The Star Entertainment Hit with More Setbacks to its $2.8bln Brisbane Resort
Macro conditions combined with a broad range of cost rises mean the Brisbane Star Entertainment resort is due to come in well over budget. These concerns have led to a worrying outlook for the casino group as they seek to lock-down their spiralling debt liabilities and solidify their revenue generating assets. The cost of these delays is already being factored into the share-price of the company, as market sentiment rarely reacts well to major construction projects being thrown off schedule by such a high margin.
Despite the troubles facing Star Entertainment, the adjusted revenues for the previous quarter have been trending in a positive direction. Driven primarily by a much more profitable revenue stream coming from its slot machine business.
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Due to rising labour and construction expenses, Star Entertainment claims its Brisbane casino venture will be six months behind schedule and budgeted over. In a statement issued on Friday to the shareholders, the gaming business informed creditors that the Brisbane Queen’s Wharf expansion was not anticipated to open in the entire first half of 2023. It had once been anticipated to start in the first half of the year, but this target has all but been abandoned.
The business informed investors that escalating construction material costs, labour shortages, and supply chain issues would cause the project’s overall cost to rise by around 10% from the earlier projection of $2.6 billion. The increase will be paid for by further equity provisions and future operational net profits from Star and its partners in the joint-venture Chow Tai Fook and Far East Consortium, each of which has a 25% interest in development.
The business said that it and the developer, Multiplex, were still in talks over their divergent views on the extra expenses and the lengthened timeline. The business announced delays at the Queen’s Wharf construction in August, delaying the project’s projected opening until late 2022. However, the Covid-19 epidemic is raising growing concerns among developers and construction companies that it is delaying the completion of the projects, although Star acknowledged at the time that now it was unaware of the causes for the delay.
Star Entertainment Blames COVID-19 for Regional Delays to Construction
It’s not been an easy couple of years for Star Entertainment, which like Crown, has been rocked by revelations of money laundering and scandal at several of its locations along the Gold Coast. With these accusations coming into sharp focus, the court of public opinion hasn’t been particularly kind on the casino operator, with news-media across the country making damaging content on the motivations and trustworthiness of the brand. All of this culminated in an inquiry held by the NSW government to decide whether the casino could retain its operating license.
The tumultuous conditions at Star Entertainment has created a revolving door situation at the executive board level, with several senior managers fired over their direct involvement in the control measure failings at the casino. At the height of this transition has been the appointment of a new Chief Executive Officer, ex-boss at Tyro Payments Robbie Cooke has come into the role previously held by Matt Bekier – who quit the CEO position in March.
On the financial front, Star Entertainment has been trending negatively in terms of equity value since December last year. But for the second quarter of 2022 there has been strong signs that a growth phase is highly likely to take hold. Domestic revenues have been showing the most pertinent signs of recovery, in particular gross gaming revenues generated from slots machines showing a 28% increase on the yearly figures. Non-gaming revenues were also trending positive, showing how diversified the casino has become in recent years, and now non-reliant on highly concentrated streams of revenue.
The company is still facing down the barrel of a NSW Independent Liquor and Gaming Authority investigation into the suitability of the firm to retain its casino license. It represents perhaps the largest systemic risk the company has ever faced. With cash-flows drying up and debts mounting, the prospect of losing a gaming license would be catastrophic. Accused by the state prosecutor of disguising over $1bln worth of credit card transactions from Chinese debit cards, it doesn’t look like the casino will be able to escape from the accusation without at least having to pay a large 8-figure amount in fines.
