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Howard Stutz

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Expansion, cash, focused on the other Strip - in Cotai

15 Jul 2013

By Howard Stutz
Casino developers — including MGM Resorts International, Las Vegas Sands Corp. and Wynn Resorts, Limited — will spend some $22 billion on massive new resorts and gambling complexes in Macau over the next four years.

On the Strip, four developments are under construction. Total cost: roughly $1.6 billion. The Strip doesn’t need new resorts. Casino companies are turning to nongaming businesses to grow the customer base.

Two of the projects — the $400 million transformation of the Sahara into the SLS Las Vegas and the $185 million renovation of Bill’s Gamblin’ Hall into the Gansevoort Las Vegas — include gaming. These developments are more about the nongaming attractions — restaurants, nightclubs and dayclubs, spas, retail and luxury hotels — rather than the casino.

The other two construction projects — the $550 million Linq retail, dining and entertainment district, and the $450 million MGM Resorts is spending on an outdoor retail and dining complex and a 20,000-seat sports arena — don’t include gaming.

Welcome to the tale of two cities.

Macau, which collected $38 billion in gaming revenues in 2012, is on a pace to surpass $43 billion in gaming revenues in 2013. The Chinese gambling enclave continues to increase visitation, attracting middle-market customers and high-end gamblers from Mainland China and other Asian destinations.

In a recent report to investors, Credit Suisse gaming analyst Joel Simkins said the new Macau hotel-casino projects could fuel the market to between $61 billion and $76 billion in annual gaming revenues by 2017.

Much of the development centers on the Cotai Strip. The projects will be portioned out over a three-year period.

“Capacity will be staggered as a function of construction timetables and government controls,” Simkins said. “Investors need to prepare for bumps along the way.”

Macau’s construction market is a mix of new hotel-casinos and expansions to existing properties. Wynn will spend up to $4 billion on a 2,000-room Cotai development. MGM Resorts has budgeted $2.5 billion for a 1,600-room Cotai resort. Both projects are slated to open in the first half of 2016.

Las Vegas Sands is spending $2.7 billion on a 3,000-room Parisian-themed hotel-casino on Cotai, which could open by the end of 2015.

A key for Macau, Simkins said, is continued improvement to infrastructure. Projects include an expansion to the Cotai Ferry Terminal, the Guangzhou-Zhuhai Super Highway, the Hong Kong-Zhuhai-Macau Bridge, and an upgrade to Macau’s Airport, which will double capacity to 12 million passengers per year upon completion in 2017.

In 2016, a 21-kilometer light rail transit system with 21 stations will be finished, allowing customers to easily move in the peninsula area and Cotai.

The cost of the current development projects in Las Vegas combined equals the budget for one Macau resort.

Other than Malaysia-based Genting Group’s planned $2 billion Resorts World Las Vegas project, the Strip won’t see much new hotel capacity. SLS and Gansevoort are replacing older rooms with upgrades. MGM Resorts and Caesars Entertainment Corp. are remodeling older Strip hotel rooms at several resorts.

Analysts have long said the combination of the soured economy and the building boom left the Strip with more room capacity than needed. Las Vegas had 149,800 hotel rooms as of April.

The Cosmopolitan of Las Vegas opened in December 2010, and was the Strip’s last all-new resort. It will have that title for a few years. Resorts World won’t be unveiled on the former Echelon-Stardust site until late 2016.

Macau is different. The market is relatively new. Since the casino monopoly of Stanley Ho ended in 2000, roughly three dozen large and small casinos have been built. The newest building boom could complete the Cotai Strip.

Macau wants more nongaming development as part of the mix, much like Las Vegas.

According the Nevada Gaming Control Board’s annual Gaming Abstract Report, nongaming spending by customers accounted for 64 percent of the Strip’s overall $15.3 billion of total revenues in fiscal 2012. With casino options growing throughout the U.S., the gap will continue to widen.

Simkins used the Strip construction boom between 1998 and 2000 as a road map for Macau. The Bellagio, Venetian, Mandalay Bay, Paris, and Aladdin (now Planet Hollywood Resort) all opened in that period.

Returns were strong, other than for the Aladdin, which went bankrupt. Simkins said the developments offered customers more nongaming options than previous resorts.

“What made these projects successful was having several or a combination of unique qualities,” Simkins said.

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