Wednesday, August 17, 2022

Solaire in the spotlight: expansion and opportunities - Interview with Thomas Arasi

Solaire Resort & Casino, owned by Bloomberry Resorts, was the first IR to open its doors in Entertainment City. The $1.2 billion property, on an 8.2 hectare site, made its debut in March 2013 and expanded with the opening of the Sky Tower in late 2014. The company is now looking at further expansion with a resort in Quezon City, adjacent to Manila.

The most recent available figures for Solaire have shown strong growth, with record Q3 mass table drop and gross gambling revenue from electronic gaming machines; VIP volumes slipped a bit year-on-year but increased nicely on a sequential basis.

President & Chief Operating Officer Thomas Arasi spoke to AGB about his views on the market and future expansion plans.

AGB: When do you expect to begin construction on the Quezon City resort?

Our design development team has been progressing well with many factors being considered. High on this list of factors is the emerging MICE market in QC. The City has been missing a world class MICE facility. Also domestic tourism should also be considered besides our bullish projections on foreign tourists' visitation.

With all of these new and important considerations, such as MICE for the IR position that we will bring to QC, we are planning to break ground by late 2018.

AGB: How will it compare in terms of amenities with Solaire?

It will also be “Solaire” branded with the same quality and pedigree. It will have a somewhat smaller land footprint which will necessitate a more vertical massing and design, a more complex design and streamlined public space.

The location in Metro-Manila will be for local guests as well as international clientele from up north; namely the Clark-Subic area. We expect a highly synergistic customer service equation benefiting from the complimentary geographic locations of QC and EC and the sharing of services and amenities of the two “sister” properties.

At present, there is no 5-star hospitality complex serving the 10 million-person catchment area, which Solaire Quezon City will fulfill.

AGB: Do you have any further expansion plans in the Philippines, perhaps Pagcor casinos?

Overall, no other location in the Philippines can match Entertainment City: It is centrally located between the top areas of Metro-Manila to the north and NAIA Airport adjacent to us, immediately to the south. There is superb proximity to NAIA airport, which is less than 10 minutes door-to-door.

Solaire E.C. is in the middle of the nation’s top economic zip codes and next to 130 international flights per day (which partly explains why Solaire has so many international guests). Also, Entertainment City—with 4 world-class Integrated Resorts—has a critical mass, desired by gamers and hospitality/entertainment patrons, that no other “neighborhood” in the Philippines can ever hope to match.

We would look at the Pagcor casinos for strategic and financial opportunities and arguably will be “well-positioned” to buy. However, our interest will depend on the property by property circumstances and economics and would only be considered if such investment augments our current strategy.

AGB: What about expansion outside of the Philippines?

Our Chairman, Mr. Razon has, in the past, indicated his interest in Japan, Vietnam and Argentina. We will look opportunistically at expansion outside of the Philippines. In the meantime, between Quezon City, Phase 2 in Entertainment City and various “re-purposing” projects within our existing Solaire, Bloomberry has an amazing development pipeline here in our home country…in our own backyard…where we control the land, the assets and opportunities for management synergies and operations  “complexing.”

AGB: Pagcor is selling the land Solaire stands on. What advantage would it be to buy it?

Acquiring the land has many strategic and financial advantages for Bloomberry. It strengthens our growth story by allowing maximum discretion/control in the composition, timing, phasing and permitting of Phase 2 and virtually eliminates future regulatory risks to ownership and title.

Solaire’s unified underlying land ownership, with ownership of the improvements will increase our valuation multiple, long-term.

Entertainment City land prices will continue to increase, thus driving Bloomberry’s economic valuation as owner vs. tenant of our land. It also avoids future land rental expense increases which, ultimately, will be more expensive than the cost of debt.

The questions we’re getting about whether to buy the land seem to have a quarterly-results perspective. In my 4½ years of working for Mr. Razon, he is very demanding about quarterly results…. But, never by sacrificing long-term, smart, strategic decisions. Buying our land is of great long-term benefit and very, very strategically well-founded.

It will be financed with a combination of debt and equity. Solaire has a very strong balance sheet and borrows at attractive cost of capital in actual terms as well as being attractive compared with the expected future strong rate of land appreciation in our underlying land. The company valuation multiple increase, solidification of our development growth story and land appreciation will strengthen our balance sheet over the strategic horizon.

AGB: Q3 results showed solid growth in all metrics in the Philippines, is there any area you would like to see an improvement?

Yes, we had an outstanding Q3 as well as YTD 2017. We’ve shown very strong growth in volumes, revenue and profits. Our brand is strengthening and our footprint is growing briskly. We are a Forbes 5-star property. Areas of improvement? Well, yes – EVERYWHERE! Part of our brand and Mr. Razon’s drive is to compete with ourselves, striving for perfection and for greater results. So, we need to improve in everything that we do.

AGB: Do you see any risks to the immediate outlook...renewed political tension with China?

We do not. In fact, it’s probably the most stable and predictable during our five years of existence. As to China, our visitation has increased and continues to grow robustly. Nothing on the horizon leads us to conclude that the political and operating environment going forward won’t be at least as attractive as has been recently.

AGB: How do you see the market evolving next year?

The locals market will continue growing in line with the growth presently characterizing the Philippines economy, but international visitation will continue to outpace domestic growth as the Philippines and Solaire become better known and “mainstream” to Integrated Resort guests and players globally.

AGB: How fast is international visitation growing and what is the revenue distribution split now between local and international?

We don’t issue precise international growth figures but currently the majority of our revenue in VIP is international. Within mass, international is not yet the majority but is a very large percentage which is growing even faster than domestic revenue. The Philippines is very well positioned to grow international revenue faster than other IR markets in Asia. It has outstanding international air-service connectivity; excellent proximity/central location to the top feeder markets in Asia and the world’s best hospitality…as only Filipinos can deliver!

The English-speaking common denominator helps as well as the fact that all other foreign languages are available through our Team Member population. Filipino culture is a fascinating blend of “east and west” which is a nice travel and gaming experience setting in which to operate a world-class Integrated Resort.

The Philippines and Entertainment City feature world-class properties; strong hospitality and entertainment amenities; excellent, state-of-the-art gaming tables and slots and a market that responds very strongly to customized promotions and offers based on a patron’s profile and desired experience.

AGB: How do you see that picture changing five years down the line?

International visitation should pick up steam for the reasons above, plus: The Philippines is a magnificent, beautiful and memorable travel destination, though still somewhat unknown, and is nowhere near its enormous potential. This should mean above trend-line growth in international. Domestic patronage and revenue should continue to grow strongly. The Philippines is one of the fastest growing and dynamic economies in Asia. Also, Filipinos are very social and entertainment-seeking which is consistent with the character and attractiveness of Integrated Resorts.

AGB: How is the mix between VIP and mass evolving and do you have plans to sign further junket operators?

Given our current balance between VIP and Mass and the source and nature of those two segments’ growth profiles, we expect the mix to remain roughly the same. Quezon City will be very convenient for many of our existing Metro-Manila guests, VIP and Mass guests as well as non-gamers (MICE, Restaurant, Entertainment, etc.). In Entertainment city, our Phase 2, with its very large scale development potential, numerous additional guest rooms, F&B, amenities, casino, retail and entertainment, in conjunction with proximity to our international airport, will generate lots of international VIP and Premium Mass. So, we should maintain our rough balance between VIP and mass, on the one hand, and slots and tables on the other hand. It’s a fantastic operating and financial model, similar to the two major Integrated Resorts in Singapore.

AGB: Resorts are opening around Asia, is the increasing competition a concern?

Asia is still way under-penetrated in Integrated Resorts. Way under-penetrated. There are only two caveats to that: It must be very high quality to make the successful Integrated Resort model work and justify the investment, and there may be short term “blips” in performance as major new properties open until the point at which the supply is absorbed. But, in Macau, Singapore and Las Vegas, we’ve seen how the demand is there, especially for high-quality properties and strong operators.

AGB: Are you participating in proxy betting?

Industry observers throw around terms loosely. To me, “proxy” betting is phone betting in which we do not participate.

AGB: Are you seeing any emerging trends on the casino floor?

The constant product innovation and guest impact in the EGM space is amazing. The slot manufacturers seemingly reinvent, improve and push the envelope a-la Apple. It is, though, so darn expensive; hard to keep up!  As a sector, ETG’s continue to gain traction in most markets, including the Philippines.

AGB: What do you see as being unique about the Philippine gamer?

It’s perhaps not “unique” but rare. The Filipino gamer has a high incidence of going out and playing in groups—fellow family members; college friends; social circles, etc.; is highly social and has a good time; not quite as serious as the play you see in Macau. There’s a great balance between tables and slots; more crossover players as most other markets’ players are almost exclusively “table-dominant” or “slot dominant.”

AGB: How much potential is there for non-gaming attractions?

“Resort,” as we call non-gaming, has historically been relatively small but its growth rate has been even higher than the gaming revenue growth rate. As I mentioned, we are a Forbes 5 star and so Solaire’s quality is becoming more recognizable and more “institutionalized” and accepted and that has really been paying dividends. Five years ago, when we were marketing Resort-customer rooms and invited people to Entertainment City, we would get blank stares. Now—if we only had more rooms! Our restaurants have really picked up. Recently 3 of the top 5 Trip Advisor-ranked Metro-Manila restaurants (of more than 6,500 restaurants) were Solaire’s—Yakumi (numerous times #1); Finestra and Lucky Noodles.

The Theater at Solaire is unquestionably the nicest Theater in the Philippines and one of the top in Asia. Our theater has huge momentum and is doing a lot to enrich Filipino culture while attracting both locals and foreigners to our programming. For example, Aliw Awards, the prestigious award-giving body for promoting Filipino music, has chosen The Theatre at Solaire to be the recipient of a special award for our efforts to support and promote OPM (Original Pilipino Music)

In my opinion, we have the best collection of luxury shops in the Philippines at The Shoppes at Solaire. Our luxury collection is anchored by Louis Vuitton which we opened earlier this year and which is the first new Louis Vuitton in the Philippines in more than 20 years. 

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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