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MGM gets approval to build Cotai hotel

19 Oct 2012

By Howard Stutz
MGM Resorts International was approved by the Macau government Thursday to build a $2.5 billion hotel-casino on the Coati Strip region.

The company, through its 51 percent-owned MGM China subsidiary, paid $56 million for the land, and government officials will arrange for publication of the land concession contract in the Official Gazette of Macau.

A 36-month construction effort will begin as soon as the contract is published.

"This destination resort represents a significant growth opportunity for MGM China," MGM Resorts Chairman Jim Murren said in a statement. "The project will fully demonstrate our strengths in terms of design and branding, quality of service and thoughtful diversification of product offerings."

MGM Resorts operates the 600-room MGM Grand China, which opened in 2007.

Deutsche Bank gaming analyst Carlo Santarelli told investors that the formal publication might take six to nine months, although the time frame could be shorter since MGM Resorts made its initial contract payment.

Sterne Agee gaming analyst David Bain told investors much of MGM Resort's design of its Cotai project had been vetted by the Macau government, which could speed along construction.

However, most analysts said they didn't expect the casino to open until 2016 or 2017.

The unnamed Cotai Strip development is expected to include 1,600 hotel rooms and a casino with 500 gaming tables and 2,500 slot machines on a nearly 18 acre site. Roughly 85 percent of the project will include nongaming offerings, including restaurants, retail and entertainment offerings.

"We think this is a much-needed positive for MGM, enhancing its growth profile," JP Morgan gaming analyst Joe Greff told investors.

Macquarie Securities gaming analyst Chad Beynon said investors have long anticipated the project's announcement. Wynn Resorts Ltd. was approved earlier this year to build a $4 billion hotel-casino on Cotai. The Macau government was expected to approve only two resorts on Cotai this year.

"(MGM Resorts) has been discussing this catalyst for some time; however, given the lack of an announcement, we don't believe that the market has been ascribing any value to the project," Beynon said in a research note.

Investors reacted positively to the news. MGM Resorts shares rose 25 cents, or 2.29 percent, Thursday to close at $11.17 on the New York Stock Exchange.

MGM China is publicly traded on the Hong Kong Stock Exchange. Hong Kong businesswoman Pansy Ho owns roughly 20 percent of the company.

"Our Cotai property will demonstrate our continued commitment to contribute to Macau as it develops into an international tourism and entertainment hub as well as a convention and meeting destination," Ho said in a statement.

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