Macau: No More Gaming Licenses

Editor's note: "Bricks and Mortar" is a mock portfolio created by Senior Writer Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.

Officials in Macau, the world's largest casino market, made a surprise announcement Tuesday that the region will not issue any more gaming licenses and will be freezing land grants for new casinos.

The news is a boost to casino operators already doing business in the region -- including Las Vegas Sands(LVS Quote - Cramer on LVS - Stock Picks), Wynn Resorts(WYNN Quote - Cramer on WYNN - Stock Picks), Melco PBL(MPEL Quote - Cramer on MPEL - Stock Picks) and MGM Mirage(MGM Quote - Cramer on MGM - Stock Picks). Macau has granted three casino licenses and three casino sublicenses for the region.

Macau Says No Dice to More Casinos

Melco, which I rate own in the Bricks and Mortar mock portfolio, is up 8.6% in early trading to $13.38, while LVS is up 12%; Wynn is up 10%.

Macau Chief Executive Edmund Ho made the announcement early today. According to a report in The Australian newspaper, Ho said "the new policies stemmed in part from the wishes of Beijing," amid mounting social tensions on the Chinese island located near Hong Kong.

Analysts familiar with the Macau market confirmed the reports. These sources also added that existing development projects in the region are being grandfathered. These include Melco's City of Dreams project, its Peninsula development and the Studio City casino being built by outside parties, which Melco will manage.

One question is what will happen to the land promised to be granted by the government to Wynn Resorts and MGM on Cotai Strip, which is where Las Vegas Sands opened its massive Venetian casino resort last year. The land has yet to be formerly allocated.

Two analysts familiar with the market suspect the land grants will probably go through. "It's a big controversy now," says one of the analysts.

One loser from today's news is Harrah's Entertainment, the casino giant taken private by TPG Capital and Apollo Global Management this year. Harrah's was hoping to enter the market and must now purchase another casino operator to get involved, because forming new joint ventures appears to be impossible.

One possible target would be Galaxy Entertainment, which is listed on the Hong Kong exchange and owns numerous casinos in Macau. However, a standstill agreement between Galaxy and Las Vegas Sands prevents Galaxy from doing a deal with any U.S. operator. This agreement was struck as part of Sand's casino subconcession with Galaxy.

That means if Harrah's wants to buy a company, then Melco PBL remains the likely target. But Harrah's doesn't have money right now to buy anyone given, its large debt burdens from the LBO. Nonetheless, today's news make Melco's position in the Macau market even more attractive for the long term.

A Look at How Nicholas Yulico's Picks Have Performed "Bricks and Mortar" is a mock portfolio created by Senior Writer Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.
	Rating Date	Price at Rating	Rating	Current Price*	Total Return**	year end 07 price	2008 YTD Return
Brookfield Properties (BPO)	1/23/2007	28.67	Own	20.39	-28.9%	19.25	5.9%
Global Real Estate ETF (RWX)	1/23/2007	64.00	Own	54.81	-14.4%	56.95	-3.8%
Ryland (RYL)	1/23/2007	56.00	Flag	33.91	39.4%	27.41	-23.7%
Trump (TRMP)	1/23/2007	17.50	Flag	2.76	84.2%	4.30	35.8%
Penn National (PENN)	2/6/2007	45.56	Own	40.00	-12.2%	59.55	-32.8%
Melco PBL (MPEL)	3/12/2007	15.46	Own	12.32	-20.3%	11.56	6.6%
Starwood Hotels (HOT)	7/12/2007	72.37	Own	49.45	-31.7%	44.03	12.3%
Home Depot (HD)	1/30/2008	29.71	Own	28.98	-2.5%		-2.5%
Pulte Homes	1/31/2008	16.35	Flag	14.59	10.8%		10.8%
Average Total Portfolio Return, Unweighted, (including closed ratings)					16.5%		4.3%
Closed Ratings	Rating Date	Price at Rating	Rating	Closing Price***	Return**
Hilton (HLT)	3/2/2007	34.69	Own	47.50	36.9%
Home Solutions of America (HSOA)	4/24/2007	4.98	Flag	1.06	78.7%
Standard Pacific (SPF)	10/26/2007	5.25	Flag	2.20	58.1%	3.35	34.3%
	Close At Start of Portfolio			Current Value*
S&P 500	1427.99			1,388.17	-2.8%	1468.36	-5.5%
U.S. MSCI REIT Index	1140.36			924.93	-18.9%	870.64	6.2%
*(4/21/08 closing prices) **For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative. ***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm. HSOA closed out of portfolio on 12/26/07 at day's closing price SPF closed out of portfolio on 1/11/07 at day's closing price