Genting Malaysia (Genm) is listed in the main board of Bursa Malaysia with a market capitalization of RM16.2 billion @ current share price of RM2.73. Genm owns the only casino in Malaysia at Genting Highlands, a 76.3% stake in Empire Resorts that owns Resorts World New York City, Resorts World Catskills & Resorts World Hudson Valley, some casinos under Genting UK and a piece of prime land in Miami, US. As of 31 Dec 2022, Genm had about RM12.1 billion of debts and RM3.04 billion of cash.

Disposal of Miami Land

On 27^th April 2023, Genm announced to enter into a conditional sales and purchase agreement with Smart Maimi LLC for the disposal of 4 parcels of land in Miami measuring an aggregate land area of approximately 15.47 acres, for a total cash consideration of US$1.225 billion or RM5.433 billion.

It was earlier reported that Genm received a few bids for its Miami land with the highest bid close to US$1.5 billion. The fact that Genm accepted a lower bid at US$1.225 billion clearly shows that Genm prioritizes certainty of deal rather than a higher bid that may be conditional upon other factors. Hence I believe there is a high chance for this Miami land deal to go through in the coming months, in time to provide necessary funding for Genm to bid for a full casino license in New York.

The original cost of investment of Genm in the Miami land was US$258 million, and the proposed disposal will result in a disposal gain of US$967 million or RM4,289 million. After deducting an estimated corporate tax related to the land disposal of RM974.1 million, Genm is expected to realize a net cash proceed of RM4.459 billion or RM0.75 per share.

The proposed Miami land disposal will enable Genm to hit a home run in the US for a number of reasons:

1.      The proposed disposal price of US$1,225 million is almost 5x the original investment costs of US$258 million in 2011, this shows the tremendous capital appreciation power of its investment, i.e. in just 12 years, the land value has appreciated by almost 400%

2.      The proposed selling price of US$1.225 billion is almost the highest land transaction value for any single piece of land in the US in recent years. This shows that liquidity and demand for prime land is still abundant in the US

3.      The expected net disposal proceeds of RM4.459 billion will almost halve the net debt of Genm from RM9.06 billion to RM4.6 billion. It was reported that Empire Resorts New York carries a US$300 million loan at an interest rate of 7.7% p.a. and assuming other debts of Genm carry an average interest rates of 5.0% p.a., the net disposal proceeds will reduce interest expense of Genm by RM259 million p.a. or 4.3 sen per share. This will lift Genm earnings and dividend distributions by 4.3 sen per share

4.      Genm is bidding for one of the three full casion licenses in New York in 2023 and one of the requirements is a payment of US$500 million for a casino licence. If successful, Genm is expected to spend another US$500 million to get its existing facilities ready for full casino operations by 2024. The proposed Miami land disposal comes in at the right timing, or rather Genm has timed it right so that it will have the necessary cash to bid for the New York full casino license, without resorting to shareholders for equity money or raising additional borrowings.

5.      If Genm is successful in getting one of the full casino licence in New York, it will spend up to US$1.0 billion for the license and necessary conversion capex, and it will still have some US$225 million or RM1.0 billion balance cash from the Miami land disposal for a special dividend of potential 17 sen per share.

New York Casino License

If Genm successfully gets a full casino licence in New York, the potential gaming revenue may top US$1.5 billion  a year and based on my earlier projections (link below), annual cash flows may top US$400 million in the 1^st year of operations in 2024 and exceed US$600 million a year by 2043. The NPV of projected cashflows at 5.0% discount rates is a whopping US$10.33 billion.

https://klse.i3investor.com/web/blog/detail/dragon328/2023-01-06-story-h-301897649-Genting_Bhd_Strikes_Gold_in_the_US

In my earlier article above, I proposed for Genting group to seek a US listing and for Genm to inject 30% of interests in Empire Resorts into the new US listing at a tentative enterprise value of US$3.3 billion (a 70% discount to the potential EV if it wins a New York full casino license) to raise new funds of US$1.0 billion for the bidding of New York casino license. Now with the proposed Miami land disposal, Genm will have the necessary cash for the bidding of New York casino license and will no longer need to inject 30% interests in Empire Resorts into the new US listing at 70% discount. Genm can now focus on the bidding process and winning one of the full casino license in New York, then realizing the full value potential.

Empire Resorts has three resorts in New York, i.e. Resorts World New York City at Queens, Resorts World Catskill and Resorts World Hudson Valley. The resort at Queens is the largest, sitting on 64 acres of prime land in downtown New York, with over 1.0 million sf of gaming floor area, over 6,000 slot machines and 400 hotel rooms.

If we assume the same land valuation for Resorts World at Queens as for the Miami land, the 64 acre of land itself at Queens may potentially be worth US$1.225 billion x 64/15.47 = US$5.07 billion. Assuming construction value of US$1.0 billion for the gaming floor and hotel at Queens, then Resorts World New York City may potentially be worth US$6.0 billion.

Resorts World Catskills is smaller than RWNYC with 1,600 slot machines, 332 hotel rooms and 100,000 sf of gaming space. The 1.6-million-square-foot casino, hotel and entertainment complex at Catskills was built at a cost of US$920 million in Dec 2014. There is a 1700-acre, 18-hole golf course and clubhouse at Adelaar, adjacent to RW Catskills. All in, Resorts World Catskills is worth about US$1.3-1.5 billion conservatively.

Resorts World Hudson Valley (RWHV) is located at the former Bon-Ton department store in the Newburgh Mall in New York State, just 60 miles north of Manhattan. It was opened on 28 Dec 2022. Newburgh Mall is a 388,000-square-foot community shopping centre, in which RWHV occupies 60,000 sf for gaming floor. It has 1,200 slot machines and electronic table games as well as the always-happening Resorts World Bet Sports Bar. Empire Resorts was reported to have spent US$50 million on this latest attraction RWHV which is now worth some US$100 million roughly.

Even if Empire Resorts fails to win a full casino license in New York, its existing three resorts (RWNYC at Queens, RW Catskills and RWHV) are worth a lot as prime real estate in New York. Empire Resorts could consider selling one or more of these resorts to the winning bidders of New York casino license or to other real estate developers. Judging from the good price fetched by the Miami land, I believe these land parcels at Queens and Catskills would be able to fetch reasonably good prices as well. In summary, the three resorts of Empire Resorts in New York are worth about US$7.5 billion at current conditions and may potentially be worth US$11.5 billion if it wins a full casino license in New York.

Sum-of-Parts Valuation of Genm

I reproduce the valuation table of Genm from previous article, but making some changes to the potential value of Empire Resorts as derived above. Earlier Genting US was valued at RM25.86 billion based on Genm’s 32.8% effective stakes in the new US listing with market capitalization of US$18 billion. Now Genting US is valued based on Genm’s 76.3% effective stakes in Empire Resorts which is worth US$7.5 billion to US$11.5 billion. Net debt is down to RM4.6 billion after factoring in the disposal proceed of RM4.459 billion.

*based on valuation by Maybank research

If Genm wins a full casino license in New York, then Empire Resorts valuation will jump up by another US$4.0 billion or RM18 billion or RM3.03 per share for Genm to a potential RM10.20.

To be more conservative, if we take a 30% discount to the above valuation for Empire Resorts, Genm will be worth RM5.87 per share.

If we take a 50% discount to the above valuation for Empire Resorts, Genm will still be worth RM5.00 per share, or a whopping 83% upside above current share price of RM2.73.

JP Morgan in its latest report had a target price of RM4.00 for Genm, which has included the Miami land sale but I suspect may have not included the huge value embedded in Empire Resorts.