City of Dreams Cost Over Runs = Awesome!
MelcoPBL's recent filing with the U.S. Securities and Exchange Committee (I'm down with S.E.C., yeah you know me) has some interesting information regarding cost overruns at the massive City Of Dreams project.
Original cost estimates for the development of the City of Dreams hovered around the US$1.5B range last year, and have increased with each new filing to the current US$2.1B tag. With so much construction going on in Macau right now, particularly on Cotai, it's no wonder that costs will increase. There is a very limited pool of workers available in Macau, let alone fine craftsmen who are skilled enough to do the detail work of the caliber at Crown Macau (sister property of City of Dreams). Supply and demand, you do the math. Building materials is another area where I would figure costs to be rising, and another reason why I'm baffled by Galaxy Entertainment being undervalued. The company that birthed Galaxy is a long time construction materials outfit with mines and steel operations in China. Everybody knows that I \m/_ Heavy Metal. The Las Vegas Sands Corporation announced in their filings this week that the Venetian's construction had cost overruns as well. No surprise here on all fronts.
If you trust The Australians penchant for bashing part owner James Packer, you might think cost overruns at City of Dreams is a bad thing and that MelcoPBL is going down the tubes with yesterday's 1/2 digested room service. As a tourist with a deep interest in the gaming industry, and a lot of experience staying, playing and generally rocking out in casinos all over the world, the Australian's semi-hyperbolic anti-Packer rhetoric ("Packer's Macau casino faces costs nightmare") is just a bunch of Perez Hiltonish bashing of the local corporate titan.
If Crown Macau is any indication of how cost overruns will be implemented at City of Dreams, this project is sure to live up to MelcoPBL's description of CoD as a "must see" destination resort and then some. Crown Macau is a complete knock out, whether or not it will bring in the numbers needed to make it a solid investment given it's location in Taipa remains to be seen. However, City of Dreams is right in the sweet spot of the Cotai Strip, sandwiched between Venetian and Wynn Resorts' rumored land bank. With neighbors like these, you only get one chance to build a resort complex that will be remotely competitive.
Is MelcoPBL's spending spree strategy on Cotai a gaming biz example of a company writing checks that it's "ass can't cash" ? In the world of pimpdom, income generation via hind quarters is heavily dependent on what exactly one's ass looks like. A half-assed ass, is nothing more than any old ass, and pimps who've wrapped furs around that ass will be assed out when payday comes. However, a shapely smooth ass with curves in all the right places, well... that will generate an assload of business for as long as that ass is taken care of. Even the venerable Ballys Las Vegas knows the power of a great ass (note the background image... it's safe for work, don't worry).