Liquidity Worries Mount as Star Entertainment Battles Revenue Decline and Regulatory Hurdles
The Star Entertainment Group reported a 9% revenue decline to $271 million in Q3 FY25 alongside a $21 million EBITDA loss, driven by seasonal factors and operational challenges. The company is advancing strategic investments and joint venture exits amid ongoing liquidity pressures and regulatory hurdles.
- Q3 FY25 revenue fell 9% to $271 million with a $21 million EBITDA loss
- Operating expenses reduced by 3% due to cost-out initiatives
- Entered binding agreements for $300 million strategic investments with Bally’s and Investment Holdings
- Announced exit from Destination Brisbane Consortium joint venture
- Material uncertainty remains over going concern status due to liquidity and regulatory factors
Quarterly Financial Performance
The Star Entertainment Group (ASX: SGR) released its unaudited Q3 FY25 results revealing a 9% decline in revenue to $271 million compared to the previous quarter, accompanied by a significant EBITDA loss of $21 million. This downturn reflects a combination of seasonal visitation patterns, adverse weather events including Tropical Cyclone Alfred, and ongoing property closures, particularly in Queensland.
Operating expenses decreased by 3% to $228 million, driven by corporate cost reductions and volume-related savings. The company highlighted progress in embedding previously announced cost-out programs, targeting an annualised $100 million in savings with further incremental opportunities identified.
Strategic Investment and Joint Venture Developments
During the quarter, The Star made a $26 million equity contribution to the Destination Brisbane Consortium (DBC) joint venture. However, on 7 March 2025, the company announced an agreement to exit its equity position in DBC, consolidating its interests with joint venture partners. This transaction is subject to long-form documentation and various conditions precedent, with no further equity contributions required beyond March 2025.
In early April, The Star entered into binding agreements for a $300 million strategic investment involving Bally’s Corporation and Investment Holdings Pty Ltd. The investment structure includes multi-tranche convertible and subordinated debt instruments. The initial tranche of $100 million was received on 9 April 2025, with the remaining $200 million contingent on shareholder and regulatory approvals targeted for late 2025.
Additionally, The Star completed the sale of event and associated spaces in Sydney for $60 million, with approximately $58 million of proceeds held in escrow pending approvals from the NSW Independent Casino Commission (NICC) and shareholder consent related to the strategic investment.
Liquidity and Going Concern Challenges
The Group’s liquidity position remains strained, with available cash of $44 million as of 31 March 2025. The company continues to explore various funding options including asset disposals and strategic initiatives to bolster cash flow. The refinancing of debt facilities and waivers from lenders have provided some relief, but material uncertainty persists regarding the Group’s ability to continue as a going concern.
Key near-term milestones critical to the Group’s outlook include completing the strategic investment transactions, releasing sale proceeds from the Sydney asset disposal, and finalising the exit from the DBC joint venture. The company’s H1 FY25 financial statements, released in April, were prepared on a going concern basis but acknowledged this uncertainty.
Operational and Regulatory Environment
The Star’s casino licenses in Sydney and Gold Coast remain suspended, with management appointments extended to September 2025. The Brisbane casino commenced operations under joint venture management in August 2024, with The Star acting as operator and recognising associated earnings as investment income rather than EBITDA.
Mandatory carded play and cash limits have been implemented in Sydney since October 2024, with further reductions planned by August 2025. Queensland government regulations continue to delay similar measures on the Gold Coast. These regulatory factors, combined with adverse weather and market conditions, have contributed to the softness in gaming revenues.
Looking ahead, The Star is targeting a shareholder meeting in late 2025 to secure approvals for the strategic investment and is progressing documentation to complete the DBC exit by end June 2025, subject to conditions.
Bottom Line?
The Star’s path to stabilising its finances hinges on timely strategic investments and regulatory approvals amid ongoing operational headwinds.
Questions in the middle?
- Will The Star secure all necessary regulatory and shareholder approvals for the $300 million strategic investment by late 2025?
- How will the exit from the Destination Brisbane Consortium impact The Star’s long-term earnings and cash flow profile?
- What are the potential implications if the Group fails to resolve its going concern uncertainty in the upcoming FY25 H1 results?
