Gold Coast back with a vengeance for The Star but $260m cost blowout hits Queen’s Wharf

The Gold Coast is proving to be the recovery powerhouse for The Star Entertainment Group (ASX: SGR) amid a year of disruptions for the casino operator that pushed the company to a full-year net loss and led to a $260 million blowout in costs for its Queen’s Wharf development in Brisbane.

The Star today reported a statutory net loss of $199 million for FY22, up from a $57.9 million profit a year earlier. Most of the loss can be attributed to a $162.5 million goodwill impairment of The Star Sydney in the wake of the damning evidence given at the NSW Independent Liquor and Gaming Authority (ILGA) review to determine its suitability to hold a casino licence.

While trading at The Star’s three properties showed signs of improvements in the June quarter, the Gold Coast operations have experience stellar growth with revenue 48 per cent higher than pre-pandemic levels, driven by a 50 per cent increase in slots revenue and a 23 per cent lift in table revenue from the domestic market.

Non-gaming revenue at The Star Gold Coast was also 69 per cent higher following a return of domestic tourism and the conferencing business.

While Brisbane is also gaining ground, with June-quarter trading up 13 per cent on pre-COVID levels, The Star’s acting CEO Geoff Hogg has revealed that surging building costs and delays have added about 10 per cent to the $2.6 billion cost of the Queen’s Wharf project in Brisbane’s CBD. The project, which is being developed in partnership with Hong Kong-based Chow Tai Fook Enterprises and Far East Consortium, is scheduled to open in the second half of calendar 2023 but has faced delays from wet weather and COVID disruptions.

All three of The Star’s casino operations were impacted by COVID restrictions during the year, with Sydney the hardest hit and Brisbane facing the added pressure of floods. However, Hogg has highlighted the positives that were reflected in the final quarter of FY22.

“The past year has demonstrated how resilient our business is and how quickly customers return when the properties are allowed to open and operate without restrictions,” he says.

“This gives us great confidence moving forward.”

During the year, The Star opened its new Dorsett Gold Coast Hotel and The Star Residences and began construction of a second tower for the Broadbeach Island site with all apartments in the tower sold out.

Hogg says the Dorsett Hotel is performing ‘above forecast levels given higher-than-expected occupancy levels and average daily rates’.

Although conditions in Queensland remain robust, The Star’s operations are set for another round of intense scrutiny as the Queensland Government kicks off its own review of the company’s operations this week.

The Star has issued a statement saying it does not intend to comment on the proposed review which is being conducted by Robert Gotterson, a former judge of the Queensland Court of Appeal.

The latest review comes as The Star attempts to shake off the past following a boardroom cleanout and a planned reset under the leadership of incoming CEO Robbie Cooke, the Tyro Payments (ASX: TYR) boss and an experienced gaming executive who will take up the post at the end of this year.

“Robbie is well placed to lead The Star and restore confidence in the organisation,” says interim chairman Ben Heap.

“He has the expertise and experience to guide the company through its critical renewal program, a body of work already underway that will deliver a number of near and medium-term initiatives focussed on governance, culture, training, and risk and compliance systems and technology.”

The latest financial results for The Star reflect the continued decline of its VIP rebate business, with revenue of just $5.5 million down from $9.5 million in FY21. Statutory revenue in FY20, a year that was truncated by the loss of international players in the second half, was $240 million by comparison.

The Star reported group revenue of $1.53 billion in FY22, down 1.5 per cent from a year earlier. Underlying EBIT of $30.8 million was down 85.8 per cent.

The group says it is progressing its asset sales program to shore up its balance sheet which had net debt of $1.15 billion at the end of June, down 2 per cent for the year.

The first tranche of the $248 million sale of the Treasury Casino building in Brisbane, totalling $170 million, has been settled by Charter Hall (ASX: CHC), while the second tranche of $78 million will be settled in the first half of FY24.

The compulsory acquisition of Union Street Pyrmont in Sydney is under way, while the group is exploring options for its interest in the Sheraton Grand Mirage Gold Coast.

The Star says improved business activity in the fourth quarter of FY22 has continued into the current year with group revenue up 9 per cent on pre-COVID levels for the year to date.

The Star Sydney’s domestic revenue is in-line with pre-COVID levels although the company says it’s too early to determine the ongoing impact of competition from Crown’s new casino which opened on 8 August 2022.

The Queensland properties are firing with Gold Coast domestic revenue up 26 per cent and Brisbane’s up 18 per cent.

The Star is not paying a final dividend.

Shares in SGR are down 0.52 per cent to $2.90 per share at 11.37am AEST.