Inside Asian Gaming

INSIDE ASIAN GAMING | Oct 2007 8 loan deal with Asian lenders to cover the shortfall and inject further capital, but it reportedly paid over the odds for the privi- lege. Analysts indicated the price was inter- bank rates plus 2.75%. That was 0.5% higher than MPEL’s target price. This may partly be bad luck on timing, given the global credit squeeze kicked in before the deal was struck. One occasionally senses the politics of the playground in the way some commentators have ganged up on MPEL, but news that the company struggled a little to put in place its initial project financing at the price it want- ed is hardly likely to inspire confidence when it comes to trying to monetise its real estate assets, including 600 condominium units at City of Dreams. MPEL’s difficulties may be partly a ques- tion of presentation. Sheldon Adelson, the chairman and principal shareholder of LVS, is a first-rate salesman, equally adept at ex- plaining to analysts and investors downside factors such as construction cost rises as well as upside factors such as asset monetisa- tion. By contrast, analysts who took part in a conference call with senior MPEL executives regarding construction cost rises at City of Dreams said the company spent rather too much time on the cost side of the equation, and rather too little on the good news story of its real estate inventory. A worst-case scenario for MPEL is that the markets just aren’t very enthusiastic about City of Dreams. Analysts have voiced concerns about aggressive leveraging and MPEL’s lack of a proven track record in deliv- ering a large scale gaming project.Themixed reviews about Crown Macau, the venture’s six star facility at Taipa, haven’t helped. No sure win with an IR The term ‘Integrated Resort’ has become very fashionable in Macau, but simply re- peating the phrase enough times doesn’t automatically create the synergies necessary to attract investors down the monetisation or leveraging road. An IR is more than just a super-sized casi- no with hotel rooms, shops and apartments. An IR is a destination in itself, with a distinct identity and life of its own. An IR is an enter- tainment hub, creating a virtuous circle of discretionary spending within its boundar- ies to complement its gaming revenues. As William Weidner, President of LVS, told analysts on a recent conference call: “Our strategy is to develop a non-core asset, monetise it, and then re-utilise that asset as an attractor for incremental business. So if we are successful in selling vacation suites to wealthy Chinese, they either put it in a pool or they come visit it themselves,and not only do we create real estate value but we create additional reasons for wealthy Chinese to come and visit. It’s much the same with the malls. Once a mall is developed, whether it is monetised or not, it continues to be an at- tractor of mass market because it is a good place to come, just like in Las Vegas.” So far LVS is the market leader in this approach to casino resorts and a darling of the markets. Covered by the malls At a recent LVS shareholders’ meeting, the company said sale of the mall space in its new Las Vegas property the Palazzo had covered 47% of the combined US$3.3 bil- lion cost of The Venetian Las Vegas and The Palazzo. This is a pretty intensive return on assets considering the latter’s mall footprint takes up only five percent of the total devel- opment area. Sale of the mall floorage at The Venetian Macao-Resort-Hotel will help it re- cover more than 100% of the US$2.4 billion construction costs, says the company. LVS plans eventually to fund the building of the whole Cotai Strip™ through the sale of retail space and holiday apartments. Deutsche Bank estimates LVS will have raised US$17 billion after tax from monetis- ing casino resort real estate in the United States and Asia. Bill Lerner, Managing Direc- tor and Senior Gaming and Lodging Analyst for Deutsche Bank, says that as the actual combined costs of LVS’s construction proj- ects are currently around US$16 billion, this effectively means LVS will have been paid a billion dollars for building its real estate in- Cover Story The future Shangri-La being built by LVS on Cotai