Wynn UAE Project Could Cost $2 Billion, Generate 20% ROI

Publication date: January 27, 2022, 9:16 pm.

Last updated on: January 27, 2022, 09:25 AM.

On Tuesday, Wynn Resorts (NASDAQ:WYNN) surprised many in the gaming industry when it revealed plans for an integrated resort on Al Marjan Island in the United Arab Emirates, an area not synonymous with casino gaming. But this could be a lucrative endeavor for the Las Vegas-based operator.

Where is the Emirates?
Al Marjan Island in the UAE. The planned integrated Wynn resort there could yield a 20 percent ROI. (picture: Fox Business)

When the project was announced, Wynn did not reveal a price tag. But analysts estimate a cost of at least $2 billion noting that an Encore operator can generate a return on investment (ROI) of at least 20 percent. Wynn is partnering with RAK ​​Hospitality Holding LLC – a local hotel developer – in the project, and it is estimated that the US company’s stake will be about a third.

We look at Wynn’s stable cash to cash ROI as in the low 20s percentage range,” JPMorgan analysts said in a recent note. “Overall, the economy can be very attractive.”

Analysts estimate that when the integrated resort is operational in the UAE — 2026 is the expected opening date — Wynn will earn a fee equal to five percent of net revenue and an incentive-based management fee based on a percentage of the venue’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Wynn will also own a portion of the real estate, which may enable her to receive dividends in the future.

JPMorgan’s 20 percent ROI forecast is reached by “$70 million in management fees plus $77.5 million in postage EBITDA, divided by a third of the $2 billion development stake, or $667 million.”

Wayne in the UAE: More Vegas, Less Macau

Wynn’s current portfolio consists of her eponymous Encore venue on the Las Vegas Strip, Encore Boston Harbor, and two integrated resorts in Macau.

While Macau accounts for a large portion of the operator’s EBITDA earnings and revenue, analysts expect the company’s project in the UAE to be inspired more by the Las Vegas model and less by the gaming-centric way of doing things in Macau.

“Wynn’s entry into a new geography with virtually no gaming history and limited competition (at least for now) allows the company to expand its presence to do what it does best – develop and operate luxury integrated resorts built around the casino and entertainment lifestyle,” Bernstein analysts said.

Wynn and Encore are often among the top-rated resorts in Las Vegas, and frequently score excellent scores in broader hotel surveys because of the company’s reputation for emphasizing amenities and luxury.

Bernstein said that in 2019, 75 percent of Wynn’s Las Vegas revenue came from non-games-related activities, and that could be a model for the UAE project.

Cautious tone

Given the UAE’s vast oil wealth, the region’s well-established reputation as a tourist destination, and no competing gaming options – at least for the time being – an integrated Marjan Island resort could add additional value to Wynn’s stock price over time.

However, John Decree, equity research analyst at CBRE, points out that the gaming aspect of the project could take years to come to life or may not materialize at all. But he is optimistic about the effect if the venue is approved to play.

“If the proposed resort gets approval to allow typical gaming activities (slots, tables), the ROI could be significant, given the limited gaming options and the amount of wealth and tourism in the area,” he said in a note to clients.

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