Despite the downturn in gambling revenue Macau has seen since the onset of stricter government regulations from Beijing, and a crackdown on corruption in China, quite a few colossal resorts are set to open in the territory this year and next.
In this segment from the Industry Focus: Consumer Goods podcast, Sean O'Reilly and Vincent Shen talk about two of the biggest ones -- Wynn Resorts' (NASDAQ:WYNN) Wynn Palace, and Las Vegas Sands' (NYSE:LVS) Parisian Macau. Listen in to hear about how truly enormous these projects are in cost, size, and scope; what fascinating new attractions they're bringing to the table; and how they're diversifying their offerings to meet the new regulatory environment head-on.
A full transcript follows the video.
This podcast was recorded on April 12, 2016.
Vincent Shen: The next resort that is coming ...
Sean O'Reilly: This is the drum roll.
Shen: This one, I will say, a lot of people will associate the name we're talking about now, Wynn Resorts. Steve Wynn ...
O'Reilly: Yeah, that's what I wanted to say. Your friend and mine, Steve Wynn. He's famous, and he recently made comments in his conference call about how he considers Wynn to be a high-end, premium brand that markets to the millionaire that comes in there to play baccarat or whatever. So, is he toeing the line in doing what China wants him to do with this thing?
Shen: I think there's a balance, but you're absolutely right. In terms of the brand name, and in terms of the way they're building out the resort, it's still going to be very much a luxury resort, and catering to that kind of clientele. So, Wynn Palace is what is currently under development. It's a $4.1 billion project. Wynn Resorts, their stock -- just to paint the trend for you -- is down 55% since the downturn began.
O'Reilly: Same as ...
Shen: Very similar. But, they are actually up 40% year to date.
O'Reilly: So, they were down even more, is what you're telling me.
Shen: Yeah, absolutely. That's after a 40% run so far in 2016. So, the Wynn Palace is projected to open, I believe, this summer. There's been several construction delays. I think it was June, and it got pushed out again to August. So, 1,700 guest rooms projected. There's going to be this eight-acre performance lake as an attraction. And, again, if you look at a lot of the marketing behind it, they are very focused on dining, retail, meeting spaces. And in a recent investor presentation, the company is projecting, depending on the market share that they can claim on the Strip, about $630 million to $850 million in adjusted EBITDA at this property. Which essentially doubles their base in Macau, because they only had one other resort, the Wynn Encore. That opened in 2006, there was an expansion in 2010. Just to give you an idea, Macau recently has placed a cap on these new resorts, how many table games they can install. Whereas at Encore Macau, it's about 450 gaming tables, about 700 slot machines. These new resorts are probably going to get about 250 table games.
O'Reilly: Oh, wow! And that's one of the ways China is like, "OK, stop it with the gaming, be more ... "
Shen: I think the regulatory body in Macau is just trying to keep things balanced. And the thing is, these companies can reshift the tables from one property to another, so it's not like it's static. But, it just gives you an idea that it's a smaller base. That's why Studio City, even though it's the newest resort, doesn't have as many table games as City of Dreams. So, the Wynn Encore is smaller in terms of its guest rooms, about 1,000. It has about 57,000 square feet of retail space. Adjusted EBITDA in 2015 was $708.6 million, which represents about 60% of the total company EBITDA. So, based on those projections I mentioned, they're doubling the base for the region.
Something to keep in mind, too -- in 2015, non-casino revenue made up about 20% of the top line at Wynn. It's up from 21% the previous year and 20% in 2013. Again, the company is grappling with the changing dynamics, and the fact that the casinos are not going to be this incredible source of growth bread and butter that they were previously.
O'Reilly: So, Studio City Macau opened up last October. You've got Wynn Palace about to open up this June, supposedly. Got another one coming up.
Shen: There's several more, but just for the sake of time, I'm focusing on the ones for 2016. The one that's coming later this year is really incredible. I've seen a lot of the pictures following development, and one of our writers, Bradley Seth had some ...
O'Reilly: He's probably been there. (laughs)
Shen: ... when he was based in Macau, he had some really cool pictures. But, the Parisian from Las Vegas Sands.
O'Reilly: The Parisian Macau.
Shen: Las Vegas Sands, this is a $2.7 billion project. And Las Vegas Sands, their operating base is spread out through more regions. They have Macau, Singapore, Las Vegas, and other regions. Their stock is down about 35% since the downturn. I think they're just a little bit more diversified.
O'Reilly: And they do very brisk business in Las Vegas on conventions. They have like 3 million square feet of convention space at The Venetian and stuff, a massive amount of convention space. But, I digress.
Shen: I stayed with them when I was in Vegas a few years ago at The Plaza. Las Vegas Sands owns a 70.1% stake in Sands China, which operates all these Macau properties.
O'Reilly: Does the government get the other cut? Or just locals? Yeah, you're giving me this look like ... (laughs)
Shen: Yeah. (laughs) So, this is all part of the deal. I don't know all the details in terms of the way Macau auctioned off these rights when the monopoly ended, but it all has to do with ...
O'Reilly: Whose beak are you going to wet there, yeah. (laughs)
Shen: The Parisian is projected to open its doors in the second half of 2016. Again, there's been some construction delays. This one is really big in terms of guest rooms: 2,900 guest rooms expected...
O'Reilly: Which is double Studio City's, because theirs was 1,600. They're talking about 1,700 over at Wynn Palace. So, the Parisian is an 800-pound gorilla in the room. That's a lot of rooms.
Shen: And, touching on those guests room numbers, I'll get to that towards the end, why that's important. They're expecting like 150 retail boutiques and shops. Again, 250 gaming tables, like I said, because of the cap that Macau has instituted. I think the coolest thing here is, they're going to have a 1/2 scale replica of the Eiffel Tower.
O'Reilly: Oh, wow. So, it's not going to be small like the one in Vegas.
Shen: I think they just put up the final piece of that, the spire at the top. There was a big ceremony for that. But Macau properties contributed about 53% of adjusted EBITDA in 2015, down from 60% in 2014, just because of the fact that the region's struggling. The casinos made up about 82% of net revenue in 2014. That fell to 78% in 2015. Casinos overall saw revenue fall 24% for the year. Some smaller losses in the casino revenue in Singapore and Las Vegas, kind of were able to offset the larger declines in Macau.
So, the Venetian and Sands Cotai, which is Las Vegas Sands' two other big properties in the region, they fell 29% and 33% respectively. So, they're feeling the pain, absolutely. They're definitely experiencing the same downtrend as everybody else has. But the thing is, they were able to offset that a little bit more also in terms of Las Vegas coming in with occupancy rates and average daily room rates that were up. Vegas kind of boosted the results they reported recently. Also in mall revenue. The shops at Venetian and the shops at Cotai Central, huge retail spaces. And they posted high single-digit gains in 2015. It was a slowdown from the previous year, but a bright spot when you're looking at all this red in terms of the casino revenue.