Good afternoon, and welcome to the Wynn Resorts First Quarter 20 10 Earnings Call. Joining the call on behalf of the company today are Steve Winn, Mark Shore, John Stremp, Matt Maddox, Andrew Paschal, President of Winn Las Vegas, Thad Peterson, CFO CFO of ONE Las Vegas and on the phone, Ian Cullen, President of ONE Macau and Robert Gensmo, CFO of ONE Macau. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Mr.
Maddox. Please go ahead,
sir. Thank you very much. Good afternoon, everyone, and good morning to people in Asia. I just to remind everybody that this conference call will be some of the things we'll say are forward looking statements and are protected under the Safe Harbor of
Thanks, Matt. The numbers, I think speak for themselves, really very little to add to that except that the Q1 numbers that we released today do not include any contribution from Wynn Encore in Macau and which opened a week ago today. And we're looking forward to it contributing to the overall impact of our operation in Macau. I'm also pleased to announce that we have instituted as announced previously, we have instituted our 1st quarter dividend of $0.25 a quarter, which will be payable to stockholders of record on May 12 and paid on May 26. With that, I'll take questions.
Your first question is from the line of Joe Greff with JPMorgan.
Hello, everyone. Steve, I was hoping you can give us an update on your thoughts on Cotai in terms of how you're thinking about positioning that. I know you just opened up Encore a week ago, but I guess where are you on that from a timing perspective and just a positioning perspective? And then if you could further give us updated trends in Las Vegas? Are you seeing any signs of improvement from a room rate perspective?
I know you referenced in the press release that the slot revenues were also impacted from new capacity. Are you seeing any trend change here in the Q2? Thank you.
Andrew, you want to answer that question?
Sure. I'll take the 2 questions. The one about rate in Las Vegas. No, we're not seeing any real improvement in rate going forward. It's fairly stable.
Our feeling is that with the growth in the capacity that we absorbed in the early part of the Q1 that's impacted rates wide certainly for us and we don't see that really changing through the summer. The second question related to the slot handle and we talked about how the comp was a bit tough because we were going up against the opening of Encore where we had a tremendous amount of novelty and local traffic that came through the building. And so we benefited from that. And then we have since in our nearly complete nearly done with constructing our new club, which basically closed down the old front of Encore, which has impacted what walk in traffic we were able to generate off of the strip.
And that comes to an end in 4 weeks. The new beach club, all of the extensive new construction and improvements on the Strip at Encore are completed in the last week in May and we open up with a bang on May 20 8 with the Encore Beach Club, with the new nightclub Surrender and the revised Cafe Society and Switch quite a bit and the new entrance plaza quite a bit of upgrade on the north end of the Strip, on the north end of our property that I believe is going to have a significant effect on walk in. The last part of the question that I'm going to answer is Cotai. The table caps expire in 20 13. We believe that Macau Encore is the loveliest urban hotel in the world.
And for people who think that that's an exaggeration, then it's very simple to make your own comparisons on pretty much any standard you'd like. But it is an urban hotel, much in the same way that the Waldorf Astoria or the Ritz in Paris or the Peninsula in Hong Kong are urban hotels. The hotels that are built on Cotai are pretty much urban as well because they're built right up to the curb. They're mostly steel and concrete. What I believe is missing from Cotai is a legitimate destination resort that has the one thing in China that is so scarce, and that is space.
So I want to build a hotel in Cotai, and I have designed one that makes use in our 50 1 acre parcel of extended space of water and gardens no matter where you are in the building. And And that creates an emotional involvement by the guest at a level that cannot be achieved in the city. It just cannot. That issue of extended space, of natural light, of water and planning has an effect on human beings that is sort of hard to explain unless you're in the space itself. But that's the difference between a lovely hotel and a destination resort.
So we're going to build on Cotai if we're encouraged to do so. And I believe we will be encouraged to do so. At least at this point, I believe that we will build a destination resort and that will complement the other things that we've built in Macau up till now. But that won't happen until it wouldn't open until 20 14.
Your next question is from the line of Mark Strawn with Morgan Stanley.
Hi. One question. In Macau, it seems in the first quarter, it was the
particular in retail in that area.
But our whole percentage was dead normal. Dead normal,
that's right. 2.7% for the VIP area overall. Yes, that's right. For the VIP area overall.
It was usually 2.85%. Matter of fact, it was a little low, 285 would be normal. Okay. Thank you.
Your next question is from the line of Cameron McKnight with Buckingham.
Just wondering if you could comment on what happened with controllable costs in Cow during the quarter?
If you look at it, it's very similar to the Q4 sequentially. I think it's a little over $1,000,000 a day run rate versus $9.90 or so in the Q4. So, the team in Macau has done a very good job keeping the operating expenses in line sequentially with where I
think the answer to your question is nothing.
Okay, great. Thanks. And then secondly, Steve, you've got a lot of cash, you've extended out a lot of your maturities. What are you thinking about capital allocation here?
We don't think that economic disruption is behind us. We the deficits have potential for enormous negative impact in the United States. So we're playing it safe like we always do in this company.
Okay, great. Thanks.
Your next question is from the line of Tom Marceco with Marceco Capital Management.
Hi, Steve. Thanks for taking my call. I was just wondering how you thought about the very high growth rates that you're seeing in Macau, why you're seeing growth rates as high as they are, the sustainability of those growth rates and just more of your philosophy is how you're seeing that market play out?
Well, it's great to have a question from a real live major shareholder like Massimo Capital. It's not very often that the buy side guys speak up at these conference calls.
Tom,
the inherent strength of the market in China has been the subject of great discussion, and it has been explained and I know that you're one of the people that has spent a pent up demand that exists there among the 300,000,000 Chinese who are experiencing upper middle class and beyond wealth in that country. That is not to minimize the fact that China faces great challenges for almost 1,000,000,000 people or maybe over 1,000,000,000 people who have yet to experience such prosperity. But we have a consumer experience. And incidentally, to a great deal to a great extent, it is encouraged by the government, which is trying to enhance the the consumer economy in Macau. And so it I mean in China.
So it is not considered improper to to partaking of all of the excitement and the activities that take place there, not just gambling, but shopping and fine service and dining and branding is very important to those people. So we've learned that over the years here in Las Vegas. When we opened Mirage, we got all that business away from Caesars because we were the newest greatest thing. When we opened Bellagio, the Chinese business immediately switched to Bellagio. When we opened Wynn, we very aware of the top brands.
And that's why we're so meticulous in making sure that we meet that demand. For example, it is nonproductive for us to appeal to the low end market in China because the government does not encourage the low end of China to go to Macau. They don't mind if people who can afford it go and gamble, but they're sensitive to people who can't afford it going across the border to Macau. That's why they pulled back on the visas. But for those people in Hong Kong and South China from Dalian and Shanghai who can afford the good life, there's no stigma attached to that in China and there are so many of them.
The market is so deep and rich in successful people who are in search of the good life that Macau is a natural place and Hong Kong and Macau are natural markets to absorb some of that energy and we are experiencing it along with the other operators in Macau. And we've maintained our niche in that market because we protected our brand. Encore was more of the same. And coupled with that, we stay on the good side of the government by attending very carefully to a proper Chinese protocol, which is to be humble as a guest of that community, to be grateful for being allowed to be there and to show our appreciation in every way possible for that privilege, including going public on the Hong Kong Exchange to increase our Chinese ownership of our company. Those things have all conspired to produce a result along with the natural flow of people across the borders that have affected all the operators to protect our market share and allow it to grow.
And in respect to that, Tom, there's one final point I would make. 1 young analyst several months ago said, Mr. Wen, as these hotels have opened, your market share has gone from 17% to 14% or 15% or 13%. And I said, well, naturally, when thousands upon thousands of tables are added to the market, our market share would drop in terms of gross revenue. But when you're analyzing and evaluating a gaming company, whether it's in the United States or in Asia, the right number is not market share in terms of gross dollars.
It's what percentage of revenue per table you have over the ratio of 1:one that you would have if your revenue equaled the same percentage as the amount of tables you have. Or to simplify that, if you had 10 hotels each with 100 tables, they would each do exactly the same amount of revenue, then the percentage of tables and the percentage of revenues would be equal. That would be total operate at a more efficient and more positive way than your neighbors. And as more hotels have opened in Macau, our ratio has grown, not shrunken. And that's the number.
That's the number. The win per table compared to win per table compared to the percentage of tables, the percentage of revenue you have compared to the percentage of tables you have. And in that respect, our market position has improved, not slackened. Those are the things, Tom, that come to my mind as I think of the subject. Matt, do you have anything to add to that?
No, I think that's exactly right.
Okay, Mark? Exactly correct, Steve. Tom? The spot?
Hey, Steve, I just had one more question. When a lot of the construction was going on and there was concern about the availability of apartments and other housing facilities for the workers on Macau. Then there seemed to become a crisis because inflation got pretty extended in Macau. So with your plans with Cotai, has the government coordinated that so we're not going to see another construction boom occurring concurrently over there?
Well, your observation is very insightful. At the time, although everybody had good jobs in Macau, Macau, their living standard was not going up proportionally because rents for their homes had increased disproportionately more rapidly than their income. And it caused me 1.5 years or so ago to give my line employees a 10% a time when some of my competitors were cutting back from 48 to 40 hour weeks and cutting out the 13th month in order to save money. We kept the satisfied and stable workforce than it was to have an extra $23,000,000 or $24,000,000 And as we go forward in Cotai, we work very closely with the government, which is very interested in low cost housing, to cooperate with them in any way that we can. I know that the government has plenty of money to deal with this problem in Macau, and I know that it is on the front of the focus of Secretary Tam and Chief Executive Officer Choi as well.
So I think that the government has land for this on Kola One and I believe that they're going to take advantage of it. And we as you know participate in infrastructure contributions and other types of voluntary contributions for 4% of our revenue every month. And that number is quite substantial if you take the casino win and calculate it yourself, you'll see that a lot of money besides the gaming tax itself, which is really an income tax, is in play. So I think that you'll see activity in that. And will it tie up construction?
There's a lot of capacity in South China for construction, Tom. And I think that any projects that will come on upstream remember the government is limiting the amount of construction and is limiting the licenses. They've created an oligarchic monopolistic kind of situation there, thank goodness, to our benefit along with the other folks that are there now. And there is no plan to expand that. So I think that construction is going to be done at a slower pace in the resort industry as a result of the government action.
And so the private sector, the public sector will pick up the activity.
Thank you. I just want to make just a comment if I could. I'd just like to congratulate you and the management team in managing through the Great Recession. It's a fairly extraordinary time since you see the company rebound with these sorts of results and keeping your people in place I think is a testament to your team and your group. Thank you.
Thank you, Tom.
Your next question is from the line of Steve Klickenski with Stifel Nicolaus.
Yes. Steve, I wonder if you could clarify a little bit, just leaving Philadelphia, what was the thought process that? And there's been a bunch of rumors out there in terms of where you've been spotted all over the country and what your plans are domestically versus internationally right now?
We shouldn't make too much of me being spotted as you put it around the country. My team and I were curious having never regional casinos of America, we decided that it was quite appropriate for us to take 3 or 4 days and go look at what was being done in the hopes that we might learn something. And in fact, we did. We spotted a few casinos that were really beautifully done. 1 in particular was the River City Casino owned by Pinnacle Company in St.
Louis, a beautiful job done by Todd Linehan, who is one of the designers that works for us. And so we saw some nice things and we were just curious. And our visit to these places was just as detached and objective as I have just said it. You should read absolutely nothing into it. Being spotted doesn't mean anything is afoot.
There is no agenda here. Our next project will undoubtedly be in China unless we get involved in Massachusetts. The deal in Philadelphia, as we said in our public statement, which I thought was very although concise, was very accurate that we were encouraged by the institution of table game gaming at a 14% tax rate, still a little tough for the slot machine tax rate, but that the gaming opportunities in Pennsylvania were interesting and stimulating, but the particular deal we were in, a deal in which we were a participant in someone else's company, we had never done that before, became unattractive to us at the last minute. And it was deal itself that caused us to back out of we backed out of a deal more than we backed out of Pennsylvania. And it was that simple.
Great people, good friends, but when it was all said and done, the stars didn't line up for us. And that's what happens sometimes. You go into deals, you probe and you start to negotiate and then at some point when you add everything up, you back out and we did in this particular case.
Great. Thanks for
Your next question is from the line of Robin Farley with UBS.
Two questions. One is, can you give us some more color around what percent of your business in Macao was direct in Q1 versus either Q4 or last year's Q1, just to get a sense of how that is going to work?
I think the numbers speak for themselves, Robin. I mean, they're right there in front of you, and I think you can calculate the percentages. I don't have any color to add to that actually.
Okay. And then you probably won't have any color to add to this, but I wonder if you could give any color, early color on the Encore Macau property in terms of impact on existing table capacity, that kind of thing?
I'm sorry, Robin, could you speak a little louder?
Sure. Any color for me initial couple of days in Macau with Encore in terms of impact on your existing cable capacity there?
You want me to talk about the Q2 before the Q2 earnings are out. And I'm sorry, Rob, but I'm going have to disappoint you on that one too. The second quarter began and we've had 7 nights in Macau. I don't know that it would even if it was appropriate to comment, I don't know that it would shed much light or color on anything. I personally don't think there's anything we can learn right away.
I will tell you this, the kind of things that we hear. Linda Chen is on the table is on the call, is sitting at the table in Macau. Are you not, Linda?
Yes, I am.
Yes, you are. We can't hear you very well, Linda.
Yes, I'm here.
Okay. Linda is the President of Wynn International. She's on the Board of the company, the parent company Board. She runs international marketing for Asia for the entire company. No one has a greater insight.
Linda, can you help Robin with regard to the reception verbally that we've gotten from our customers on Encore in a week?
I think as you said, it's the nicest property in Macau and people were
surprised that we can
the
a product where it fits whether it's the junket or the direct VIP business that comes for a shorter stay than what you used to in the Las Vegas market. For the reasons, it's been great. I think we will be able to I mentioned, like you said, we can't talk about the Q2. But like what you said before, when you answer Mr. Marco's question about the market, good supply in the market builds to grow the market.
So I think that's what Encore will be able to do for Macau is when you have a good supply in the market, it helps everybody in the city.
I think there's one other point that Linda and I have discussed that's worth sharing with all the people on the conference call. The goal of broadening and bringing in new concessions in Macau in 2,002 was to broaden the appeal of Macau in the Pacific Rim and around the rest of the world to bring new customers, not just baccarat players into the marketplace. And it is fascinating to see exactly how that process works. So am going to explain it with regard to Encore. Macau has junket operators that have a budget that we give them a fixed amount of money to pay for their complementaries for their customers and their rooms, unlike the Las Vegas method, which just sort of pays for the rooms.
The house pays for the rooms. Now when we built the Wynn Hotel in Macau, we did what a normal hotel operator does. We built a very commodious, large, generous typical room at 6 26 square feet. That's bigger than Bellagio and the same as Wynn America. And then we built extravagant suites starting at 1800 feet and going up to 3,000.
And those rooms were priced at $200 odd and the suites well above $1,000 as you would expect in any hotel operation, including Shanghai and Hong Kong and Tokyo. And right up the middle. The junket operators came to us. They came to Linda actually and said, just a minute, that's not what we need. The typical room is beautiful, but it's not sexy enough for a gambler.
And the suites are too expensive for us to waste all of our money at $1500 or $1200 a night. What we want is a very theatrical and beautiful room that we can buy for under $400 preferably at $350 Well, there was no such product. And all of a sudden, the pressures exerted by gambling interests that is Encore. Now what we have done is built a room that is at 3.50 $50 the most incredible piece of hospitality real estate in the world. And it has an enormous bargain in the world.
So now here's Macau, creating a product from its organic gambling roots that now changes the city and the market to be more appealing, more broad based in its attractiveness to everybody. How interesting unintended consequences are or maybe they are intended, but here is a product that was engendered by gaming requests that becomes a non gaming plus for the city, the most lovely room in the world at a price that is almost half of what a regular room at the Peninsula costs, which would be less than half its size. Interesting how things work. I call that, and I've made this point to the government, organic growth. That is not the same thing as trying to pick up Las Vegas and drop it on Macau.
That will never work. One is China, one is the United States and China is China is China. And in relationships with the in relationships with the people of that country, in relationships with your employees, you must not forget that it is not Las Vegas. It is not America. Respect the basic fundamental notion of Macau.
And so we try in our observation of the people, what we have learned since 'six, we could never have built Encore Wind in 'six. 'six. We did not have the hands on experience with our customers. We learned from our customers as all good businesses do. We learned from our customers and our employees how to better run our business.
And so what we have in Encore Macau is Robin, because it gives us a chance to that question was asked, Robin, because it gives us a chance to clarify what we've done. And I hope that adds some color to your questions.
Yes, that's great. Thanks.
Your next question comes from the line of Larry Klatkin with Chapter
Lane. Juan, as far as Singapore effect, I know Genting has been open for a while and Sheldon has opened his place. Have you seen anything at all as far as them opening feeling in your business? 0. All right.
And then good answer. And then as far as you made a comment about moving your headquarters to Macau. Is there anything to that?
Yes. Could you I mean We are going to include
That is where the bulk of your earnings are.
We're schedule and some of Matt's, my CFO's schedule in the almost immediate future. It really at first amounts to really an allocation of our time and our focus. I don't intend to uproot everybody that works for me and move them to Macau. I mean, we've got people with lives and homes and stuff. But it is appropriate, I think, for us to spend more time and have more focus in Macau.
We have a public company there for which we are responsible to the Hong Kong Exchange and to Chinese institutional investors and we take that very seriously. And I want to make sure that our activities at the high end of the company and the parent company reflect respect for that
position. And then the last question would be, you kind of said about Pennsylvania that it was a setup for the ownership and the situation that was not attractive to you. If that license came up for fresh renewal for bid, would you consider bidding on that?
Yes.
All right. Thanks a
lot, Steve.
Your next question comes from the line of Janet Boucher with Sanford Bernstein. Thank you.
I was wondering in Las Vegas, what you make of the Baccarat streak and what trend line you'd expect? Obviously, it's a higher percentage of the business than it has been in the past and it's being driven a lot by Asian gamers. Do you see them continuing at the
Really, Linda, what do you think?
I think the trend compared to last
year definitely will pick up. However, like you said, the Linda, come closer to the microphone.
Okay. I think in Vegas, the trend will pick up from last year. U. S. Economy is not back to where it was before.
So I don't think expect to be at a biggest high, but compared to last year, it should definitely pick up.
That's the lady that can answer your question, ma'am.
Thank you. The next question I am sorry, there are no further questions at this time.
Thank you, everybody. Look forward to talking to you next time. Bye bye.
This concludes today's conference call. You may now disconnect.