Business Strategy and Outlook
COVID-19 continues to materially impact Wynn’s Macao operations (50% of estimated 2024 EBITDA), which Mmorningstar analyst view as transitory. But the Macao government’s plans to increase supervision of the region’s casinos now elevates long-term operational risk. Specifically, Wynn has outsized exposure to the expected long-term shift away from VIP gaming revenue toward non gaming and mass play. Still, Morningstar analyst see an attractive long-term growth opportunity in Macao, with Wynn Resorts’ high-end iconic brand positioned to participate
On a Long term basis, Morningstar analysts view solid visitation and gaming growth for Macao, aided over the next several years as key infrastructure projects to alleviate the region’s congested traffic continue to come on line, which should expand constrained carrying capacity, thereby driving higher visitation and spending levels. Also, analysts expect upcoming developments that add attractions and improve Macao’s accessibility will improve the destination’s brand. With Wynn holding one of only six gaming licenses and plans to develop further with its Crystal Pavilion project, it stands to benefit from this growth. That said, the Macao market is highly regulated, and as a result, the pace and timing of growth are at the discretion of the government.
Financial Strength
Wynn’s financial health is more stressed than peers Las Vegas Sands and MGM, but the company has taken steps to lift its liquidity profile, including suspending its dividend, cutting discretionary expenses, tapping credit facilities, and issuing debt. As a result, the company has enough liquidity to operate at near-zero revenue through 2022. Should the pandemic’s impact last longer, Morningstar analysts expect the company’s banking partners will continue to work with Wynn, given its intact regulatory intangible advantage (the source of its narrow moat), which drives cash flow generation potential. This view is supported by narrow-moat Wynn Macau surviving through 2014-15 when its debt/EBITDA temporarily rose to around 8 times, above the 4.5-5.0 covenants in those years.Wynn entered 2020 with debt/adjusted EBITDA of 5.7 times, but the metric turned negative in 2020 and was elevated in 2021 (estimated at 15.4), as demand for leisure and travel collapsed during the this period due to the COVID-19 outbreak. As demand recovers in the next few years, Morningstar analysts expect leverage to reach 10.0 times, 7.8 times, and 6.6 times in 2022, 2023, and 2024, respectively.
Bulls Say
- Wynn is positioned to participate in the long-term growth of Macao (76% of pre-pandemic 2019 EBITDA) and has room share of 9% with the opening of its Cotai Palace property in 2016.
- Wynn has a narrow economic moat, thanks to possessing one of only six licenses awarded to operate casinos in China.
- A focus on the high-end luxury segment of the casino industry allows the company to generate high levels of revenue and EBITDA per gaming position in the industry.
Company Profile
Wynn Resorts operates luxury casinos and resorts. The company was founded in 2002 by Steve Wynn, the former CEO. The company operates four megaresorts: Wynn Macau and Encore in Macao and Wynn Las Vegas and Encore in Las Vegas. Cotai Palace opened in August 2016 in Macao, Encore Boston Harbor in Massachusetts opened June 2019. Additionally, we expect the company to begin construction on a new building next to its existing Macao Palace resort in 2022, which we forecast to open in 2025. The company also operates Wynn Interactive, a digital sports betting and iGaming platform. The company received 76% and 24% of its 2019 pre pandemic EBITDA from Macao and Las Vegas, respectively.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long-term, the best healthcare companies are well-positioned to take advantage of these industry tailwinds.
In our view, Welltower will benefit from these industry tailwinds because of its portfolio of high-quality assets connected to top operators in the senior housing, skilled nursing facilities, and medical office buildings segments. The company has also spent years forming and developing relationships with many of the top operators in each segment. These relationships allow Welltower to push revenue enhancing initiatives and cost-control efficiencies at the property level, creating net operating income growth above the industry average, and provide a natural pipeline of acquisition and development opportunities to meet the needs of its growing operating partners. Welltower’s management team is forward-thinking and should be able to produce strong internal growth and accretive external growth.
The coronavirus was a major challenge to Welltower over the past several quarters. The senior population was one of the worst hit from the virus, and a few cases led to quarantines of entire facilities, which dramatically impacted occupancy. However, month-over-month occupancy improved through 2021 as vaccination rates went up, and we remain optimistic about the sector’s longer-term prospects given that the industry should eventually recover from the impact of the virus, supply has started to fall below the historical average and will remain low for several years, and the demographic boon will create a massive spike in demand for senior housing.
Financial Strength
Welltower is in good financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which we believe will serve stakeholders well. Debt maturities in the near term should be manageable through a combination of refinancing, asset sale proceeds, and free cash flow. We expect 2021 net debt/EBITDA and EBITDA/interest to be roughly 7.2 and 3.8 times, respectively, both of which are outside of the company’s targeted range, though we expect the company to return to normal historical levels as the senior housing portfolio recovers. As a REIT, Welltower is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cashflow from operating activities, providing Welltower plenty of flexibility to make capital allocation and investment decisions. We expect the company’s credit rating to remain stable through steady rental income growth in its existing portfolio, which should allow the company to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and development activity
Bulls Say’s
- The firm’s intense focus on tenant and operator partnerships produces new off-market investment opportunities, benefiting shareholders. It should see same-store NOI growth above its peers in the senior housing sector due to its operational expertise and the strength of these relationships.
- Welltower’s diverse strategy allows it to consider a range of opportunities across property types and business models as a means for growth.
- Welltower enjoys industry tailwinds, including an aging population and regulatory changes that expand the pool of participants in the healthcare system.
Company Profile
Welltower owns a diversified healthcare portfolio of over 1,600 in-place properties spread across the senior housing, medical office, and skilled nursing/post-acute care sectors. The portfolio includes over 100 properties in both Canada and the United Kingdom as the company looks for additional investment opportunities in countries with mature healthcare systems that operate similarly to that of the United States.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.