Bloomberry Resorts’ Valuation Could Rise with Solaire Casino Land Bid, Say Morgan Stanley Analysts
Posted on: November 14, 2017, 12:00h.
Last updated on: November 14, 2017, 10:12h.
Enrique Razon’s Bloomberry Resorts and Hotels, Inc. may find itself in a bidding war for the land on which its own Solaire Resort and Casino in Manila stands. Now analysts at Morgan Stanley (MS) say that if Bloomberry ultimately wins that bid, it could add significant value to the company’s stock price, once it owns both the casino and the two plots of land it occupies.
According to a note from the industry experts written on Sunday, Morgan Stanley’s analysts believe that stockholders will have to factor in the value of the land, which has risen tremendously in the years since the casino opened, and which could continue to appreciate in the years to come.
“The market may put some valuation premium for owning the land, which has appreciated in value … 6 to 7 times in the last five years or so,” MS pros Alex Poon and Praveen Choudhary wrote. “The purchase may put Bloomberry’s valuation comparable to peers who own their land.”
The analysis follows an announcement from the Philippine Amusement and Gaming Corporation (PAGCOR) last week in which the government group put the two parcels of land that make up Bay City Properties up for auction. The plots comprise about 160,000 square meters of land, and the minimum bid has been set at PHP 37.23 billion ($726 million).
Bloomberry owns and operates the Solaire Resort, and that arrangement won’t be immediately affected by the outcome of the bidding, as their current lease will be honored until at least 2033. However, the rules of the auction do provide the current tenants with an advantage over the competition: should a valid winning bid be received, Bloomberry has the right to match that offer if it exceeds their own.
There’s no guarantee that Bloomberry would even want to do so, however. As Morgan Stanley noted, even the minimum bid would greatly increase the company’s net debt, which now stands at just PHP 8.3 billion ($162 million). Such a move would also mean more interest payments and lower dividends for investors in 2018.
What’s In it for Bloomberry?
But there are upsides as well. Bloomberry is already looking to build a new casino resort in Quezon City, which sits northeast of Manila in the Philippines, as well as finish Phase 2 of development and expansion for Solaire. These projects are likely to result in long-term growth for the company, which would only be enhanced by owning the land the casino resort sits on.
The bids for the parcels of land will be opened by PAGCOR on the afternoon of November 27. The auction will only be considered valid if at least two acceptable bids are submitted.
In addition, bidders must either be Filipino citizens, be otherwise authorized by law to acquire property in the Philippines, or be corporations which are at least 60 percent owned by Filipino citizens.
All indications are that both the casino and the land it sits on should increase in value for years to come. In August, the same Morgan Stanley analysts wrote that even with new casinos being built in the Philippines, there was no threat of saturating the market just yet.
Meanwhile, Bloomberry recently reported that net income at Solaire was up 46 percent year-over-year in the third quarter.
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