New Zealand company SKYCITY Entertainment Group Limited (ASX: SKC) decides to shave off its 14 years old casino complex located in the city of Darwin.
In a release to Australian Securities Exchange, SKYCITY Entertainment announced the sale of its Darwin casino and resort business to American company Delaware North for a consideration of $188 million, reflecting a price higher than the carrying value of the property by around $8 million.
However, the property adjacent to SKYCITY Darwin, Little Mindil has been retained by the company which is expected to be sold separately. Further, SKC’s prevailing right to access the premium gaming facilities at the Darwin casino for its International Business customers have also been retained for at least two years following the completion of sale process.
SKYCITY Chief Executive Officer Graeme Stephens said that the company is pleased to achieve a price that exceeds SKYCITY Darwin’s carrying value, after excluding the waterfront land at Little Mindil.
This Darwin-based casino was purchased by SKYCITY Entertainment in 2004 from MGM Grand following which the company has added new hotel and pool, new bars and restaurants and VIP facilities over the years. The company told that the business value was impaired by $95 million in Fiscal 2017 due to changes in gaming regulations, but the property experienced positive earnings growth in Fiscal 2018 on a like-for-like basis.
The company has yet not determined the specific areas to utilize the proceeds from completion of sale, but it intends to undertake several strategic initiatives that are expected to generate returns above its cost of capital.
Mr. Stephens stated that the sale is in line with company’s strategy to sell non-core assets and will also allow to concentrate more on Australian activities in Adelaide, which is undergoing a A$330 million expansion, due for completion in late 2020.
The company further revealed its plan to enter into a joint venture with Delaware North to establish an online casino business from the Northern Territory, subject to online gaming regulations.
Mr. Stephens stated that International Business and the online space are viewed as future growth areas because of which both the companies expects potential value in the joint venture outcome.
Besides obtaining Northern Territory Government approval to the deal, three major conditions remain pending to the completion of sale agreement. It includes the financial approval to be obtained within 60 days, transfer of Little Mindil property from SKYCITY Darwin, and no material adverse change in SKYCITY Darwin’s business prior to completion.
With this update, SKC’s share price edged up by 3.458% or $0.120 to close at $3.590 on 8 November 2018, whereas PE ratio was 14.960 x with market capitalization of $2.27 billion. Over the past one year the stock has seen a performance change of -3.07%.
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