$180 million hotel for SkyCity

skycity1SkyCity Entertainment Group is ploughing ahead with growth plans despite a sharp drop in profits, announcing it will build a $180 million five-star hotel in Auckland.

The casino company’s profit for the year to June 30 fell 22.6 per cent to $98.5m after tax.

Revenue declined 4.8 per cent to $821.5m.

Chief executive Nigel Morrison said the result should be considered in light of the high exchange rate and disruption caused by the redevelopment of its Adelaide casino.

‘‘I think at a headline level it’s not great, but I think when you look at it and understand it, there are other factors at play,’’ he said.

SkyCity shares closed at $3.62, up 7 cents.

SkyCity said the exchange rate had led operating profit to slide $9.9m, while the the costs from Adelaide contributed A$4.4m (NZ$4.8m) of the decline.

‘‘Disruption [in Adelaide] has been significant and, to be fair, more than we expected,’’ Morrison said.

Work on the Adelaide casino project was due to be completed by Christmas, he said.

Morningstar senior equities analyst Nachi Moghe said the turnaround at Auckland, which contributes two-thirds of SkyCity’s earnings, was promising for the company.

‘‘I’m picking a better 2015,’’ he said.

‘‘All the refurbishment and restaurants opening up are adding to the appeal in Auckland and Adelaide.

‘‘It’s going expected,’’ he said.

Yesterday’s announcement better than coincided with news the company’s board had on Tuesday signed off on plans to expand the New Zealand International Convention Centre development with the addition of a 12-storey, five-star hotel on land previously acquired by SkyCity.

Morrison said SkyCity’s two existing hotels were experiencing 90 per cent occupancy and earnings from them had risen 17 per cent, so building a new facility to complement the convention centre ‘‘made sense’’.

Morrison said the new hotel would push the total capital expenditure in Auckland to $500m, including already-incurred land purchases and planning costs.

skycity2SkyCity accounts show the new project will push capital expenditure up to a total of $807m during the next five years.

To meet these new costs, Morrison flagged turning some planned projects in Auckland and Adelaide into joint ventures, or the sale of its $35m car parking building in Federal St.

Moghe said the hotel development plans were likely to generate good returns, as the current high occupancy levels showed there was excess demand.

Moghe said the chief question over the hotel development was whether there was sufficient headroom with debt facilities to avoid a future round of capital raising.

‘‘It’s looking tight in the sense that their leverage is going up but it won’t trouble the credit ratings agencies,’’ he said.

SkyCity also said yesterday it had appointed a new chief financial officer. Rob Hamilton, former head of investment banking at First NZ Capital, will start in October.

Hamilton will join former Fairfax journalist Colin Espiner, who this week took up the role of SkyCity’s head of communications.

Source:

  • The Press
  • Matt Nippert

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