MACAU—The vast riches waiting to be had in Macau, the Special Administrative Region of the People’s Republic of China, is exemplified by Wynn Macau Limited’s recent shopping trip.
A set of four ormolu-mounted Chinese porcelain baluster vases was sold to Wynn Macau (Wynn Resorts Limited’s casino resort in Macau) at auction last month for more than US$12.7 million, exceeding the world auction record for ormolu-mounted porcelain. The only other known similar example of vases is held by the British Royal Family.
Coming up with the cash to pay for the pieces (which will go on display in the company’s Cotai resort that is scheduled to open in 2015) shouldn’t be a problem for Wynn Macau. The Chinese region has been, and is expected to continue to be, a gold mine for the lucky few hotel-casinos that have been granted licenses to operate there.
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Net revenue at the company’s Macau operations totaled US$976.51 million during the second quarter this year, a 36.7% increase over US$714.41 million a year earlier, according to a 9 August U.S. Securities and Exchange Commission filing. By comparison, net revenue at Wynn’s Las Vegas operations totaled US$390.85 million during the quarter.
As it is with the other casino-hotels in Macau, gaming is driving performance. Citadel Securities estimates that gaming revenue in Macau has grown exponentially—from US$5.9 billion in 2005 to approximately US$23 billion in 2010—and “unseated Las Vegas as the gaming capital of the world,” Citadel said in a research report.
Gaming revenue is now five times that of the Las Vegas Strip, Citadel analyst Bryan Maher said, adding that gaming revenue is forecast to hit US$64 billion by 2017.
“The market is phenomenal,” he said.
It’s the VIPs who account for the lion’s share of the gaming revenue.
While hotel operating performance pales in comparison to gaming, the hotel components of these resorts have also noted increases. Year-to-date through June, occupancy was up 2.8% to 80.4%, average daily rate increased by 7.9% to CNY1,269.46 (US$198.64), and revenue per available room grew by 11% to CNY1,020.65 (US$159.71), according to data compiled by STR Global, a sister company of HotelNewsNow.com.
“Macau hotels and casinos have been doing very well of late, the rapid absorption of supply in the form of the (more than 2,200-room) Galaxy Macau Resort being a good indicator,” Daniel Voellm, managing director, HVS Global Hospitality Services, wrote in an email.
He added, “Main drivers are strong visitation numbers from China and Hong Kong with a total increase of 14.5% in the first half of 2011 and (a) gaming revenue increase of 21% over the same period.”
The six companies operating casino resorts in Macau—SJM Holdings Limited; Galaxy Macau; Melco Crown Entertainment; Las Vegas Sands Corporation; MGM Resorts International; and Wynn—either declined to comment or did not return messages for comment.
MGM China deal
MGM Macau earned a profit of US$53.54 million during the first quarter of 2011, up from US$18.69 million during the same period a year earlier. And the company has made a deal to further strengthen its hold in the region.
MGM China Holdings Limited last month closed on an HK11.66-billion (US$1.49 billion) initial public offering of 760 million shares.
The HKD11.1 billion (US$1.42 billion) of net proceeds will be used to repay a previously issued acquisition note to the Grand Paradise. The deal also means MGM Resorts becomes the indirect owner of 51% of MGM China, which owns all of the shares of the Grand Paradise and is the owner of the MGM Macau.
“MGM China has a strong balance sheet and we believe is well positioned to pursue growth opportunities, both at the existing MGM Macau hotel and casino and through future development opportunities in Macau," MGM China CEO Grant Bowie said in a news release. http://mgmresorts.investorroom.com/index.php?s=43&item=657
Supply increase
Macau, with 21,580 guestrooms according to HVS, has proven to be a ripe region for hotel development.
Galaxy Macau, a development that includes the Galaxy Hotel, Hotel Okura Macau and Banyan Tree Macau, opened 15 May, adding more than 2,200 rooms to the market.
And Sands China Limited on 5 August announced it reached agreements with Hilton Worldwide and InterContinental Hotels Group to launch, respectively, the companies’ Conrad and Holiday Inn brands at Sands’ Cotai Strip development in Macau early next year. Combined, the two hotels will add more than 1,800 rooms to the Macao market.
“Around 6,000 rooms are scheduled to come online in 2012 including a Conrad, Holiday Inn, Sheraton and Sheraton Towers, all within property developed by Sands,” Voellem wrote. “Additional sites are available for development on the Cotai Strip with capacity for several thousand rooms. The market is likely undersupplied at this point, however, the additions in 2012 can exert pressure on the market if gaming capacity does not grow in tandem.”
MGM China is prepared to move on a planned property in Cotai, said MGM chief Jim Murren last week during the company’s second-quarter earnings call. “We are prepared as soon as we get approval, which we expect, to start moving dirt immediately and clearing the site,” Murren said, adding the property would likely take three years to complete.
Speaking during his company’s first-quarter earnings call on 19 May, Lawrence Ho, Melco’s co-chairman and CEO, did not appear fazed by the supply increase.
“We believe that the Galaxy opening is great for Macau and it’s even better for Cotai,” he said, adding, “But so far, we think things are going smooth … we will be prepared. But at the same time, we don’t plan on doing anything differently.”
Stephen Ho, senior VP of acquisitions and development at Starwood Hotels & Resorts Worldwide, said his company is adding to the supply in Macau, too. Starwood has several projects planned over the next several years:
- a 4,000-room Sheraton expected to open next year;
- a 550-room W-branded property scheduled to open in 2013 or 2014;
- a 480-room St. Regis property in line for 2014.
While gaming is the big focus of Macau, Stephen Ho expects to see a pick-up in meetings, incentive, conventions and exhibitions business as the region’s transportation infrastructure improves.
“I think generally you will see the pickup is very strong,” he said.
Voellm said the underlying growth in the market is strong despite the increasing scale of the market.
“2011 will likely continue on a slightly moderating growth pattern,” he wrote. “In 2012, continued growth will depend on the addition of gaming capacity at the new casinos entering the market. We anticipate the new supply of 6,000 rooms to be absorbed at a healthy pace.”