MB Jan | Lisboa Palace; 2018, but… | New to read in 2018. Or not

Sociedade de Jogos de Macau (SJM) is “working full speed on construction of the project in COTAI with full confidence in the future of our business and Macau,” in spite “of Typhoon Hato and other events that affected our Grand Lisboa Palace project in the third quarter of 2017,” said Ambrose So, Chief Executive Officer of SJM Holdings Limited, some three months ago. 

The company founded by Stanley Ho wants to open as soon as possible, as it has already taken almost five years to complete – it all began in February 2014, precisely seven years after the opening of the Grand Lisboa. 

But SJM’s efforts do not seem to convince analysts who, contemplating so many delays (and knowing the reality of Macau), already speak of the first quarter of 2019 as the opening date. 

“We had previously baked into our model a 4Q18 opening for Lisboa Palace and are now shifting that to 1Q19 following delays created by the typhoon and the more recent fire,” Grant Govertsen of Union Gaming recently wrote. In August, a note from brokerage Sanford C. Bernstein said: “While the company is still sticking to its second-half 2018 opening, we view this as very unlikely. Based on our research, we estimate that the property will not open until early 2019 and adjust our model to reflect this view.” 

If this is confirmed, the project will have taken five years to build, which may be a very long time, even taking into account the size of the works undertaken, and may open one year late. Above all, it could mean more money. More recently, Ambrose So insisted that SJM will meet its target. 

In 2013, when the project was introduced, SJM announced a budget of HK$25 billion. A year later, with work in full swing, the estimate exceeded HK$30 billion. More recently, at the end of last year, the official number became HK$36 billion (this, after learning that the company was negotiating a mega-bank loan of HK$25 billion). The Venetian, from Sands China, cost HK$21 billion. 

Is SJM worried about the delay? If we consider that its gaming concession ends a year after opening in the first quarter of 2019, at least we would be talking about a gigantic headache. As Ben Lee, Macau-based gaming expert and managing partner of IGamiX, tells Macau Business: “The fact that their [SJM and MGM] concessions are the earliest of the six to expire raises some concerns among investors that the technical period for potential recovery of their capital investment is ​extremely short, and would in any other commercial environment be unfeasible.” 

That is, neither SJM nor MGM will be able to pay for the investment before their licences expire in March 2020. “Unless these two properties were to have a near heavenly experience, it is unlikely they will pay for themselves in less than three years for one, and less than two for the second, before their concessions expire,” concludes Lee. 

That is, at least everyone associated with the two concessionaires believes that there will be an extension of the current concession for at least two years, to get it right with the rest. And that is why, with various setbacks, SJM does not appear too worried. Even though we know that the competition in COTAI is becoming stronger and that other operators already have a market.  

“We expect Grand Lisboa Palace to have a more challenging ramp-up period relative to the peer group given its location on COTAI and the need to build out a mass market database to compete with the COTAI peers that will have had a significant head start,” surmises Grant Govertsen. 

SJM also counts on this property to achieve three other objectives: recovering market share of Macau’s gaming revenue (32.1 per cent in 2010 to 19.1 per cent in 2016), improving upon its last operational results, considered ‘disappointing’ by brokerage Bernstein, and correcting its lack of presence in the COTAI area.  

The “most exquisite” 

Ambrose So has promised Lisboa Palace will be the “most exquisite of Macau’s resorts.” 

To fulfil his promise, SJM has three hotels in the complex, including Palace Versace, a unit managed by Karl Lagerfeld – the first in the world – and another hotel named after the 6-star 20-storey resort. 

Altogether, about 2,000 rooms will occupy some of the 521,435 square metres of construction space. Obviously, the project will also provide commercial spaces, restaurants and even a pavilion for weddings. 

SJM also announced that 90 per cent of the space will be extra-gambling, but that does not mean making the same mistake as Melco Crown, which opened in COTAI without a VIP game and then adjusted. 

The complex is prepared to receive 700 gaming tables and 1,200 slot machines. 

The SJM account will create 8,000 jobs. 


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