ORIX outlines financial plan for Japanese integrated resort with MGM

By Noah Taylor Updated
ORIX outlines financial plan for Japanese integrated resort with MGM

ORIX Corp has matched the contribution of its consortium partner MGM Resorts to the development of a new integrated resort in Osaka.

Inside Asian Gaming reports that Orix and MGM were selected by Osaka prefecture and city in September as their preferred operator for an integrated resort facility on Yumeshima island, with the parties now in the process of preparing an area development plan for submission to the national government.

ORIX executive officer Hitomaro Yano explained at a press conference that the intention was to cover more than half of the initial integrated resort investment, expected to be in the range of US$10 billion, via non-recourse loans.

It is understood that ORIX and MGM will each take on 40 per cent of the remaining investment, while various Kansai businesses currently seeking investment will contribute the other 20 per cent.

ORIX expects to cover its investment with cash on hand.

MGM to share costs 50-50

MGM Resorts International chief executive officer and president Bill Hornbuckle told investors in August that his company was prepared for an initial investment of US$2.5 billion in its Osaka integrated resort, to be funded over the course of three years from 2024.

“The program with ORIX is 40-40-20, meaning a consortium with other Japanese companies will make up the 20 per cent. If not MGM and ORIX both fill to 50 per cent,” he said.

“If we call the project US$10 billion, although we think it will be a little lowerU with 55/45 debt to equity, that means for us it’s a US$2 billion to US$2.5 billion cheque, probably split between 2024, 2025 and 2026.”

MGM, ORIX and Osaka city prefecture plan to submit an area development plan by April 2022, with an opening planned for 2029.

ORIX said: “Because it is a landfill site, the construction plan will be finalised after a ground survey, including work such as boring.

“ORIX has some criteria that must be satisfied in the upcoming processes but we will continue to proceed with the project’s implementation.”

Asked about forecast returns from the integrated resort, ORIX addedits current calculations look forward “over several years considering inbound visitors, but currently we are planning for a scenario on the premise of only Japanese visitors.

“Some will talk about 10, 20 or any multiple of years, but the calculation is based on an internal rate of return of at least 10 per cent.

“MGM’s estimated numbers double our calculations, but we are not planning for that.

“We will use our conservative numbers to seek Japanese investment and consider how to reach that number with only Japanese customers.”

Osaka integrated resort partners given the green light

The decision to name MGM-ORIX as preferred partner comes as no surprise, given they were the only consortium to take part in Osaka’s request-for-proposal process, although it does represent a significant milestone on the path to IR development.

Assuming a Basic Agreement is signed, Osaka and MGM-ORIX will present their joint bid to the national government by 28 April 2022 and, if approved for a licence, are expected to complete the first phase of development by the late 2020s.

Osaka is the only metropolitan Japanese city and MGM the only internationally recognised IR operator still in the running to develop one of Japan’s first integrated resorts following the recent withdrawal of Yokohama, which ended the pursuit of Genting Singapore and Melco Resorts in that city, although both companies still hold a long-term interest in operating in Japan.

The MGM-ORIX IR is estimated to include an initial US$9.1 billion investment, with MGM CEO and President Bill Hornbuckle stating recently that he expects the company’s contribution to toal no more than US$2.5 billion, likely spread over three years from 2024 to 2026.

“The program with ORIX is 40-20-20, meaning a consortium with other Japanese companies will make up the 20 per cent. If not, MGM and ORIX both fill to 50 per cent,” Hornbuckle said.

He also accepted that further investment would follow, stating: “There’s a commitment we are making to Japan and to Osaka that we would be a true partner in this.”

Osaka is the last of the three candidate locations to confirm its IR partner, with Wakayama naming Clairvest Neem Ventures in June and Nagasaki choosing Casinos Austria in August.

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