Genting Singapore

[weijian]

In general, I have noticed that there is a mismatch between practical useful life and accounting useful life of hotel reno/decor. Globalization, user reviews and an emphasis on experience seem to have made customers more picky - making practical useful life much shorter than accounting useful life, if the hotel wants to "remain fresh".

Minutes of the Thirty-Ninth Annual General Meeting

Mr Tan explained that the net profit figure accounted for depreciation. He added that RWS is progressively refreshing and redeveloping some of its existing assets. Taking Hotel Ora as an example, the hotel was not fully depreciated as hotels normally have a long life of 15-20 years. The asset refreshment was intended to attract more affluent visitors to the integrated resort, and as such, there is a need to upgrade the integrated resort’s hotels to that standard. Hence, there will be an acceleration in depreciation to take into account the shortening of the assets’ useful life.

https://links.sgx.com/FileOpen/GENS%20-%...eID=803760

[CY09]

Different hotels will have different practical useful life for their hotel due to their clinetile.

A certain listed SGX hotel clientile are lower value travellers and illegal vice occupants in Singapore. Hence its hotel does not require full depreciation in a short timespan because the rooms are "structured" more for functionalty over keeping trends. There is a difference in clientile between a 3 star and 5 star hotel, hence useful lifespan will vary.

[weijian]

Third Ave International Real Estate has recently initiated a position in Genting Spore. If I look back at Genting Spore's share price performance, it topped out in 2010-2011, just around the time when RWS, its flagship resort opened to public. Based on its last 10years' share price chart, Genting Spore has underperformed the STI index by ~60%, despite been a great FCF producer. Was expectations and/or visibility too high in 2010-2011? Or did it underperform wrt to expectations? History doesn't repeat but it certainly rhymes.

This company has a lot cash, duopoly and a very addictive business model. Maybe this explains why its peer Sands is trading at 13x EBITDA. Then why is Genting Spore trading at only half of Sands' valuations?

INTERNATIONAL REAL ESTATE VALUE FUND

With this in mind, the Fund initiated an investment position in Genting Singapore (“Genting”), the owner and operator of Resort World Sentosa, an integrated resort opened in 2010. This property comprises over 120 acres of land and offers 1,600 hotel rooms, a 160k square foot casino, and several family friendly theme parks such as Universal Studios and aquariums. The casino is one of only two currently allowed in Singapore, with exclusive rights at a minimum through 2030.

Fund Management has followed Genting closely for several years, with Third Avenue’s Value Fund holding a position since 2021. There are several positive considerations, including (i) Genting’s balance sheet has no debt and significant cash (35% of market cap), (ii) ample land means Genting Singapore can expand the resort and has plans for a significant 700-room luxury hotel and other attractions, (iii) in Fund Management’s opinion the casino ‘duopoly’ will likely last well beyond 2030, (iv) tourism arrivals are not yet back at peak pre COVID levels and should continue to improve over the next few years, and (v) Resorts World Sentosa is not solely reliant on the Chinese consumer as resort benefits from Singapore’s high tourist arrivals from Indonesia, India, and Malaysia in addition to Singaporean locals.

Regarding valuation, Genting’s shares seem mispriced in an absolute and relative sense, trading at attractive multiples and a meaningful discount to our estimate of net asset value and the historical cost of developing the resort. Notably, Genting’s most similar peer is U.S.-listed Las Vegas Sands (“Sands”), which has exposure to five casinos in Macau and controls the other Singaporean integrated resort, Marina Bay Sands. Despite many similarities, Sands trades at about 13x trailing earnings before interest, taxes, depreciation, amortization5, whereas Genting trades at only 6x.

International Real Estate Value Fund Q324
https://www.thirdave.com/reifx-shareholder-letter