Wednesday, June 11, 2008

Sky City Assets: Buy, sell and hold

News out today that Sky City Entertainment[SKC.NZ] has sold a share in a the Christchurch Crowne Plaza Hotel and in turn received a larger stake in the Christchurch Casino that it owns with Skyline Enterprizes and cash in hand leaves this shareholder a happy man.

It adds to the news yesterday that the casino company will develop a "luxury resort" on the Little Mindal land it owns in front of the Darwin Casino.

The larger stake in the CHCH Casino takes the Sky City holding from 41% to a 46% holding.

The hotel was sold for $61.5 million, so one might presume that the Sky City share of the booty was $30.75 million. There was no breakdown of how much the extra 5% stake in the South Island Casino cost and therefore how much cash was left to disperse to debt pay downs or even a dividend to shareholders.

Shareholders in Sky City are entitled to know what the 5% cost.

The cash left over is more likely to be going towards subsidising Sky City Cinemas, a division that was on the block for a year but failed to sell as of last Friday because the buyer "failed to get financing", according to the Sky City Press release.

Any credible buyer interested in the cinema would only have to fork out about NZ$60 million and they would have known that was around the asking price when Sky City wrote down the assets of the division last year.

It is more likely that the deal fell through because the assets wouldn't have even got near the $60 million price tag rather than blaming the credit crunch for failing to sell a loss making business.

I'm naturally annoyed at management for not disposing with the cinemas, even for less than the asking price. It is going to be a continuing drain on capital expenditure and is never going to make any sort of decent return on assets or capital.

Cinemas as a business are on a par with the airline industry when it comes to losing money and track records for both show a history of company collapses, huge expense for owners and continued disappointment.

Nigel Morrison needs a boot in the head for that one.

Sky City @ Share Investor

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