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Las Vegas Is Getting Another Facelift

No city in America reinvents itself more often than Las Vegas, and after a few quiet years on The Strip, the skyline is about to change again.

James Packer, an Australian billionaire and chairman of Crown Resorts, recently bought the land that once held the New Frontier casino, located north of the Fashion Show Mall. The 34.6-acre property will house the latest megaresort in Las Vegas and is located just south of an 87-acre property recently bought by Genting Group, which is building the $4 billion Resorts World Las Vegas.

Source: Las Vegas Gaming Commission and New Jersey Division of Gaming Enforcement.

Another attraction to Las Vegas is the fairly open market for gaming operators, unlike booming Asian gaming markets such as Macau, Singapore, and The Philippines. These Asian markets are restricted to a small number of players who had to win competitive bids to enter the market while the number of gaming companies in Las Vegas isn't as restricted. As long as Packer and Genting Group pass a stringent regulatory compliance check they can enter the market.

It isn't that they've ignored the Asian market. In fact, Genting has one of two licenses and casinos in Singapore and Packer's Crown Resorts is a partner in Melco Crown , which is one of six concessionaires in Macau. Singapore isn't expanding beyond two casinos any time soon while Macau's buildout of the Cotai region is under way, including a resort from Melco Crown. Beyond the resorts they already have operating or under construction in Asia, there just aren't many attractive opportunities to expand in Asia, so they looked to Las Vegas. It may be a risky move, but it's one they felt was needed to build a presence in one of the world's best-known gaming markets.

Can the new generation of Las Vegas megaresorts succeed?

The challenge now is building a resort that can be profitable, which is harder than it seems. The Cosmopolitan -- the newest megaresort on The Strip -- has reported annual losses of about $100 million per year since opening in 2010, and CityCenter just reported a $2.1 million operating loss for the second quarter.

What Packer and Genting have going for them in Las Vegas is location. I recently highlighted that north Strip residents Wynn and Encore Las Vegas make up the most profitable resort on The Strip , while neighbors The Venetian and Palazzo Las Vegas are also doing well targeting upscale customers.

You can see below that EBITDA -- a proxy for cash flow -- of $331 million from CityCenter over the past year doesn't exactly show a solid return on the $8.7 billion investment. But resorts on the north side of The Strip have fared better and show that decent returns are available.

Property Construction Cost EBITDA ( TTM )
Wynn and Encore Las Vegas $5 billion $501.4 million
Venetian and Palazzo Las Vegas $3.3 billion $321.1 million
CityCenter $8.7 billion $331 million

Source: Company earnings releases. TTM = trailing 12 months.

As Genting Group and James Packer build Las Vegas' newest megaresorts, they'll be betting that this city as a whole can continue to grow and that the north side of The Strip can attract more traffic. It's a risky move, but I wouldn't bet against these two as they are the latest to reshape the skyline of Las Vegas.

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The article Las Vegas Is Getting Another Facelift originally appeared on Fool.com.

Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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