GENM has terminated the exclusive arrangement to sell its Miami Herald land to Smart Miami City LLC, potentially opening up the land to other bidders. There is no change to our FY23-24F forecast as we did not factor the sale into the forecasts. Operationally, Resorts World Malaysia is still set to be a major beneficiary of consumer spending and returning Chinese tourist even if its 1QFY23 performance was a tad soft. Maintain TP of RM3.35 and OUTPERFORM.

Desirable location. Situated in downtown Miami and surrounded by the water front, high-end hotels along with the Adrienne Arsht Center (one of US largest performing art centres), the Miami Herald land is well located. Covering 673,691sf (15.5 acres) and divided into four parcels, parcels A, B and C were bought in May 2011 for USD246m, followed by a smaller acquisition (parcel D) in May 2017 which cost USD13m, giving a total book value of USD259m.

Timeline of key events.

• 27 April 2023 - GEMN announced that Resorts World Miami LLC (RW Miami) is selling four parcels of land in Miami, collectively known as Miami Herald land, to Smart Miami City LLC (Smart Miami) for USD1.225b or c.RM5.433b cash.

• 18 May 2023 - Smart Miami opted to acquire RW Miami which owns the land instead of buying the land itself.

• 15 June 2023 – GENM’s extraordinary general meeting (EGM) supported the sale to Smart Miami.

• 22 June 2023 - GENM announced that Smart Miami has opted to end its ongoing bid after GENM did not agree to (a) extend the exclusive period and (b) to amend some commercial terms. However, the announcement added that Smart Miami remains keen to buy the land.

Not aborted, just no longer exclusive. After conducting an EGM last week to secure shareholders’ support when Smart Miami was still interested to buy the land, GENM is likely to go ahead with selling the land. Nevertheless, with the exclusive arrangement with Smart Miami ended, other parties can now bid for the land as well. It is unclear whether other or better offers have been secured but given the prime location, securing an acceptable price might be the issue rather than lack of buyers.

Delays carry some risks. With Smart Miami showing continual interest, GENM may be hoping for better prices by re-opening the sale bidding. However, delays carry risk as the US real estate sector is facing higher borrowing costs and a slower economy.

Forecasts. No change to our FY23-24F earnings as the sale was not factored into our earnings when it was first announced.

Maintain OUTPERFORM and SoP-driven TP of RM3.35. We continue to like “Genting Highlands” as a proxy to the reopening of international borders and rebound in the tourism industry, especially the influx of tourists from China even if footfall has been slower than earlier expected. There is also no adjustment made to our TP due to its 3-star or average ESG rating as appraised by us (see Page 5).

Risks to our recommendation include: (i) non-renewal of licenses, (ii) unfavourable prize payout ratios, (iii) weak consumer spending amidst high inflation, and, (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 23 Jun 2023