FANTINI’S FINANCE: Good Old Days in Vegas

Looks like the recession is over in Vegas. Activity has picked up significantly, with good earnings reports, IPOs, new non-gaming developments and even property sales. Is this just a blip or are happy days here again?

It’s starting to look like old times in Las Vegas.

Station Casinos is soon to return as a public company, though under the new name Red Rock Resorts.

Steve Wynn is spinning more dream projects, in this case Paradise Park in place of the Wynn golf course behind the Las Vegas Strip property.

Crown Resorts is said to be nearing the start of actual construction of the city’s first mega resort since the Great Recession, Alon Las Vegas.

Boyd is once again hitting on all cylinders—Las Vegas locals, recovering regional casinos, the seemingly unstoppable Borgata, and as a kicker, a true resurgence in downtown Las Vegas.

Even MGM Resorts is getting into the act, cashing in on improved markets by selling its joint venture Crystals shopping mall for $1.1 billion, a sort of Las Vegas Sands-light transaction

So what’s an investor to do? Besides crossing your fingers nervously behind your back hoping that all this good news can continue, of course.

Today, the answer might be to look for the relatively low risk investments being made by the Las Vegas-Macau big cap operators.

WYNN is making a big bet in Macau with Wynn Palace that opens this summer. But WYNN’s other projects are much more likely to generate returns without big risks—adding to its upscale shopping center in Las Vegas, the $2 billion Boston Harbor project that promises to be a home run, and Paradise Park that, at $1.6 billion is just an add-on for WYNN, but one that promises significant returns, though it won’t open for some years.

CEO Steve Wynn, however, is giving his own advice by example in buying an appreciable number of shares, most recently near $100 each. Given his track record, it’s hard not to go along with Wynn.

Las Vegas Sands is another company now making incremental, not transformative, additions, though CEO Sheldon Adelson certainly won’t hesitate to build as big and as expensive a resort as there is if an attractive new market opens up.

Still, the reality for now is that LVS’ new $2.7 billion, 3,000-room Parisian Macau opening later this year, while a massive project for most companies, is just the finishing touch for LVS.

And that is cause for reassurance as Parisian can generate a nice return, but LVS isn’t betting the ranch—or Eiffel Tower, in this instance—on it.

There are other factors that make LVS perhaps the safest of the big casino companies, and yet with potential big paydays ahead.

One reason is its dividend. Even with the stock having partially recovered recently, LVS’ dividend yields 5.5 percent, a nice return in today’s low-interest rate environment.

Another reason is the multi-billion dollar value of its shopping malls in Macau and Las Vegas. If LVS needs cash to finance a mega project, it can sell a shopping center, just as it sold the Las Vegas Grand Canal Shops to build Sands Macau and enter that market.

If LVS doesn’t need to sell the malls, it can just sit on appreciating assets that every year generate higher revenues for the company.

The last of the Las Vegas-Macau big caps is, in some ways, the most interesting. MGM Resorts has its own big bet on Macau opening late this year.

But it also has two important developments in the U.S.:

• National Harbor casino, to open outside Washington, DC, has the potential to be the biggest regional casino by gaming revenue in the country.

• MGM has been the most ambitious developer of non-gaming amenities in Las Vegas, most recently convention facilities and the just-opened 20,000-seat T-Mobile Arena, a joint venture with AEG.

The sale of Crystals will generate some cash for MGM, where debt reduction remains important. In short, a bet on MGM could be a bet on the future of the Las Vegas Strip.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.