Melco Resorts & Entertainment Ltd (MLCO) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for participating in the First Quarter 2008 Earnings Conference Call of Melco PBL Entertainment (Macau) Limited. At this time, all participants are in a listen-only mode. After the call, we will conduct a question-and-answer session. Today's conference is being recorded.

I would now like to turn the call over to Simon Dewhurst, Executive Vice President and Chief Financial Officer of Melco PBL Entertainment. Please proceed.

Good morning, and thank you for joining us today for our first quarter earnings call. On the call with me from MPEL, Lawrence Ho, Garry Saunders, Stephanie Cheung, Constance Hsu, and Geoffrey Davis as well as Greg Hawkins, who's recently been appointed CEO of City of Dreams, and Keith Heise, who has recently been named CEO of Crown Macau, having worked from inception as its CFO.

Please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of U.S. Federal Securities laws. I would also like to caution you that the Company's actual results could differ materially from the anticipated results in those forward-looking statements. For further clarification, please read the full disclosure in our press release.

In addition, we may discuss adjusted EBITDA, adjusted net income, adjusted EPS, and adjusted property EBITDA, which are all non-GAAP measures. The definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the press release. Please note that this presentation today is being recorded.

Net revenue in the first quarter exceeded $480 million, up more than 2.5 times over the last quarter. We generated over $28,000 per table per day, substantially ahead of any competitor, and more than three times the Macau market average.

Adjusted EBITDA was $77.4 million for the reporting quarter, generating an adjusted EBITDA margin of 16.5%. Net income for the quarter was $43.2 million, or $0.10 per ABS, and our net income margin against net revenue was just under 10%.

Our balance sheet is in excellent shape. Outstanding debts at the end of the quarter were $616 million, or 0.25 times on a total debt to equity basis. We held $949 million of cash at the end of the quarter, and we currently have unused loan commitments totaling a further $1.25 billion. Our balance sheet composition gives us real confidence in these uncertain capital markets.

I'd now like to turn the call over to Lawrence.

Thank you, Simon. I'd like to start things off by saying that we fully support and endorse the recent comments by Chief Executive Edmund Ho and the Macau Government concerning gaming regulations in Macau. The new regulatory structures will strengthen the market and are expected to be beneficial to the industry as a whole, including MPEL, our employees, and especially our shareholders. We look forward to supporting the Macau authorities as they formulate and implement these policies in the coming months.

I would also like to make a brief comment on Crown Macau. In the fourth quarter of last year, we embarked upon a reconfiguration and repositioning of Crown Macau with the goal of recreating the most productive VIP focused casino in Macau. Needless to say, I'm pleased to report that this is exactly what we have accomplished; picking a property in what many view as an impossible location and transforming it into the highest gaming volume property, not only in Macau, but also the entire world.

It is also interesting to note that while we were the last of the new gaming operators to obtain a license or a concession, we are now second in terms of the amount of capital that we have committed into helping Macau realize its vision to become the entertainment and gaming capital of Asia.

As a final point, I would like to take a moment to acknowledge the tragedy unfolding in the Sichuan province right now. We extend our sympathies to the victims of the disaster and their families, including those in the MPEL family who have been directly affected. We have pledged 6 million to help supporting the ongoing relief efforts in the region, and that has already been given to the China Liaison Office.

Let me now turn the call over to Garry Saunders, our Chief Operating Officer.

Thank you, Lawrence. The key to our success at Crown Macau has been our focus on the rolling chip customer needs and our ability to provide an environment that addresses the key elements of the player experience. As part of this effort, we entered into an agreement with AMA in the later part of last year. AMA, through the provision of working capital assistance to the junket operators who work beneath them, provides a more compelling value proposition than simply higher commission rates.

Our success with AMA is that it is not related to commissions, it is related to the outsourced provision of additional working capital for junket operators combined with the relationship that exists between AMA and the junkets that are performing so well at Crown Macau today. Our approach guarantees substantial volume without any associated MPEL working capital.

Now, I want to quick -- quickly switch gears and talk about our plans for the City of Dreams. As some of you know, we recently held our topping out ceremony for the podium in the Hard Rock Hotel tower. For those of you who have seen City of Dreams recently, I think that you will agree that it has come a long way over the last year, and for those of you who have not seen it for awhile, you will note a significant progress on your next visit.

We are incredibly excited with the project's progress as we see it come to life. We have moved from drawing the pieces of paper to concrete and steel that you can walk through and touch, and have a better sense of that experience that will be provided. City of Dreams is the next major integrated urban resort scheduled to open in Macau. The project remains on course with our most recent guidance on budget and timing.

We have talked about our portfolio approach to multiple property developments before. All of our properties are intended to be complementary towards each other, and also to be complementary to our neighbors. City of Dreams addresses the premium mass market, which we believe will grow dramatically as Macau becomes a multi-night stay market for vacationers and conventioneers.

City of Dreams is designed as a mini-rich environment with a heavy emphasis on entertainment. It will complement the properties already open or underway on Cotai. City of Dreams will provide diverse amenities in tune with Asian customers.

We will leverage our local knowledge to deliver experiences that will appeal to local tastes. We believe that our customers will respond well to the unique experiences that we plan to create. A team of world-class partners will help us in delivering this vision, and we will be making announcements during the course of the next 12 months as the project moves to completion.

With Crown Macau addressing the rolling chip universe and City of Dreams addressing the emerging multi-night stay market, Mocha addresses the non-casino machine -- non-casino based gaming machines market, in which it is the market leader.

Mocha delivers stable cash flow and enjoys the second highest win per gaming machine per day in Macau. It also gives us valuable insight into customer habits, which will be very valuable to us as we configure our casino floor at City of Dreams.

Overall, each of our assets fits into our overarching portfolio approach to development, and each represents the best-of-breed product in the segment it addresses.

Now, I'd like to turn the call back over to Simon.

Thanks, Garry. Crown Macau experienced high hold of 3.1% in the first quarter, above our 2.7% targeted hold. We believe high hold positively impacted adjusted EBITDA at Crown Macau by approximately $36 million.

I would like to provide a short comment on risk mitigation in our business, a matter which we take very seriously. In our business, risk mitigation straddles a wide array of concerns, including table hold volatility. There are a number of things that we can do to mitigate the impact of table hold volatility, and we believe that this is especially important for us, given that we have one property that currently delivers the vast majority of our revenue and earnings, and that property takes us to the most volatile segment of the market with respect to luck.

The most effective way to reduce table hold volatility is to increase volume. Since the commencement of operations by AMA in mid-December and the commensurate increase in rolling chip volume, the volatility in our daily rolling chip table hold percentage has dropped, as expected.

We've also always offered a revenue share-based junket compensation model, which shares the impact of table hold variation between the casino and the junket operators. Some of the tables allocated to AMA have recently been included in this program.

Last, we have constructed a win rate sharing arrangement that allows us to smooth the peaks and valleys of table hold within our commission-based junket business with AMA. All the business is designed to make our cash flows and earnings more stable and predictable.

Though we held high in the first quarter of 2008, you should remember that we suffered from low hold in third quarter and fourth quarter of last year. Life to date, our rolling chip hold percentage is 2.8%. We will continue to provide some forward-looking color on non-operating line items expected in our income statement in the second quarter of 2008.

Depreciation and amortization costs of approximately $32 million and corporate costs of approximately $6 million in the first quarter of 2008 provide a good indication of our run rate going forward. Net interest income in the second quarter of 2008 is expected to be approximately $3 million. Pre-opening expense in the second quarter is projected to be roughly $4 million, entirely associated with City of Dreams. And finally, capital expenditure in the second quarter is expected to be in the range of $200 million to $240 million.

Operator, we're now ready to open the call for questions.

(OPERATOR INSTRUCTIONS).

And the first question comes from the line of Bill Lerner from Deutsche Bank. Please proceed.

Thanks. Hey, guys. I guess a few questions. One, on the risk mitigation or the volatility deal, Simon, can you just talk a little bit about that? Where does that manifest or just can you at least sort of outline the structure? I mean, can we assume it's -- if you hold in a particular month -- I assume it's monthly -- if you hold in a particular month above a certain level, you give away a certain X percent of the cash flow and then you project yourself on the downside, and I would suspect that maybe this manifested this quarter, so EBITDA would've been even higher. If you can help us out there, that would be great, then I have a follow-up.

Yes, no problem, Bill. Yes, obviously it's reasonably complicated, but I guess the two key aspects that we would want to stress is first of all, it doesn't reset itself on settlement. It is a life-to-date calculation in terms of -- of what the hold is and whether there is any settlement away from us or back into us.

The second thing that I would just mention is that there is a range around our theoretical hold line about which there is no impact on this hold share arrangement. So, beyond going into more of the mechanics on it, I think that that -- that should help.

Okay, and then in terms of the -- at least obviously directionally number would have been higher this quarter had that not been in place. Is that a reasonable assumption?

Yes, I mean, obviously at 3.1% hold in the first quarter, we booked a cost, if you like, associated to this hold arrangement, and I'm happy to quantify that. It's approximately $11 million.

Okay, you gave away $11 million, okay, great.

But I would also just stress, Bill, that it's -- it's on a fixed monthly settlement cycle.

Yes.

So, we have -- we haven't hit a settlement point yet at this stage.

Oh, I understand, okay. And then, actually here's just sort of housekeeping. You guys talk about 2.7 or 2.8 as FIO, but we've seen a lot of 3s in the market recently. Maybe that's a structural change or a sort of mix story on the customer side, I don't know, but why -- I guess if you held 3%, the differential or the spread would've been something like, what, $12 million? Is it just pro-rata like that? Or I just want to get you to talk a little bit about where you think FIO really is.

Well, I mean we --

Bill, it's Lawrence here. I think we've been open for a year now, so we're still absorbing the patterns of the environment in Macau. So, all the math in the world says 2.7 and that's why we're sticking to that for now. We will obviously observe the trend going forward. So, I think until there are very clear indications that it's above 2.7, this is the rate that we're sticking with.

And for your reference, so far it's really a monthly thing. So far this month we are holding much lower, so I think net-net, when you aggregate everything over a long period of time, it's going to be around there.

Okay, so holding lower than 3.1, you mean?

No, no, I think we're -- we're holding lower than 2.7.

Okay, and then - thanks, Lawrence -- and then I just have one final question. If the Macanese government caps commissions or puts some type of structure in place on the junket commission front that comes in below your rate, and I know that's complicated because the economics have changed or are evolving with -- with AMA and you guys, but if they come in below that rate, can you just talk about where or how you're protected? I mean, I know obviously you've got contracts. Does that change anything with respect to the contracts? You obviously, as Garry was saying, you offer a lot more than just favorable commission structure for liquidity and so on and so forth, but could you just talk a little bit about that?

Bill, if -- if the Macau government -- and I know it's probably going to be imminent -- the Macau Government have its regulations. I think all of the concessioners and sub-concessioners will have to comply. And from our perspective, it's actually a good thing because if they do cap us below at -- below the rate that we're paying or below -- we're not even paying the top rate anymore -- if it caps at below that rate, it's actually good for us because it's pure profit margin for us.

And having spoken to AMA, which is a junket aggregator, they actually think they do have a competitive edge because then it really becomes two things in the market. It's a level playing field. It really becomes the product, and I think that was the point that was always talked about. Crown Macau and probably Wynn Macau are the two properties known as the best VIP 6 Star properties in Macau. So, I think we have an edge on that standpoint. But the location was always supposedly a negative, but for VIP, it's the secluded and exclusive location, that is a big plus.

And lastly, as we all know, working capital is a key area for the VIP segment, and with AMA doing that type of work for us, we would have a clear edge. So, I think when the government implements their plan, that will be the day that we'll be delighted.

And does that change anything with respect to the actual contract, the multiyear contract with AMA? Did it trigger any change?

Well, obviously we would -- well, I think we would need to look into the contract and whether it's just a simple change the rate down. We would have to look into that, but so far it's all positive.

Okay, thanks, Lawrence. Thanks, guys.

And the next question comes from the line of Larry Klatzkin from Jefferies. Please proceed.

Hey, guys. You're saying that the month of May the hold is lower, but April, weren't you over a 3% hold?

Hold for a second. Yes, we're just -- Larry, we're just hunting out the number for April.

No, no, it's fine, it's fine. But I just was saying that the -- but for the quarter to date, you're really not down below 2.7 is what I'm saying.

We were at 3.04% in April, Larry.

Okay, so if you come out at a 2.4 or whatever, you're still probably above a 2.7 for the quarter to date?

Yes, we're -- we're below 2.4 in the current market.

And Larry, we're actually pretty low in May, so --

Okay, okay. Though, it's not over, but, second question is as far as the -- how much more -- let's say AMA's gotten a lot more liquidity with the money they've earned. How -- you're doing close to $10 billion rolling chip a month, AMA's doing over $40 billion a month. That means you're doing over $50 billion at the property. How much more can the property handle in rolling chip, combined, before it starts getting capped out in how much it can handle?

Larry, this is Garry Saunders.

Larry --

Go ahead -- go ahead, Lawrence.

Oh, Garry, sorry, just one quick point. It's Lawrence here. I think the property and the infrastructure we have is a bit of interest rate because it's a one million square foot in GFA. Crown Macau is a 6 Star unique property, but it's -- we're constrained by the footprints. And there's only so much space that we can devote to gaming before we actually start removing hotel rooms and restaurants and stuff like that. And with the new regulations in Macau, that is also quite uncertain. So, I think, if anything, we are finding that the property itself is starting to constrain the ability of AMA.

Having said that, I'll let Garry -- Garry, why don't you follow up?

If -- of course what you're saying is true, Lawrence, in terms of the capacity limitations, and we just look at ways to be more efficient with the space. I mean, we constantly have to evaluate our space like you would any product that you put out for shelf space for best and highest use. And so that is -- that leads to a constant tuning of the casino floor, and there's still space that potentially can add some more capacity. So, I don't think anybody should look for a quantum leap of growth with the rolling chip volume, but at the same time, we have ways to still tune our business.

Okay, so you still have some -- some upside in the property, okay. As far as the new rules go, if -- let me make sure I understand this. Let's say they say the host, which AMA's paying let's say 1.21%, they set the new limit at 1.1%. Will the amount you -- since AMA's making a bigger spread, does the 1.35% you pay them go down also? I mean, will -- will you guys kind of share in the lower commission to the hosts?

Larry, this is Lawrence here. I think at this point in time, the government have not consulted us and have not decided how they will regulate and implement it. But I think at the end of the day, the government is not going to look at AMA differently from other junkets and junket operators. So, it's going to be a blanket approach. If they say it goes down to let's say 1.2% or 1.1%, then AMA is going to go down to 1.1% naturally.

And I think the edge that AMA will have over -- and we've talked about this numerous times in the past -- AMA's model is not about just giving people the highest commission -- not giving their sub-junkets the highest commission. Their model is really about working capital and the relationships. So, I think a lot of the sub-junkets, the smaller junkets, would actually tell you they don't really care about 5, 10 basis points. At the end of the day, what they really need is the working capital.

So, if AMA goes down to 1.1%, they may lower -- you'd pay the host even less than 1.1% themselves to make a profit?

I think --

Larry, this is -- this is Simon, Larry. I mean, I think that it's relatively speculative. Remember, when we pay the 1.35% across to AMA, we are paying them a piece of margin because they're providing the working capital that they provide, which is --

Right, I understand. That's what I'm saying, okay.

-- from what junkets provide. So, it -- how that might work in the scenario that you're setting forth here is currently unknown.

Okay, I'm just trying to figure if you would benefit if they lower the host maximum with your relation with AMA. Okay.

Larry, this is Garry again. Larry, it's hard to speculate at this point, but I would never underestimate the ingenuity and adaptability of this market to be able to -- to work with what is put finally in place. And the important thing is that we do believe that whatever is put in place is going to be good for the industry.

It's important to keep in mind that we're positioned as a local company and we believe that -- and we enthusiastically support what the government is doing because we believe it's going to be good for Macau and for the industry in Macau.

Oh, I agree with you 100%. Macau Studio City, you got your management contract on that. Any feeling for timing when that might open up?

We don't have any particular visibility in terms of their schedule at this point.

Okay. And then, there's been some talk of residential gaming rules trying to discourage gaming in residential areas. Would that affect Mocha slots at all?

That would certainly make it more difficult to expand that business model.

Okay, but you wouldn't have to -- they don't anticipate making you close some of the places you have?

Larry, it's Lawrence here. I think the -- not opening casino gaming or slot gaming in residential areas has always been a policy in Macau. So, ever since Mocha started in 2003 we've had -- we've faced this issue and we have had to be creative and we've had to be respectful to the local residents and our neighbors and the Macau Government.

So, nothing has really changed, but having said that, I think the government will look into what is defined as a residential area. So, I think we do have a couple of Mochas on the pipeline for this year, and those are -- the approvals are already in hand and they're moving forward.

Oh, good, okay. All right, the really last question is if the work-sharing agreement had been in the beginning of the quarter, how -- that -- EBITDA, how much different would it have been?

Larry, I don't think we're going to get into that.

Okay, that's fair, that's fair. Well, good quarter, guys, congratulations.

Thank you, Larry.

Thank you, Larry.

The next question comes from the line of Anil Daswani from Citigroup. Please proceed.

Hi, guys, congratulations again on a great result. I just want -- I have three questions. First of all, a little bit of a follow-on on this revenue sharing model. You guys mentioned that you've got about $11 million in the bank from the first quarter. Could you just highlight what would happen in the event that the second quarter average hold, let's say, gets to 2.6. Does that $11 million immediately get released into 2 quarter, or how does that actually function?

The way it would work, Anil, is that some of the $11 million would bleed back in because obviously, the run rate or the life to date hold since the arrangement commenced would've come down from where it is at the end of the first quarter. You're getting into the mathematics of it if you wish to try and work out whether all of the $11 million would come in at 2.6. I suspect that it wouldn't all come back through at 2.6, but the majority of it would.

So, for all intents and purposes, when we model this thing, we should just be looking at whatever your out -- whatever your total roll is versus a 2.7 to 2.8 hold and we should just assume that that stays stable over the course of a 12-month period?

I think that that's appropriate. I mean, the way we model it here is actually that we think that over a long enough period it's neutral, and that's why we've entered into it. Ultimately, we believe that the long-term hold will be within the band that we've set. So, it's something that if you model out as a theoretical -- on a theoretical basis and your theoretical is not wildly different from ours, then you will reach the conclusion you don't actually need to model anything.

Fantastic. Okay, the second issue is obviously, you guys have done a great job with A-Max now. There are a lot of copycats that seem to be wanting to emerge. What -- what do you think keeps your sub-junkets in place at A-Max, which is fairly one of the concerns that have been voiced, given all these copycats out there at the moment?

This is Garry Saunders. I think if you look at the track record and the relationships that A-Max has, I think that that's going to be one of the things that's going to keep this together. And there's been a lot of speculation about how will this model work, and I think that this model will work as well as the business hands that it's in. So, the demonstrator records that they have already established I think is going to be quite important before somebody would look to switch to another one that's unproven.

And then also, the property that we have, we do believe it -- one of the difficult things in Macau is that you look at property you would like for the property [to be accounted] for a dominant portion of the motivation of why people would go to that property. Unfortunately, Macau is still a very commission-oriented market. So, I believe that even a competing model to ours, I think we have a property that stands up to anything that's in Macau right now for the rolling chip program, and I believe so we would be able to give the right type of service and amenities in complement to what A-Max is doing.

Garry, I'm going to just add a couple of comments to that. And it is that if you look at the growth in the first quarter, very clearly you can see the impact as a result of the working capital that was brought into the market at the back end of 2007 associated with AMA. And I think that we've gone a way towards explaining our view that it is the working capital component that gives us the stickiness with the junket that is driving at the business that we've got in the property.

In relative terms, yes, there have been market share movements, but in absolute terms, there hasn't been a lot of cannibalization. If the response from our competitors is to introduce more working capital into the market, I think that our view is that the market will continue to demonstrate the type of growth that you've seen during the first quarter. Relative market shares might move around, but in terms of the absolute volume of business that you might see in properties, such as Crown, should stay pretty stable.

Right. Now, the initial targets for A-Max were clearly set at levels much higher than the $40 billion or so in roll that you guys are doing at the moment. Have those targets changed at all over the course of the last three or four months?

Anil, I think that, I mean --

Lawrence spoke to this a little bit earlier on, Anil, in terms of just talking about what we're physically able to do from a capacity point of view. Certain the property guys will argue that we can drive more efficiency out of Crown Macau and they'll pursue that. But I think that our view was always that taking this property up to a $50 billion roll a month level was optimizing in terms of the investment that we've got in the ground -- at the property, and anything beyond that is just -- it is challenging from an operational standpoint as well.

The number also that you've talked about, the aspirations for those particular levels, were not the types of numbers that were reflected in our budget. We're running ahead of our budget.

Okay, and maybe can we take from that that given the original aspirations for A-Max, that could eventually be fulfilled through your property at the City of Dreams? And has there been any thoughts towards the reconfiguration of some of the mass tables at City of Dreams in favor of VIP?

The way the property is structured is that we would certainly look on a property that has all the amenities to fire on all cylinders. You would -- you have mass, you have the slot market that we want to develop there, but also we had the rolling chip market already planned into this property. And in addition, we have the flexibility of something we're not able to do as well right now, and that's the Premium Direct Customer.

Right. Can we assume that one of the --

Anil, it's Lawrence here. I think our discussion with AMA for City of Dreams, the number one principal is that it has to be incremental to the current -- the current rolling chip at Crown Macau so there won't be any cannibalization when the business moves over there. And obviously, AMA at this stage is very interested and very bullish about what they can do for City of Dreams. So, we'll in due -- we're continuing the discussion.

Fantastic. Lawrence, my last question, will AMA be the exclusive junket operator at City of Dreams or would you have to go a bit deeper?

You know, Anil, I think we're still -- we're less than a year from opening, so we are -- and it's such a dynamic market. And I like to point out that it seems like two years have passed, but AMA has only been operating at Crown Macau for five months.

Yes.

So, I think we still have some ways to go. But so far, AMA has done a fabulous job and so -- and even at Crown Macau, the other junkets outside of their AMA group are doing very well. So, we'll reassess the situation in a few months time to see what is the best outcome for MPEL and our shareholders.

Fantastic. Thanks so much, Lawrence.

Thanks, Anil.

And the next question comes from the line of Celeste Brown from Morgan Stanley. Please proceed.

Hi, good evening.

Hi, Celeste.

Lawrence, did you say that the commission change was imminent, and, if so or if not, how do you -- how do you think the government is going to bring it about? I think the initial suggestion was that there would be legislation or is there something that the chief executive could do that can make it -- make it come faster? Thanks.

Yes, well, Celeste, I don't want to speculate what the government will do, but I do believe that ever since the chief executive made his speech at the end -- April 22nd, I think the date was -- they are flushing out some of the policy and the initiatives and the details of how they're going to be implemented. So, we are -- there are consultations happening I think pretty soon.

So, I think maybe imminent is not the right word, but I do think something is going to happen fairly quickly. So, it's not going to be at the end of this year, and this is purely my own speculation. I do think it's going to happen in a couple of months or so. And I think this is really going to benefit the whole industry when these measures and initiatives are put in place.

And does it need --

Celeste, I don't want to speculate what the government is going to do because I honestly don't know.

But can it be done just by its chief executive mandate or does it need to go through the legislature?

Well, I wish I had the legal and political knowledge to give you a clear answer on that one, but I think that's reserved for probably the financial secretary of Macau.

Thank you.

(OPERATOR INSTRUCTIONS).

And the next question comes from the line of Gary Pinge from Macquarie. Please proceed. You may proceed, Gary.

Yes, hi, sorry about that. Thanks, guys, and congratulations on a great set of results. Just had a couple of questions for you guys. With regards to the mechanism that you've got in place with the -- where the junket operator manage the hold rate, I was just wondering, is that another form of providing working capital perhaps to the junket operator or is that another competitive advantage you guys have got in place compared to some of the other casinos that might start expending greater credit out there into the market?

Well, I guess if you look at it in form of view that theoretical is -- or the way we will perform against theoretical is so high, Gary, that we're going to be settling on this mechanism to the counter-party through the life, then obviously that's -- it's good news for us because our hold's going to be a lot higher than we believe it otherwise is going to be, and of course it would generate some additional working capital for the counter-party. But I think that that -- you only reach that conclusion if you form a basis of assumption around theoretical which is higher than ours.

Okay, all right. And the other question that I had, slightly left field question, but I just want to clarify this, the land that Crown Macau sits on, if I remember correctly, that wasn't part of your concession then. So, is that land, I mean, you can effectively have strata title on that land? Is that --

Gary, it's Lawrence here. That land started off as a residential and was converted into a hotel. So, I think philosophically you could convert it back. But I think, given the product that we've built there, and now it's the busiest VIP casino in the whole world and we won the award earlier this year in London, which we're very proud of, I would really rule out converting that land back into some sort of residential apartment.

Okay, all right. Sorry for the left-field question, but thanks, guys.

Thanks, Gary.

Thanks, Gary.

Your next question comes from the line of Jennifer Owen from Citigroup. Please proceed.

Thank you very much. I just wanted to clarify, you said that the impact of the high win to EBITDA was $36 million, so that would take adjusted EBITDA back to about $40 million for the quarter?

Yes, that's correct, Jenny.

And so, what would the normalized revenue number be and hence the normalized EBITDA margin?

Normalized revenue, normalized EBITDA.

We don't have the numbers prepared.

Jenny, we don't have the numbers prepared for that. I think from recollection from having just -- we looked at this a few days ago, normalized EBITDA comes away from about 16% and it comes down to around about 14%. I can't remember what happened to net revenue.

Okay, perhaps I could follow that up with you a bit later on.

Yes, please do.

Thank you. And is that, I mean, given the constraints you've mentioned with respect to the property and you probably kind of pretty much say where you think you'll be for volume through the remainder of the year, is that kind of a normalized EBITDA margin that we should be looking at for the rest of the year?

Yes, I think that our view would be that that would be the right way to look at it, yes.

Okay, great. Thank you very much.

And the next question comes from the line of [Gary Magee] from UBS. Please proceed.

Hi, actually I have a couple of questions. Firstly, the $11 million, does that affect the first quarter or is it a theoretical number which we should apply going forward? So, in other words, is the -- could we add back $11 million to the $77 million for Crown Macau?

Well, you -- you could -- you could reach the conclusion that if we hadn't had the hold rate hedge in place, then our EBITDA in the quarter, actual, would've been $11 million higher. And is it an actual cost? Well, it's an accrual at the end of the first quarter, and we've booked it through our cost line, it runs through our casino cost line. And if over the next six months, or nine months, or 12 months, our life to date hold drops from somewhere in the order of 3.1%, which is where it was at as far as this deal is concerned at the end of the first quarter, if over the next six, nine, 12 months that drifts out and comes down to sitting somewhere in the bands that we have set around 2.7%, then the impact of that will have been that over the intervening period we will have drift that $11 million back into earnings. It comes back to us. Does that make sense?

Yes, yes, thank you. My second question is about the Macau Studio City contract. Has that been approved by the government at this point?

Yes, it has.

Okay, and my last question is about the -- can you comment about the after commission, after tax expenses at Crown Macau for the first quarter versus maybe Q4 '07?

In terms of are you looking for a trend?

Yes. Roughly how much -- how many percent increase quarter-over-quarter?

It's base -- it's basically flat. We had some -- we had some costs, one-off costs in the fourth quarter associated with the reconfiguration in the property and then of course, we rolled into a new calendar year, which has, of course, some salary adjustments attached to it. The two parts basically net off against each other.

Okay, thank you very much.

Thanks.

And the next question comes from the line of Gary Pinge from Macquarie. Please proceed.

Hi, guys, just a follow-up question. I was wondering in the second quarter, are you guys -- have you guys added any tables into the casino or are you looking for approval from the government on any additional tables?

Gary, it's Greg Hawkins here. We -- we've received approvals recently for some further conversion to increase the number of VIP tables, but that does not increase the overall number of tables in the property. At this stage, as always, we're giving consideration to our potential expansions, which we have discussed previously, but they're only considerations at this point. So, for Q2 at this point, we don't expect any incremental increase in the overall number of tables.

Sure, but in -- can you -- could -- Greg, thanks for that, but can you give us a bit of an indication as to how many more VIP tables you could -- you could be converting across from the mass market side?

Yes, at this stage, we're going through a physical conversion of level 2 of the property where we're converting some of the existing mass tables there to cater the incremental VIP. Those table numbers would be approximately around 40 tables, just under 40.

Okay, excellent. And just one other kind of slightly broader question. In your verbal commentary, there's quite a bit of commentary there on City of Dreams. I was just wondering with regards to the Trinity project on Macau Peninsula, can you give us any color into how that's developing and what your current thoughts are, Lawrence or Simon, on that?

Yes, this is Simon.

There he is. Lawrence? Lawrence?

Oh, go on -- go on, Lawrence, go ahead.

No, no, go ahead, Simon.

Okay. As everyone could hear, Lawrence is remote at the moment, so apologies for the slight time delay as we speak. The -- the situation with the Peninsula project is that the project has not substantially moved forward from where we were at the end of last quarter. It sits there as our next development project in our pipeline, and management is very focused at the moment on a considerable amount of work that we have going on at City of Dreams.

That, taken together with the work we've been performing at Crown Macau, our sense has been that that has been the right area for us to have our attention. We'll switch to Peninsula when we've got the bandwidth to do so.

Okay, excellent. Thanks, Simon.

Next question comes from the line of Robin Farley from UBS. Please proceed.

Thanks, my questions have been answered. Thanks.

Thanks, Robin.

And the next question comes from the line of Pradeep Mohinani from Lehman Brothers. Please proceed.

Hi, just two very quick questions. Going back to the discussion on Trinity, do you actually have the approvals in place or with the chief executive's comments, will Trinity be affected in any way?

We have the applications in for the number of gaming units that we plan on operating there, which we have the submission in, similar to every other gaming activity that we expect to be able to complete, such as City of Dreams and Macau Studio City. So, it's the same -- same identical filing.

Yes, I think -- I think that our view is that there was no impact on our plans for the Peninsula project as a consequence of the policy address on the 22nd of April.

Okay, and can you maybe at least give us some sense of when you'd think start thinking about this project in terms of would you start thinking about investing in this from '09 onwards or maybe delays that it won't be until, like, 2010 or something like that?

I think that there's a lot of thinking going on about it right now, and certainly Lawrence has been putting a lot of thought into design and plans for that property, so that continues. In terms of when could you see us physically moving forward on that project, I think that you can assume that for now and for the next 12 months, we will be mostly concentrated on bringing City of Dreams through to the market.

Okay. Last question, if I may, is just along your CapEx numbers, but your 1Q and 2Q numbers now. Can you give us some guidance for the full year, exactly how much you'll be spending?

Yes, we're -- we're -- in terms of CapEx looking out through the whole of 2008, our monthly turnover on site at City of Dreams and really the rest of this year is just about CapEx at City of Dreams. Our turnover on site at the moment is up and around about HKD600 million a month, which is driving this quarterly CapEx level of $200 million to $250 million. And that's around about peak turnover for the site at City of Dreams. It's about as active as you will see from a CapEx spend point of view.

That will obviously trail off through third quarter, fourth quarter. So, if you look at the X curve, I would imagine that we're probably going to be in the order of $200 million in the third quarter and $150 million to $180 million in the fourth quarter, if that helps.

Okay, yes, that's useful, thank you.

And the final question comes from the line of Kevin Smith from Jefferies. Please proceed.

Hi, this is actually Larry again. Quick question about residential. What are you hearing about LVS getting residential going and what do you think the effect is going to be on you guys for City of Dreams?

Well, we --

Larry, it's Lawrence here. Oh, Garry, you go ahead, you go ahead.

Go ahead, Lawrence, I'm sorry.

Well, Larry, our view, as you know, remains, which is we do want LVS to go ahead. If the Four Seasons vacation suites or apartment, hotels, whatever they call them, start selling, we'll look at the market at that point in time to see what we want to do.

Within MPEL, our management have done extensive reviews in the past few months. When City of Dreams is fully complete at Phase 1, and Phase 2, and Phase 3, everything is completed. We only have about 2,200 rooms, and being an integrated resort, that is supposed to blow people's minds.

We do need the hotel supply, and with the recent Macau government announcement about this new initiative, it might be a better idea to hold onto those assets. Now, we are still evaluating the situation, and we watch LVS with a lot of curiosity.

Okay. Well, thanks, guys. I appreciate it.

Thanks.

Thanks, Larry.

There are no further questions. I would now like to turn the call back over to Mr. Simon Dewhurst, for closing remarks. Please proceed.

Thank you. Thanks very much for listening in on our conference call today. The Macau marketplace remains a dynamic and exciting place for us to be located and operating from. We remain very confident about its future growth prospects, and we will take a leadership role in this. We get to see how our projects are progressing on a daily basis, whether through the improving performance of our operating properties or on the building site at City of Dreams.

We hope we have been able to convey to you some of the excitement that we feel, especially to those of you who are unable to spend much time with us here in Macau. We look forward to reporting back to you in another three months' time. Thanks again for your questions today. Have a good day.

This concludes the presentation, ladies and gentlemen, and thank you for joining today's conference. Have a good day.