S&P Global Ratings credit rating affirmed

Research Update:
SKYCITY Entertainment Group 'BBB-' Rating
Affirmed; Outlook Remains Stable
June 28, 2024
Rating Action Overview
- SKYCITY Entertainment Group Ltd. (SkyCity) is facing cyclically lower gaming revenues at a time
of elevated regulatory costs and capital expenditure (capex).
- Although we expect the company's credit metrics to remain within rating tolerances, rating
headroom will be limited over the next two years. In this regard, we expect debt-to-EBITDA ratio
to peak at about 2.9x in fiscal 2024 (end June), before reducing toward 2.0x by fiscal 2026.
- We affirmed our 'BBB-' long-term issuer credit rating on SkyCity. At the same time, we affirmed
the 'BBB-' long-term issue ratings on the company's debt.
- The stable outlook reflects our view that SkyCity is taking creditor-friendly actions to avoid
downward pressure on the rating by prioritizing debt reduction over the next two fiscal years.
Rating Action Rationale
We forecast that SkyCity's credit metrics will weaken in fiscal years 2024 and 2025 (ending
June 30) but remain within tolerances for the 'BBB-' rating.Economic conditions in New
Zealand remain subdued, driving lower gaming and non-gaming revenues across SkyCity's
properties. We have therefore revised downward our forecast earnings for SkyCity. Lower expected
earnings also reflect the following:
- Delays in the opening of Horizon Hotel;
- Pre-opening operational costs for Horizon Hotel and New Zealand International Convention
Centre (NZICC) before revenue generation; and
- One-off costs for regulatory inquiries and project-related compliance costs, particularly at
SkyCity Adelaide.
We now project SkyCity's debt-to-EBITDA ratio to peak at 2.9x in fiscal 2024, from 1.9x in fiscal
2023. That said, we expect this measure to remain within our rating downside trigger of 3x.
Research Update:
SKYCITY Entertainment Group 'BBB-' Rating
Affirmed; Outlook Remains Stable
June 28, 2024
PRIMARY CREDIT ANALYST
Tristan Ong
Melbourne
+61 3 9631 2176
tristan.ong
@spglobal.com
SECONDARY CONTACT
Craig W Parker
Melbourne
+ 61 3 9631 2073
craig.parker
@spglobal.com
www.spglobal.com/ratingsdirectJune 28, 2024 1

SkyCity's cash flow preservation measures will provide necessary credit metric support, in our
view.The suspension of dividends until fiscal 2025 and the use of proceeds from the sale of
Gaming Innovation Group (GiG) to repay debt are important measures to stave off further
deterioration in credit metrics and underpin rating stability.
SkyCity has reached an agreement to sell its 10.02% stake in GiG for about NZ$55 million. The
company will use the sale proceeds to repay debt. In our view, SkyCity has a strong record of
taking capital management measures to support credit quality, including a NZ$230 million equity
raising completed during the COVID-19 pandemic.
Heightened regulatory oversight by government regulators will continue to weigh on SkyCity's
business in the near term.Although the conclusion of Australian Transaction Reports and
Analysis Centre's (AUSTRAC) case against SkyCity Adelaide has resolved some regulatory
uncertainties for the company, SkyCity remains subject to various ongoing regulatory reviews. This
includes an independent review of SkyCity Adelaide from the South Australian gaming regulator
(Consumer and Business Services) regarding SkyCity's suitability to hold a gaming license.
Although our base case does not incorporate any material changes to the group's gaming license
or conditions from this review, these factors remain risks to the company. We expect an update on
this review by the end of December 2024.
Due to sizable cash outflows, we now assess SkyCity's liquidity as adequate.The revised
liquidity assessment principally reflects lower earnings forecast, the repurchase of the NZICC car
parks and the fine from AUSTRAC, with cash outflows for these of about NZ$204 million and
NZ$72 million in February and July 2024, respectively. The revision of this assessment has a
neutral effect on our rating.
Outlook
Rating stability is supported by SkyCity's efforts to reduce debt and maintain S&P Global Ratings'
adjusted debt-to-EBITDA ratio below 3x. Over the next 18 months, we expect limited credit metric
headroom, before the ratio improves in fiscal 2026.
From fiscal 2026, we expect SkyCity's earnings to improve as economic conditions recover in New
Zealand, and the successful ramp-up of NZICC, Horizon Hotel, and car park operations provide
meaningful additional earnings.
In addition, we believe management remains committed to maintaining its credit profile and will
prioritize debt reduction over the next few years.
Downside scenario
We could lower the rating if the company's adjusted debt-to-EBITDA ratio remains sustainably
above 3x. This could occur if:
- The company's earnings are weaker than we expect, driven by a protracted downturn in New
Zealand's economy, higher-than-expected regulatory costs or other factors; or
- SkyCity undertakes material debt-funded acquisitions or incremental capex.
Additionally, material adverse changes to the licensing or regulatory environments in which
SkyCity operates, particularly in Auckland and Adelaide, or further sizable regulatory fines, could
negatively affect the rating.
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Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

Upside scenario
We consider upward rating pressure to be unlikely in the next two years. However, credit quality
could improve if:
- The company were to implement more conservative financial policies; or
- SkyCity materially improves the scale and diversity of its operations while maintaining a
prudent financial risk profile.
Company Description
SkyCity is New Zealand's largest tourism, leisure, and entertainment company. The company is
dual listed on the New Zealand and Australian stock exchanges. SkyCity owns and operates
casinos, hotels, and restaurants and bars, across Auckland, Hamilton, and Queenstown in New
Zealand; and Adelaide in Australia.
The company benefits from long-dated licenses. SkyCity's Auckland casino license runs until 2048
and Adelaide casino license until 2085. The company also has an online casino that is operated
out of Malta by Gaming Innovation Group Inc.
In fiscal 2023, SkyCity generated adjusted revenue of NZ$943 million and adjusted EBITDA of
NZ$276.6 million.
Our Base-Case Scenario
Assumptions
- New Zealand's real GDP growth of 1.1% in 2024 and 2.5% in 2025;
- Australia's real GDP growth of 1.1% in 2024 and 2.1% in 2025;
- Subdued economic conditions to persist across New Zealand and Australia for the rest of
calendar 2024;
- Slightly lower revenue in fiscal 2024, due to lower consumer spending across SkyCity's assets,
affecting gaming and non-gaming revenues;
- Weaker EBITDA margin of about 26.7% in fiscal 2024, from 29.3% in fiscal 2023. We expect
EBITDA margin compression is attributable to: (1) softer earnings; (2) continuing but
moderating inflationary pressures; and (3) increased investment in anti-money laundering
(AML) and counter-terrorism financing (CTF) compliance processes, particularly at SkyCity
Adelaide;
- Capex of about NZ$145 million in fiscal 2024, comprising about NZ$62 million of maintenance
capex and NZ$83 million to complete NZICC and Horizon Hotel;
- Suspension of dividends in the second half of fiscal 2024 and all of fiscal 2025;
- GiG sale proceeds of about NZ$55 million; and
- No material debt-financed acquisitions.
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Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

Key Metrics
Table 1
SKYCITY Entertainment Group Ltd.--Key Metrics*
Mil. NZ$2022a2023a2024e2025f2026f
Revenue6119439359651,005
EBITDA135277250235270
Funds from operations (FFO)76228150140170
Capital expenditure (capex)110256145135100
Debt625515725630560
Adjusted ratios
Debt/EBITDA (x)4.61.92.92.72.1
FFO/debt (%)12.244.320.722.230.4
EBITDA margin (%)22.129.326.724.426.9
*All figures are adjusted by S&P Global Ratings, unless stated as reported. The forecasts are mid-point estimates of the likely ranges.
NZ$--New Zealand dollar. a--Actual. e--Estimate. f--Forecast.
Liquidity
We assess SkyCity's liquidity as adequate. We expect the company's sources over uses to be
greater than 1.2x over the 12 months to Dec. 31, 2024. In our view, SkyCity can maintain adequate
liquidity, even if its EBITDA declines by 15%, given the group's cash balance and undrawn bank
facilities.
Principal liquidity sources:
- Cash and short-term investments of NZ$188 million (as of Dec. 31, 2023);
- Undrawn bank facilities of about NZ$255 million;
- Cash funds from operations of about NZ$168 million over the 12 months to Dec. 31, 2024; and
- GiG sale proceeds of about NZ$55 million.
Principal liquidity uses:
- No debt maturities over the 12 months to Dec. 31, 2024;
- NZICC car park repurchase of about NZ$204 million;
- AUSTRAC and Department of Internal Affairs AML fines that total about NZ$77 million; and
- Capex of about NZ$140 million.
Ratings Score Snapshot
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Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

Issuer Credit RatingBBB-/Stable/--
Business risk:Satisfactory
Country riskLow
Industry riskIntermediate
Competitive positionSatisfactory
Financial risk:Intermediate
Cash flow/leverageIntermediate
Anchorbbb-
Modifiers:
Diversification/Portfolio effectNeutral (no impact)
Capital structureNeutral (no impact)
Financial policyNeutral (no impact)
LiquidityAdequate (no impact)
Management and governanceNeutral (no impact)
Comparable rating analysisNeutral (no impact)
Stand-alone credit profile:bbb-
Related Criteria
- Criteria | Corporates | General: Sector-Specific Corporate Methodology, April 4, 2024
- Criteria | Corporates | General: Methodology: Management And Governance Credit Factors For
Corporate Entities, Jan. 7, 2024
- Criteria | Corporates | General: Corporate Methodology, Jan. 7, 2024
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10,
2021
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
- Criteria | Corporates | General: Reflecting Subordination Risk In Corporate Issue Ratings, March
28, 2018
- Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
- General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Ratings List
www.spglobal.com/ratingsdirectJune 28, 2024 5
Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

Ratings Affirmed
SKYCITY Entertainment Group Ltd.
Issuer Credit RatingBBB-/Stable/--
SKYCITY Entertainment Group Ltd.
Senior UnsecuredBBB-
SKYCITY Auckland Holdings Ltd.
Senior UnsecuredBBB-
SKYCITY Australia Pty Ltd.
Senior UnsecuredBBB-
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Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

www.spglobal.com/ratingsdirectJune 28, 2024 7
Research Update: SKYCITY Entertainment Group 'BBB-' Rating Affirmed; Outlook Remains Stable

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