|By Elaine Walker, The Miami
HeraldMcClatchy-Tribune Regional News
Aug. 01, 2011--The Genting Group may not be a household name in the United States when it comes to gaming, but it's a safe bet that Chairman KT Lim intends to get there.
The company's recent purchase of The Miami Herald property -- with plans to create a $3 billion destination resort, hopefully with casino gaming -- is Lim's latest step to extend the family-owned company from a significant Asian player to a global high roller.
Since 2002, when he became chief executive of the company his father founded in 1965, Lim has cranked the conglomerate and its five closely-held, publicly-traded companies into a rapid expansion mode. He took the company to the Bahamas and Australia, although they have since exited those markets. In 2006, Genting became the largest casino operator in the United Kingdom. In 2010, the company opened Resorts World Sentosa in Singapore, a $5.5 billion destination resort that includes a Universal Studios Theme Park and a soon-to-come marine park.
Opening this fall is Genting's first U.S. gaming facility: Resorts World New York at Aqueduct Race Track in Queens, a casino with 4,500 video terminals, restaurants and event space.
Also in the pipeline: prominent non-gambling ventures like Johor Premium Outlets, a premium outlet mall opening later this year in Southeast Asia, as part of a partnership with Simon Property Group.
While Genting continues to pursue global opportunities from Taiwan to Vietnam, developing a footprint in the U.S. remains a key part of Lim's growth strategy.
"If you talk to Asians, everybody knows them. But outside of Asia up until recently they were probably unknown," said Melvyn Boey, head of research for Bank of America / Merrill Lynch in Southeast Asia, who follows the Genting companies. "Last July they decided to take a more proactive role in exploring investments in the U.S. Miami is a natural extension of that. It's part of their long-term aspiration to be one of Top 3 global gaming companies."
Genting Malaysia Berhad, the subsidiary that purchased the Miami land, announced plans in 2010 to focus on international expansion. The move came as growth slowed at the company's first signature resort property, Resorts World Genting, opened in the Malaysian Highlands in 1971.
The decision to spend $236 million for the 13.9 acre Miami property was a relatively easy one, says Lim, who knew he was getting one of the remaining prime waterfront development sites downtown. It helps that he has a fondness for South Florida dating from his first trip here 40 years ago as a college student in the United Kingdom. Plus, the area's climate and international gateway location remind him of home.
"Personal exposure to a place always helps, especially when it leaves a good impression," Lim said. "Miami is a place I understand. Downtown has really been cleaned up in the last 20 years. I've literally seen the transformation."
When Genting built the Lucayan Beach Resort and Casino in Freeport in 1986 as part of a joint venture with the Bahamian government, the team was based in Miami. Then 11 years ago, Genting purchased Miami-based Norwegian Cruise Line and played a key role in turning around the brand. Genting still owns a 50 percent interest in the line.
Over the years, those and other business dealings have brought Lim to Miami at least 100 times. That familiarity primed Lim to move swiftly when McClatchy Co. in February canceled a long, drawn-out deal to sell the land adjacent to the Herald.
He quickly assembled a team of South Florida professionals to evaluate a handful of sites in the downtown area. On the list were the former Omni International Mall and the Park West site planned for the Miami World Center project just west of Biscayne Boulevard and the AmericanAirlines Arena. By mid-March, the team, minus Lim, flew to McClatchy headquarters in Sacramento to start the negotiating; the deal closed in late May.
Those who have worked with Lim and Genting say that's indicative of the way they do business.
"Their style is to do very serious due diligence, but they are also capable of making relatively quick decisions," said long-time Miamian Walter Revell, who helped Lim coordinate the South Florida team. Revell is a board member of Norwegian and has known Lim since Genting purchased the company. "These are smart people who do their homework. Right now they know more about Miami than many people in Miami. Genting has a global view but a local focus."
It helps that unlike most U.S. publicly traded companies, Lim is both the top manager and the company's largest shareholder. His family controls just under 50 percent of the Genting empire.
Lim admits the downturn in the real estate market spurred the Miami acquisition and the timing of the U.S. expansion. But that's not the only attraction.
"It's not just because it's cheap," he said. "I think the potential for the market turning around in Miami is better than anywhere else in the United States."
That vision for Miami includes a plan to secure state legislative approval for Vegas-style resort casinos in Florida, something Lim and top execs at other gaming firms began lobbying for during this year's session. Currently the only high-stakes gaming allowed in the state is on Indian reservation lands like the Seminole Hard Rock Hotel & Casino.
Without casino gambling, the development of the Herald site could take up to 20 years, Lim said.
"Perhaps it delivers less impact in terms of jobs created and economic benefits," he said. "It's not a question of not proceeding. Even without a casino, there should still be enough in the whole place to make it an enjoyable experience."
If anyone can afford to take that kind of a long-term gamble, analysts say it's Genting. The conglomerate has a combined market capitalization that fluctuates between $44 billion and $46 billion. Genting Berhad, the investment holding company, nearly doubled its profits in 2010 and saw revenues jump about 70 percent.
While Genting's focus remains on leisure & hospitality, the company also has diverse interests including oil palm plantations, biotechnology, power plants and oil and gas exploration.
Genting Malaysia, which purchased the Herald, had $1 billion in cash and $700 million in net cash at the end of May, according to analysts reports. The company generates about $600 million a year in free cash flow, analysts estimate. Resorts World Genting earns a gross margin of 38 percent, one of the highest rates among casino operators in the world.
The Herald acquisition was an all-cash deal, but covering the cost of the project development is not expected to be any problem.
"They may get local debt for hedging purposes but they can easily finance it themselves," Boey said. "The opportunity cost of capital is realistically pretty low. Any incremental investment immediately adds value to all shares."
Yet, the announcement of the Miami deal was met with some concern by Asian investors, who feared Genting Malaysia was overextending its balance sheet.
Chi Wei Tan, an analyst with CLSA Asia-Pacific Markets, called those concerns "overblown." She has the stock rated as "outperform" and calls it one of the most "attractively valued gaming stocks globally."
"The key mitigating point is that Genting Malaysia did not overpay for the property," Tan wrote in a recent note to investors regarding the Miami investment. "This means investors are largely neutral if Genting Malaysia hypothetically decides to exit Miami, as higher cash returns was not on the cards in the first place."
While most companies have historically viewed a Las Vegas casino presence as the lynchpin of any U.S. gaming empire, Genting takes a different view. The company has been approached many times to take over or build a casino in Las Vegas, but the deals didn't make financial or practical sense, said Christian Goode, senior vice president of development for Resorts World.
The closest Genting has come is investing about $100 million in MGM bonds during the recession, which sparked speculation that this could mark a strategy for entering the Las Vegas market and the equally high-profile gambling market of Macau, near Hong Kong. But Genting has since sold off that investment and nothing in Vegas is on the horizon.
"We just don't think the long-term prospects of the market are rich enough in terms of growth," Goode said. "As the proliferation of gaming in other locations continues, it's going to get harder and harder to draw people to Las Vegas. I don't think you can create a distinctive property there that hasn't already been done.
"We love looking at places where we can find new opportunities," he said. "As more and more new gambling markets open up, we don't think Las Vegas is as critical as it used to be."
Analysts say Genting's approach has merit for a newcomer trying to break into the market. By setting up shop in New York and Miami, Genting can build a base of clients that already travels between the two destinations regularly. Capitalizing on the allure that exists for South Beach and Miami's warm winter weather, Resorts World Miami could become an attractive weekend getaway for anyone in the Northeast.
"If you set it up properly, you could have a destination that really attracts a customer that wants a Vegas experience but wants the ability to get there easier," said Brian McGill, gaming and lodging analyst with Janney Capital Markets. "Miami in itself is already an attractive destination; you're just going to heighten that. You could easily take a potential trip away from Vegas. Rather than flying five hours to Vegas, I can get to Miami in two hours. There's no question that's a great way to start if you're coming from outside the U.S. and trying to build a reputation."
Goode says the company currently remains focused solely on Miami and New York, denying rumors that Genting is searching for additional properties elsewhere in South Florida, around the state and in other key U.S. markets.
"I don't think they will stop in Miami," Boey said. "There will be more assets built in the U.S. It will be more opportunistic, rather than specific target markets."
Although Aqueduct is Genting's first high-profile casino development in the United States, Lim is no stranger to U.S. gambling. Lim's family-owned investment company, Kien Huat Realty, bankrolled the Mashantucket Pequot tribe's 1991 development of Foxwoods Resort Casino in Connecticut with a $60 million loan; more than 20 U.S. financial institutions had turned them down. Kien Huat also later provided the Mashantucket Pequots with a $175 million line of credit.
In 2002, the company did the same thing for the Seneca Nation of Indians, loaning them $80 million to build the Seneca Niagara Casino and Hotel in Niagara Falls, New York. And the Lim family has also been supporting efforts by the Mashpee Wampanoag tribe to secure rights for gaming on tribal reservation land in Massachusetts.
Kien Huat in 2009 also became the majority shareholder of Empire Resorts, which runs a racino at Monticello Raceway in the Catskills.
But that investment threatened to turn into a stumbling block in Genting's efforts to secure the rights to the Aqueduct project. During the bid process, Empire's former Chief Executive Joseph Bernstein raised allegations of fraud and other improprieties by Genting executives.
The allegations were largely deemed unfounded by a vetting process conducted by the New York Lottery and the New York Racing and Wagering Board. The only violation found was that two Genting executives had acted without proper licensing relative to the operations of the upstate casino. The individuals were each fined $1,000 and Empire Resorts was fined $5,000.
A spokesman for the Racing and Wagering Board said no other investigations are pending. Bernstein declined to discuss his former employer.
Genting's other key market is the United Kingdom, where it remains the largest casino operator. But the business hasn't quite lived up to the potential Genting envisioned in 2006 when it made the acquisition.
"They got hit with a lot of bad luck," said Warrick Bartlett, an independent gaming analyst based in the United Kingdom. "They probably paid too much money for it. A lot of the clubs were not designed to take on the smoking ban [enacted in Britain in 2007.]"
While Genting is still optimistic about the prospects for turning around the U.K. business, it doesn't want the casino operations interfering with the bottom line performance of Genting Singapore, whose primary driver is Resorts World Sentosa in Singapore. The UK assets were transferred in 2010 from Genting Singapore to Genting Malaysia in a related party transaction that included a dramatic write-down on the asset value.
The destination resort, which bares some similarity to what Genting expects to build in Miami, last year drew 15 million visitors. This year Lim expects that number to reach 16 million. Universal Studios alone is expected to attract four million visitors. Currently 75 per cent of Sentosa's visitors are foreigners. Hotel occupancy is at 79 percent and the average room rate is $232.
Between Genting's Resort World Sentosa and its competitor Marina Bay Sands, owned by Las Vegas Sands, they boosted Singapore's tourism by 20 percent. The two resorts posted revenues in 2010 just slightly less than the entire Las Vegas Strip and this year the performance is expected to eclipse Vegas.
The partnership at Sentosa has worked out well for Universal Studios, which was first approached by Genting in 2005 about participating in the project. Genting licenses the rights to the Universal brand, serving as the owner and operator of the project. Universal provides technical assistance.
"They're an impressive company," said Michael Silver, president of global business development for Universal Parks & Resorts. "They move quickly. They have access to a lot of cash. They seem to have very strong financing vehicles in place. They have a long-range view. I think it's remarkable that they got this built in less than three years. Whether they can do the same thing in the U.S. where they have more stringent labor standards remains to be seen."
Genting's reputation for success in the tourism industry in Asia is what attracted Simon Property Group when the U.S. mall developer began seeking a partner with local market knowledge for a joint venture of a premium outlet center. The two companies joined forces in 2008 and broke ground last summer on the 330,000-square foot project that will bring more than 80 designer and brand name outlets. The first phase will open later this year. Located on the Malaysian peninsula between Resorts World Genting to the north and Resorts World Sentosa to the south, Johor Premium Outlets hopes to capitalize on cross-marketing with Genting's existing hotel visitors and lure tourists from Indonesia and Thailand.
"There has been a good exchange of ideas and a mutual respect for the expertise that each company brings to the table," said John R. Klein, president of the Simon Property Group premium outlets group. "We rely on our partners to teach us about the local market and specific characteristics of the consumer. Genting is a leader in tourism and as outlet centers are tourism and travel destinations, this is extremely important to the success of the project."
That ability to capitalize on its Asian tourism base is an asset Genting also aims to bring to the Miami project. Lim envisions Miami as the gateway city connecting Asia, the United States and Latin America. He believes the Asian market is anxious for new destinations outside of California and New York for vacations and real estate investments. The key is getting direct flights from Asia to Miami.
"Florida can be the new California for the Asian market," Lim said. "There's a huge pent-up demand waiting to be released. We can be the lead factor to open up that flow. I'm confident this is going to be a transformational thing for Miami."
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