton casino to include accommodation and Riverbank development and is investing in IT to upgrade aging infrastructure and allow for future growth.
However while it has upped its spending, the company doesn't want to lower its dividend levels to divert funds to reinvestment, saying it is committed to its dividend policy because dividends are important to a significant proportion of its shareholder base. It has a policy to pay out 80 per cent of net profit after tax adjusted for capitalised interest, subject to a minimum 20 cents per share per annum.
SkyCity expects its total debt to peak at around $1 billion in 2020, with $1.09b of debt facilities due to mature between 2020 and 2028. It's committed to keeping its debt at the level needed to retain its BBB- credit rating with Standard & Poor's.
The company earlier decided against selling its Hobson St hotel after failing to attract high enough bids but in an investor presentation today detailed other ways of releasing cash to fund future growth, saying it is moving to an "asset-lighter" approach to monetise selected property assets, divest non-core businesses and co-invest in new developments with suitable partners, with the aim of improving returns and allocating capital more efficiently.
The "balance sheet (is) constrained to meaningfully pursue new growth opportunities outside of releasing capital from existing assets," the company said in the investor presentation notes. "Capital investment (is) required to sustain/grow business - need to consider alternative models to improve returns."
To raise cash, the company said it has appointed investment bank Goldman Sachs to test interest from "selected parties" in its Darwin casino as it continues to evaluate strategic options for the business, including a full sale. Any funds from a sale would be used to repay debt in the short term, and fund strategic and growth initiatives, it said.
In Auckland, SkyCity has appointed real estate group Colliers to sell its Federal Street carpark, and said the plan was "progressing well" and it expected a sale to be completed by the end of its 2018 financial year. It is also evaluating options with property company CBRE to monetise its main site car parks and said it may sell a long-term licence over its Auckland car park, including the new convention centre car park.
SkyCity reiterated today that it continues to expect its full-year earnings before interest, tax, depreciation and amortisation to post "modest growth".
Today it also announced plans to pay its New Zealand-based staff at least $20 an hour by 2020, increasing the pay of 1,750 of its 4,000 local staff. The move comes after signals from the government that it would adopt the policy by 2021.
SkyCity shares fell 1 per cent to $3.86, and have slid 6 per cent so far this year. Five analysts have a 'hold' recommendation on the stock, one a 'buy', and two a 'sell', according to Reuters data.