All eyes on IRs now

August 9, 2008
All eyes on IRs now
Apart from a surge in tourism, jobs and tax receipts, Singapore's two
integrated resorts could bring in new investors, reports ARTHUR SIM

WITH expectations of a big boost to the economy, more buzz and the
promise of thousands of jobs, it is no wonder we are all a little
anxious to see Singapore's two integrated resorts (IRs) completed.

Citi analyst Chua Hak Bin believes that the biggest challenge facing
the IRs now is 'probably to contain costs given the run-up in
building material prices and completing the resorts on schedule'.

'Getting the resorts up and ready by late 2009 or early 2010 would be
regarded as a big success,' added Dr Chua. 'The greenlight for the
integrated resorts was an important turning point for the economy and
property market. Investors could see the potential upside given the
stunning growth seen in Macau and Las Vegas,' notes Dr Chua.

Will the IRs deliver?

Dr Chua believes that the impact from the IRs will come in two
phases. 'The first phase comes from construction spending and
improved sentiment, particularly from enhanced property values,' he
says. 'The gains in the second phase comes from the surge in tourism,
jobs and tax receipts,' he adds.

Many have already benefited from 'enhanced property values'
especially those who bought property around Marina Bay and Sentosa in
2005 and 2006. But as investors now know, this 'sentiment' driven
boost has not really been sustainable.

Dr Chua also notes that recent tourism figures suggest that visitor
arrivals are being hit by a global slowdown, stronger Singapore
dollar, and higher travel costs. 'Annual visitor arrivals could rise
sharply from the current 10.4 million, but may fall short of the
government's target of 17 million by 2015,' he adds.

In 2006, before the sub-prime crisis set in, it was estimated that
Marina Bay Sands (MBS) and Resorts World at Sentosa (RWS) could each
generate about $2.7 billion of value-add - about 0.8 per cent of
Singapore's GDP - by 2015.

Dr Chua believes the IRs will still be a stimulus and expects GDP
growth of about 0.3-0.5 percentage points in 2010-2015. In this
light, the casinos will have to perform.

The casino licence was very much the sweetener for both IR operators
to pump in over $10 billion to build the resorts. But now, even the
outlook for gaming is not so certain with gaming revenues in Las
Vegas expected to fall this year.

Jonathan Galaviz of Globalysis, a Las Vegas-based boutique travel and
leisure sector strategy consultancy, says that while the casino
gaming industry has been traditionally recession resistant, 'it is
not recession proof'.

'This is especially the case when an industry, such as airlines,
indirectly inhibits the ability of tourists to visit a destination
like Las Vegas due to higher airfares,' he adds.

And this does not bode well for other gaming capitals. 'If East Asia
were to experience a significant economic downturn, then Macau would
surely be affected, the question would only be by how much,' says Mr
Galaviz.

Singapore's IRs are also very much modelled after the mega resorts of
Las Vegas and the new developments in Cotai, Macau. And the success
of this model is still pending. 'It will take a long period of at
least 5-10 more years to see whether the integrated resort model of
entertainment in Macau has been a successful strategic endeavour,' Mr
Galaviz says.

In the mean time, work on the IRs here continues. With barely a year
to go, MBS says that, 'a great majority of construction works have
been awarded'.

RWS said it has given out more than $2 billion worth of contracts. It
added that rides and attractions for Universal Studios Singapore are
currently being designed and pre-fabricated off-site in places such
as the US and Europe.

When the IRs are up, the much anticipated 'second phase' economic
euphoria can begin. Savills Singapore has analysed the impact of new
gaming resorts on property markets and concluded that while Singapore
has undergone major structural changes, with new concepts such as
waterfront housing, integrated hotels and new retail formats, some of
the impact has already been priced in.

Still, Savills director (marketing and business development) Ku Swee
Yong says: 'The publicity and attention from tourists and high
rollers could bring in new investors and many more jobs. With
Singaporeans almost fully employed, the foreign talents needed to
fill these jobs add to demand for residential units and office space.'

But Mr Ku adds: 'The period and degree of sustainability will depend
on the money spent by the tourists, MICE groups and the spin-off they
create for the economy and the financial services and tourism
sectors.'

The good news is that both are scheduled to open on time. MBS
maintains that it will be completed by December 2009 and RWS confirms
it will open in early 2010. 'As our resort is massive at 49 ha with
varied offerings, we are indeed opening in progression, starting with
Universal Studios Singapore, Hotel Michael, Maxims Residences, Hard
Rock Hotel, Festive Hotel, FestiveWalk, as well as the casino in
early 2010. The rest will open progressively,' adds RWS assistant
vice president, (communications) Robin Goh.

One of the bigger challenges at the IRs is labour. Mr Goh
says: 'Finding talent, training them, and then retaining them - is no
walk in the park.'

MBS managing director George Tanasijevich adds: 'We are working
closely with the Singapore government and relevant government
agencies to ensure there is a proper balance in the labour pool in
order to maintain a stable and competitive labour market overall.
Priority will be given to Singaporeans for all roles.'

That the IRs are projects on a national scale is not lost on the
operators either.

RWS's CEO says: 'Singapore's founding fathers built this country into
what it is today, with very little and within a very short time.
Resorts World at Sentosa strives to replicate her success, and make
Singapore proud with a destination that will rank as Asia's No 1
leisure spot when it opens in 2010.'