Thứ Tư, ngày 13 tháng 8 năm 2014

Las Vegas Is Getting Another Facelift

No city in America reinvents itself more often than Las Vegas,

and after a few quiet years on The Strip, the skyline is about to

change again.


James Packer, an Australian billionaire and chairman of

Crown Resorts, recently bought the land that once held the New

Frontier casino, located north of the Fashion Show Mall. The

34.6-acre property will house the latest megaresort in Las Vegas

and is located just south of an 87-acre property recently bought

by Genting Group, which is building the $4 billion Resorts

World Las Vegas.



The former New Frontier Hotel, which will be the site of The

Strip’s newest megaresort. Photo source: KyleLV via
Wikimedia


.


These two properties are being developed while resorts on the

Las Vegas Strip continue to struggle financially, and when

completed they will add capacity to an area that will arguably be

oversupplied for the next decade. But reasons for these moves can

be found if you dig deep enough behind the headlines.



The changing face of Las Vegas



First, let’s cover exactly what we know about what Packer and

Genting Group want to build.


Genting Group is building an Asian-themed resort on the site

that once held the Stardust hotel and casino, a property
Boyd Gaming


tore down to build the $4 billion resort Echelon Place. Those

plans were abandoned when the economy went into free fall in

2008, and the partially constructed resort was sold to Genting

Group for $350 million. Genting intends to build on the existing

foundation and construct a resort that some estimate could cost

as much as $7 billion to complete.



The abandoned Echelon Palace site, which will soon become

Resorts World Las Vegas. Photo source: Bobak Ha’Eri via
Wikimedia


.


Genting’s plan is to construct the resort in three phases with

Phase 1 including 3,000 hotel rooms, 3,500 slot machines and

table games, and 30 food and beverage locations. Construction of

the first phase is planned to be complete in 2017.


Packer’s plans are in a much earlier phase: Construction is

expected to begin next year, with completion targeted for 2018.

While a smaller footprint for the site means a smaller scale than

Resorts World Las Vegas should be expected, the budget will still

be in the billions.



Why Las Vegas and why now?



The Las Vegas Strip isn’t exactly a booming market right now. The

region still hasn’t reached gaming levels seen in 2007, and

supply had already been added to the market in recent years

by CityCenter and Cosmopolitan, among other smaller hotel

resorts.


But Las Vegas’ gaming revenue is recovering from recession

lows more quickly than other regions in the U.S., particularly

Atlantic City, New Jersey. The chart below shows that Atlantic

City continues to see gaming revenue fall in the face of

increased regional competition; meanwhile, Las Vegas is on the

road to recovery.



Source: Las Vegas Gaming Commission and New Jersey Division of

Gaming Enforcement.


Another attraction to Las Vegas is the fairly open market for

gaming operators, unlike booming Asian gaming markets such as

Macau, Singapore, and The Philippines. These Asian markets are

restricted to a small number of players who had to win

competitive bids to enter the market while the number of gaming

companies in Las Vegas isn’t as restricted. As long as Packer and

Genting Group pass a stringent regulatory compliance check they

can enter the market.


It isn’t that they’ve ignored the Asian market. In fact,

Genting has one of two licenses and casinos in Singapore and

Packer’s Crown Resorts is a partner in
Melco Crown


, which is one of six concessionaires in Macau. Singapore

isn’t expanding beyond two casinos any time soon while Macau’s

buildout of the Cotai region is under way, including a resort

from Melco Crown. Beyond the resorts they already have operating

or under construction in Asia, there just aren’t many attractive

opportunities to expand in Asia, so they looked to Las Vegas. It

may be a risky move, but it’s one they felt was needed to build a

presence in one of the world’s best-known gaming markets.



Can the new generation of Las Vegas megaresorts

succeed?



The challenge now is building a resort that can be profitable,

which is harder than it seems. The Cosmopolitan — the newest

megaresort on The Strip — has reported annual losses of about

$100 million per year since opening in 2010, and CityCenter just

reported a $2.1 million operating loss for the

second quarter.


What Packer and Genting have going for them in Las Vegas is

location. I recently highlighted that north Strip residents

Wynn


and Encore Las Vegas make up the most profitable resort on The

Strip


, while neighbors The Venetian and Palazzo Las Vegas are also

doing well targeting upscale customers.


You can see below that EBITDA — a proxy for cash flow — of

$331 million from CityCenter over the past year doesn’t exactly

show a solid return on the $8.7 billion investment. But resorts

on the north side of The Strip have fared better and show that

decent returns are available.


Property


Construction Cost


EBITDA (
TTM


)


Wynn and Encore Las Vegas


$5 billion


$501.4 million


Venetian and Palazzo Las Vegas


$3.3 billion


$321.1 million


CityCenter


$8.7 billion


$331 million


Source: Company earnings releases. TTM = trailing 12

months.


As Genting Group and James Packer build Las Vegas’ newest

megaresorts, they’ll be betting that this city as a whole can

continue to grow and that the north side of The Strip can attract

more traffic. It’s a risky move, but I wouldn’t bet against these

two as they are the latest to reshape the skyline of Las

Vegas.




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The article
Las Vegas Is Getting Another Facelift


originally appeared on Fool.com.



Travis Hoium


 manages an account that owns shares of Wynn Resorts,

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Las Vegas Is Getting Another Facelift

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