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Chris Sieroty

Positives seen in Wynn expansion plan

3 May 2012

The Macau government's approval of Wynn Cotai was perceived Wednesday as a "meaningful positive" by gaming analysts who believe the company's latest multibillion-dollar resort to be built on 51 acres will help ease investor concerns over Wynn Resorts Ltd.'s growth being constrained by capacity.

"Assuming Wynn spends $2.7 billion (likely to be revised higher) on the development and construction of Wynn Cotai and is able to open sometime in 2016, we believe Wynn Cotai can generate stabilized 2017 (earnings before interest, taxes, depreciation and amortization) of $675 million," Deutsche Bank analyst Carlo Santarelli said.

Wynn Resorts Macau, a unit of Steve Wynn's Las Vegas gaming company, announced late Tuesday it been approved for one of two land grants expected to be issued this year by the Chinese government, allowing the company to begin construction of its $3 billion casino in Cotai, a relatively new gambling hub in Macau.

Wynn Resorts' announcement was widely expected but came after the company mistakenly filed a statement in March with the U.S. Securities and Exchange Commission saying it had received final approval. The company attributed the mistake to a filing error by a clerk at the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

Wynn Macau shares were halted from trading Wednesday in Hong Kong. Shares of its parent company, Wynn Resorts, lost $1.06, or 0.79 percent, to close at $133.65 on heavy volume of 3.91 million shares traded on the Nasdaq Global Select Market.

Over the last three months, Wynn Resorts has averaged 2.52 million shares traded daily, with its close Wednesday still $38.70 off its 52-week high of $172.35.

"We have no doubt that there will be some 'sell the news' activity in the coming days, especially given the four years between (the) announcement and Wynn Cotai's opening," Nomura Equity Research gaming and lodging analyst Harry Curtis said.

The Macau government's decision clears the way for the company to add additional hotel rooms and gaming tables in a market in which Wynn Resorts gets 72 percent of its revenues.

"This should be viewed as favorable ... since it plugs a unit growth/new development hole," J.P. Morgan gaming analyst Joe Greff wrote in a research note.

"(Wynn Cotai) is worth $30 per share on an net present value basis," Greff said.

Wynn plans a casino with 400 gaming tables, 1,300 slot machines and about 2,000 hotels rooms that would likely open in 2015 or in 2016. Analysts have estimated the cost between $2.5 billion and $3.5 billion.

"We believe the company is also in the late stages of its design application, which will need to be resolved prior to the commencement of construction," said Grant Govertsen, an analyst with Union Gaming Research in Macau.

Govertsen said the project is expected to consume about 39 acres, leaving 12 undeveloped acres for a second phase or a stand-alone project.

Wynn was unavailable for comment Wednesday. Wynn Macau accepted the terms of the draft land concession set by the Cotai municipal government in September, according to the company's annual report.

Wynn Resorts paid an initial deposit of $63 million in December.

Although the project's a major advance for Wynn, the company still lags industry rivals such as Sheldon Adelson's Las Vegas Sands Corp., which opened Sands Cotai Central, a $4.4 billion resort-casino complex, on April 11.

SJM Holdings Ltd. and MGM China Holdings Ltd. also are seeking permits to build news casinos in Cotai.

Santarelli said Macau's government has signaled that it's prepared to announce two formal land grants this year, including the Wynn grant.

"Given this news, we believe MGM and SJM are in a much more precarious position with respect to receiving their land grant in 2012," Santarelli said. "That said, we do believe MGM is farther along with respect to development plans, likely giving them a light edge."

Casino companies are investing billions of dollars in resorts that include shopping centers, entertainment venues and hotel rooms to attract Chinese visitors to Macau and its new gambling hub of Cotai, a strip of reclaimed land.

Macau is the world's largest gambling location, with $34 billion in gambling revenue in 2011, far outpacing the $6.7 billion of the Strip.

The development in Cotai "will be the single most important project in the history of Wynn Resorts," Wynn said in a statement late Tuesday.