Wall Street analysts are buzzing about Wynn Resorts integrated resort project in the United Arab Emirates after the casino operator held an Investor Day at G2E.

Wynn announced Oct. 4 that it received its license for its resort under construction on Al Marjan Island, expected to be completed in the first quarter of 2027. Wynn has a 40% equity interest and a management contract. The cost has accelerated to $5.1 billion, up from a $3.9 billion project.

“The ROI profile should be appealing and is potentially very needle-moving for the equity, and we still think not priced in at current levels despite the China-stimulus-related upward move in the stock in recent weeks,” said Joseph Greff with J.P. Morgan. “We think this market, which will likely be license constrained and focused on the high-propensity-to-spend luxury consumer in the region, has the potential to have similar characteristics as the attractive and high-ROI Singapore integrated resort market.”

Greff thinks Wynn will enjoy a monopoly for a couple of years and success there could bode well for similar opportunities in Thailand, if they become available. License uncertainty had created some pushback from investors and that’s been alleviated, he said.

Wynn Al Marjan is located within an eight-hour flight of over 75% of the world’s population and within a 50-minute drive from the airport. Its core target markets represent about 25% of the world’s population, 20% of global GDP, and nearly 20% of the world’s millionaires, Greff said.

From 2023 to 2027, the UAE is expected to grow its GDP by 4.3%, tourist arrivals by 8.3%, and international tourism receipts by 8.1% annually and its average tourism spend per visit of $1,414 from non-gaming spend alone sits nicely between Singapore and Las Vegas, Greff said.

“Additionally, UAE visitors are exhibiting a high propensity to spend on luxury goods, with a $4 billion high-end fashion market that’s also exhibiting strong growth, up 10% in 2023 and expected to grow 4% in 2024.”

The regulatory framework compares favorably with some of the largest integrated-resort markets in the world, sporting a 10% to 12% tax rate. Macau is at 40%, Singapore VIP at 8%-12% and mass at 18%-22%. One allotted license per UAE Emirate limits competition and there’s a 15-year licensing period versus 10 years in Macau and three years in Singapore. In addition, there’s free and simple real estate ownership and the ability to provide credit to players.

Greff said they don’t view Wynn’s projections as aggressive. Wynn expects gaming revenue of $1 billion to $1.66 billion, operating revenue of $1.375 billion to $1.875 billion, and adjusted Property EBITDA of $500 million to $800 million, implying 26% to 43% margins and EBITDA per key in line with Wynn Macau operations at the midpoint.

“These scenarios are based on its assumption for a UAE total area market of $3 billion to $5 billion,” Greff said. “That assumes two other operators and 33% market share, which we view as likely conservative given its first mover advantage in the market. Additionally, we suspect the gaming revenue total area market reflects some conservatism given it assumes gaming revenue represents 0.6% to 1% of GDP, which implies a meaningful discount at the midpoint to Singapore’s 1.2%.”

Shaun Kelley, an analyst with Bank of America, noted that half of the $5.1 billion project cost came from land and capitalized interest that wasn’t included in the original budget. On a higher budget, Wynn raised their property EBITDA expectations to $500 to 800 million versus the prior range of $450 million 600 million supported by a deeper dive on the addressable market and project scope increases.

“We think the project and total area market underwriting lean on the conservative side, especially factoring in the competitive landscape,” Kelley said. “Property margins of 36% to 43% are attractive supported by a blended tax rate of 10% to 12%. The budget and regulatory framework is much more refined, which should allow investors to factor in the project as they roll forward models to 2027 around this time next year. Quick math on the revised assumptions yield a potential net present value of $10 to $15 per share and strategic success in the UAE could help push Wynn into the growth conversation of gaming stocks, along with Churchill Downs and Red Rock Resorts.”

Carlo Santarelli, an analyst with Deutsche Bank, said the Investor Day “added value and with it credibility to the framing of the opportunity for Wynn longer term. The bottom line, in our view, if Wynn’s goal was to put this development firmly in the purview of investors, as a step change future value driver, we believe the event was a success.”

Giving credit for stabilized management and license fees, as well as the 40% share of adjusted property EBITDA for Wynn Al Marjan Island and coupling it with 2026 consensus EBITDAR forecasts, Wynn outlined a scenario that implies shares are trading within a free-cash-flow yield range of 14.4% to 16.1% at current levels, Santarelli said.

“While projections for green-field developments, especially in new gaming markets, tend to be challenging and often prove conservative, the UAE market dynamics lend credibility to the $500 million to $800 million property EBITDA range set forth in the presentation,” Santarelli said. “For starters, Wynn has a history of meaningfully outperforming peers on an EBITDA per hotel room basis as evidenced in Las Vegas.”

Based on the assumptions in the presentation, Wynn expects the Al Marjan Island property to generate between $324,000 and $519,000 per hotel room on an annual basis. For comparison, the Wynn Macau assets over the last 12 months have generated about $407,000 per room, despite considerably more competition and a higher gaming tax. Marina Bay Sands, in a Singapore market that is considerably more comparable to the UAE market, has generated $1.05 million per hotel room over the last 12 months.

“Wynn management provided considerably more color on the opportunity in the UAE at the Investor Day and we believe this is likely to spur investor interest,” Santarelli said. “This project could be worth $11 to $22 per share in present equity value with little, if any, value currently embedded in shares.”

The project is expected to be funded with 53% equity and 47% debt, with an assumed 7% cost of debt and debt financing is expected to be completed by year end, Santarelli said.

Wynn has about $900 million left to spend toward its $1.08 billion equity contribution to the venture. The financing excludes the recent 70 acre surrounding land purchase capital, Santarelli said.

When completed, the hotel will have 1,542 rooms, including 297 suites, six townhouses, and 22 villas. Food, beverage, and other non-gaming revenue is expected to be considerable, with 16 restaurants and six bars, as well as 130,00 square feet of retail and 145,000 square feet of meeting space.