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Casinos unfazed by ongoing mortgage crisis

Credit downturn not as bad as previous cycles: analyst

(LAS VEGAS) Casinos have little to fear from the credit crunch sparked this summer by the sub-prime mortgage crisis, according to finance professionals who addressed the issue at the Global Gaming Expo on Tuesday.

Steve Croxton, co-head of gaming and leisure investment banking and managing director at Jefferies and Co, set the tone by saying the credit downturn was ‘not terrible compared to previous cycles’.

Besides, MGM Mirage chief financial officer Daniel D’Arrigo said his company had effectively become a real estate company with large holdings on the Las Vegas Strip, and would use its assets to fund development. Wynn Resorts Ltd, Las Vegas Sands Corp and Harrah’s Entertainment Inc were following the same pattern, he said.

The falling dollar was also creating financial opportunities that would offset the credit crunch impact.’With the dollar down, America is on sale,’ Mr D’Arrigo said. ‘We get offers every day from overseas seeking to be joint-venture partners.’

Australia’s Crown-PBL and developers Kerzner International and Elad were part of that investment wave, said Carlton Geer, global gaming group head at CB Richard Ellis.

The land boom, which has seen parcels on the Strip selling for as much as US$37 million an acre, has insulated Las Vegas properties from any financing difficulties, he said.

Mr Geer added, ‘In fact, the MGMs of the gaming industry may have a competitive advantage because of their balance sheets and their existing relationships.’

The falling dollar would also generate more business for destinations like Vegas, by encouraging Americans to vacation at home and bringing in more foreign tourists, Mr D’Arrigo said. SG Americas Securities managing director Michael Kim struck a slightly sceptical note.

‘We all know there are cycles,’ he added, ‘and credit will prove more difficult for those who cannot monetise their land value’.

Future deals for more marginal casino operators would have to include greater equity, making them more expensive, he said.

Beyond the Strip, lenders were looking to the fundamentals of the business, said Stephen Turpin of Atlanta-based ORIX Finance. He finances projects in small and emerging markets.’I want to know how well you operate, what the rate of return is and what your leverage point is,’ Mr Turpin said.

But the home foreclosure crisis may be having an impact on spending among Las Vegas locals.

Mr Geer said CB Richard Ellis has a preliminary study showing locals revenue on a ‘same-store basis’ is down between 5 per cent and 10 per cent since the summer. ‘We’re going to keep tracking those data,’ he said.


Source: Reuters (Business Times 15 Nov 07)

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