Melco Resorts & Entertainment Ltd (MLCO) 2008 Q3 法說會逐字稿

Good morning and thank you for participating in the third quarter 2008 earnings conference call of Melco Crown Entertainment Limited. At this time all participants are in a listen-only mode. We will be conducting the question-and-answer session today. Today's conference is being recorded.

I would now like to turn the call over to Mr. Simon Dewhurst, Executive Vice President and Chief Financial Officer of Melco Crown Entertainment Limited.

Mr. Dewhurst, please proceed.

Good morning, and thank you for joining us today for our third quarter call. On the call with me tonight are Lawrence, Greg Hawkins, Constance Hsu and Geoff Davis. We're also very happy to have Ted Chan back with us after a brief hiatus.

Please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of the US Federal Securities Laws. I'd 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.

For the third quarter of this year we reported net revenues of $295 million, an adjusted EBITDA of approximately $21 million. This compares with net revenue of $113 million, an EBITDA deficit of approximately $10 million in the third quarter of last year.

Our third quarter 2008 results were negatively impacted by bad luck. Our rolling chip table game hold percentage was 2.6% as compared to our targeted hold rate of 2.85%. Had we held at the targeted level across each of our rolling chip segments, total EBITDA for the third quarter would have been approximately $26 million, representing a 7.9% EBITDA margin on normalized net revenue.

Despite bad luck in the third quarter, which was concentrated almost entirely in September, we like better what we are seeing through October, and month-to-date for November.

That said, and at the risk of repeating myself, it is important to stress that as we continue for a couple more quarters prior to the opening of City of Dreams with our very heavy bias towards rolling chip play, investors should continue to expect volatility in our earnings. It is an inherent component of our current business mix, but remember, in the long run, the house advantage is in our favor.

On a sequential basis, hold-adjusted EBITDA declined by 36% from $14 million in the second quarter of 2008. This decline was due primarily to reduced rolling chip volumes and a lower max table game hold percentage.

There is no doubt that there was a lot of competitor experimentation with commission and credit extension in the third quarter, and this certainly affected our market share performance at Crown Macau. This is also compounded by a small year-on-year decline in play levels in Macau in the latter part of the quarter, which we attribute to the visa restrictions, which remain in place.

We're not satisfied with our recent market share performance at Crown Macau, and Lawrence will address it in more detail later in the call.

We believe that aggressive market-wide efforts to land grab the play volume in the rolling chip segment peaked in September, and appears now to have stabilized into October and November.

We purposefully put our balance sheet in good shape last year so as to be able to deal with short-term competitive pressures in Macau, which were to be expected given the government's decision to issue six new licenses when the market first opened up to competition.

Rather than carrying on with a more detailed review of third quarter results, we want to use this time to discuss some key issues that we believe are top of mind to investors.

So in summary, this includes, one, a review of our balance sheet; two, monetizing assets; three, the continued strength that we see in our working relationship with AMA; four, a City of Dreams update, and five, our Mocha business.

First off, we get a lot of questions these days about balance sheets, book value, and loan covenant. Our balance sheet remains one of the strongest in Macau. We have stated on various occasions that our current construction pipeline is fully financed.

Our Crown Macau and Mocha businesses are fully operational and continue to generate free cash flow which is right now in excess of the combined consolidated interest expense and [corporate] overhead for our whole company.

As of the end of third quarter 2008, our book value was roughly $5.5 per ABS. As of the close last night, we were priced at a discount of nearly 30% to book.

We believe that looking at return on investments and leverage are excellent yardsticks when considering if Wall Street has a good handle on the valuation of a company. Now if we analyze EBITDA from the first nine months of this year, Crown Macau has delivered a return on the $380 million that it cost to build of nearly 50%.

Mocha's historic annualized return on invested capital is over 60%. So our track record has been one of delivering solid return on capital deployed, and we think City of Dreams will also deliver solid returns.

Our cash position as of the end of the third quarter was almost $900 million. With over three-quarters of $1 billion undrawn and available to us under our project loan facility.

We expect to spend, in real cash terms, approximately $1.1 billion on construction and free opening preparations of City of Dreams in the time between the start of this current fourth quarter and the opening of phase I in the first-half of next year.

We fully expect that our City of Dreams resort development in Cotai will be cash-generative immediately following the opening of phase I. But even if we ignore this operating cash flow from the get go, we still have sufficient liquidity today to complete and open phases I and II at City of Dreams.

With so much focus on the impact of loan covenants recently, I want to take a moment to talk about ours. $1.75 billion debt facility we structured and syndicated over a year ago is a project loan. Between now and the end of construction for phase II of City of Dreams, we are required to remain in balance under a straightforward funding sources and uses text.

We need to continue to demonstrate to our lenders that we have sufficient source of funds to complete and open the project. The primary challenges to a source and uses covenant is cost overrun and timing delay. But let's talk about loan.

City of Dreams remains on time to open phase I in the first half of next year, with phase II also on schedule to open in the third quarter of next year. The budget for City of Dreams is unchanged from our previous update, and we are over 97% of phase I and phase II costs, now let out to contractors, there is little room for cost surprises.

Our lenders also have the additional security of $250 million of fully collateralized letters of credit, which have been provided to them by our two principle shareholders and which are available to be drawn down to cover any unexpected cost overrun, which is extremely unlikely in our view that these credit lines will ever get drawn.

The first operating covenant text under our debt facilities do not apply until a full 12 months after we've opened phase II of City of Dreams. This gives us ample time to get City of Dreams operating smoothly, and we believe it will also allow for some of the current headwinds facing the market to dissipate.

Regarding the potential future monetization of our assets in Macau, we monitor the situation closely and are encouraged by recent developments. The co-op model that the market is heading towards is the one that we have advocated for years. While this model has no precedence in Macau and its specific structure is not perfectly clear, our sense today is that the outlook is beginning to come into focus.

It is too soon for us to make a formal decision to recommence that plan for the construction of our apartment hotel tower at City of Dreams, but we will continue to watch developments in the market very closely.

What makes our thinking a little more conservative is that although we totally agree with the strategy of selling non-core assets, but keeping the benefit as an amenity, we have determined not to get pressed into any forced sale of assets for balance sheet or liquidity reasons.

We want to be able to think opportunistically with the timing of any sale. Like many cities in China, real-estate prices in Macau are under pressure, and now is probably not the best time to maximize value.

Our balance sheet is strong, we secured funding when it was available to us, and we will now pursue a monetization strategy from a position of relative strength, trying to coincide with the next upward movement in the asset price cycle, which we believe is inevitable. We retain the view that asset sales will ultimately enable us to substantially deleverage our future investments.

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

Thank you, Simon.

I'd like to discuss our plans and outlook for Crown Macau and City of Dreams, and also speak a little about our Mocha business.

At Crown Macau, we are committed to building on our early successes in the rolling chip segment of the market by developing further our target positioning of the property with its core Asian junket customer.

In order to take this to the next level, we have spent a lot of time over the past few months working with AMA and our other junket operators in developing our strategy for Crown Macau going forward.

But before I talk about the strategy, I want to comment about AMA. For the record, our relationship with AMA is long-term and solid. AMA is our biggest customer at Crown Macau, and we are working to address its needs -- is a developing story as both business evolve, and as market initiative, such as the proposed commission caps develop. I assure you that, to borrow a phrase, rumors of the demise of our relationship are greatly exaggerated.

Now let's talk to the four parts of our strategy to rebuild some lost market share at Crown Macau.

First, we have today announced the return of Ted Chan to MPEL as the president of Crown Macau. As many of you will know, Ted has years of gaming experience in Macau and enjoys unparallel expertise and relationship in the rolling chip market. His local background would be crucial to our fine-tuning of the property.

I would like to extend a word of thanks to Keith Heise, the former CEO, for his support and efforts over the past few years.

Second, we are exploring what we need to do to further align the amenities at Crown Macau to a market with an increasing segmented customer base in order to reward the long-term commitment demonstrated by our junket operators.

While it is too early to discuss details, I can confirm that the amount of capital involved will be immaterial, and will not affect our overall financial condition in any way.

Third, as a result of these initiatives at Crown Macau, and equally as important, because of our confidence in the product under construction at City of Dreams, we have decided to rename Crown Macau and to focus the Crown brand on the precinct of premium lodging, high roller VIP gaming, and signature restaurant that is under development at City of Dreams.

I have previously talked about having a segmented portfolio approach to our property developments in Macau. And James Packer together with his team also share my view that this is the right time to further differentiate MPEL to principle property investments. We will have more to discuss on the rebranding of Crown Macau in the coming weeks.

And finally and most importantly, we have completed an initial review of the overhead cost structure at Crown Macau. Although this process is ongoing, we estimate that we can conservatively reduce our fixed overheads at the property by an annualized amount of approximately $22.5 million, starting in December 2008. This will provide a significant boost to current levels of profitability.

Now I would like to comment on City of Dreams. We believe that we are building the right product for the market, and we are confidant that it will set a new standard in Macau for the premium mass customer, as well as for true VIP players. We are working diligently on our marketing plans for the property to facilitate a strong opening.

A lot of people are saying that we are not going to have so many neighbors in the immediate term. And we think this is positive for City of Dreams in the short run, in terms of access to construction capacity, in terms of our ability to hire good local people at fair wages who understand the casino industry, and in terms of the honeymoon period, we will have as the newest property in the market.

But we also want to stress that we believe in new supply and the importance of delivering on promise. New supply is good for the market. We want a Macau that gets built. And we believe that the government in both Macau and China shares this view of improved prosperity for the people of Macau.

And so while we remain cautiously optimistic that austerity measures imposed on the market will be lifted ahead of the opening of phase I of City of Dreams, we can't simply assume this will be the case. As such, we will prudently plan for the worst and hope for the best by aligning our overhead structures to current market condition.

I also wanted to say a few words about our Mocha club business. Though small, relative to the contribution from Crown Macau and what we expect from City of Dreams, Mocha delivers a consistent stream of cash flow and earnings. Its business model is unique to the market, and it is likely to be almost impossible to duplicate this model in light of government-mandated limits on additional development of this kind.

We believe that our existing portfolio of Mocha assets, which is already authorized for operation by the Macau government, will remain safe under the existing legal framework. In addition to the cash flow that it provides, Mocha also provides a valuable testing ground for gaming machines that helps us design and manage our slot (inaudible) at Crown Macau and City of Dreams.

Despite the challenges we currently face as a company and as a market, I'm as confident as I have ever been about our future and the prospects for Macau as the largest and most dynamic gaming market in the world.

I will now turn the call back over to Simon.

Thanks Lawrence. Before we begin our Q and A session, we'll give you some color on forward-looking non-operating line items expected in our income statement in the fourth quarter of 2008.

Appreciation and amortization cost of approximately $32 million in the third quarter provided good quarterly run rate for the fourth quarter. Corporate cost of approximately $7 million in the third quarter of '08 is also a reasonable run rate.

Net interest income in the fourth quarter of 2008 is expected to be approximately $3 million, and pre-opening expense in the fourth quarter is projected to be roughly $19 million, entirely associated with City of Dreams.

Development of City of Dreams continues to ramp up. In the fourth quarter, capital expenditure is expected to be in the range of $370 million to $400 million.

Operator, we are now ready to open the call up for questions. Thank you.

(Operator Instructions). Your first question comes from the line of Larry Klatzkin from Jefferies. Please proceed.

Hey guys, great explanation there. Couple of things. What does Ted taking over the Crown mean to the Crown? Does that mean that A-Max and Crown are going to more align in running that facility, and A-Max will take a bigger part of what's going on there?

Hi Larry, it's Lawrence. I think Ted -- nobody understands the VIP and junket market the way Ted does in Macau. So I think with City of Dreams on the horizon and the repositioning of the property and the further differentiation of it, it does mean that we are gearing the property more toward Asian customers and also customers associated with junket.

So naturally we have a very strong relationship with AMA, and subject to market conditions and how well they do, we are always open-minded with regard to extending our relationship further with them.

Okay, good. Garry Saunders took off, good man. Are you guys going to replace him?

It's Lawrence again. No, there are no immediate plans to replace Garry. Garry -- again, we'd like to take this platform to again thank Garry for his work. He's been away from his family for a couple of years now. But no, there are no immediate plans to replace that position.

Okay, great. October-November numbers, can you talk a little bit about them? I know you can't give away stuff, but just some feel for the market and what you're seeing?

This is Simon. The -- just in terms of what we saw through October-November and certainly the -- in terms of market share, the bottom of the curse for us was September. It was a pretty horrible month in hold terms and also in market share terms when you looked at -- I alluded to that in the prepared comments, Larry, in terms of -- really of the view that there was some -- quite extreme experimentation from other operators in a period that was considered to be a run-up to the implementation of a commission cap which is obviously now delayed.

And so, following on from that, market share has popped back up in October, helped with good hold in October as well, market share, roll volume is better in November as against October in what we have seen of November. And I think that that is more than anything, justification for the work that Lawrence and Ted and the background has been doing in terms of the changes that Crown Macau was pleased to be able to announce today.

All right. And then as far as we're going right (inaudible) commission cap, Lawrence, what's your view? The last time I talked to you, you were talking about December 1st. Are we talking by end of year now? And also, any chance of cutting the 4% fee and any other changes you see in the horizon?

I think, Larry, at the end of the day we are -- on the commission cap or table limit, issues like that, we are really guided by the government. And to be honest, we really haven't heard anything from the government in the last little while.

So unless we see more concrete documentation of what is to be implemented, we really don't know. So I think at this stage -- it's already mid-November, I think it will be next to impossible to pass something within this calendar year. And in terms of next year, with everything that is happening within Macau right now, we really do need to get more guidance from the government. And so far that's not forthcoming.

And we'd like to just repeat our absolute support for the commission cap, and we think that it would be beneficial to all of the operators as we talked about previously.

Okay. And just a last thing. Other markets -- there are some rumors, Lawrence, that you guys are looking at other possible jurisdictions -- some countries that are looking around?

Well, Larry, I think -- as Simon said early on, we MPEL is fully funded for our projects that we are working on right now in Macau, and with jurisdictions opening up, we know that it's a multiple-year ahead story. So we are constantly on the lookout for new jurisdictions, but I think when countries look at opening up to gaming, they're also complacent of the fact that financial markets are completely closed right now.

So I think fortunately we'll keep looking and we'll keep lobbying, but I don't think anything will happen within the next two years or so.

All right. Well, thanks guys.

Thanks Larry.

Thank you.

Your next question comes from the line of Carlo Santarelli from J.P. Morgan. Please proceed.

Hey guys, how are you? Thanks. I was just wondering, I had two questions, the first of which is if you guys could talk about maybe your most current thinking and how that's changed at all in light of recent events in the Cotai Strip, for the way you're going to position City of Dreams from a mass VIP kind of table split.

Hi, this is Greg Hawkins here. Obviously taking a very closed eye on market condition. So I think the key point, I'll emphasize at this point is the property we're constructing there is compelling by nature of its design. I think the amenities and the entertainment positioning will be extremely strong. So optimism with regards to what we are doing no doubt will be successful, but based on the conditions being optimistic but cautious in terms of how we progress.

So I think the key point to emphasize would be principally looking at the scaling of the size of the operation. We are still far enough out to keep a close eye on what's happening with general economic indicators. So looking at scaling, and in particular, overhead cost, focusing on labor and scale, that aspect is something that we'll manage carefully moving forward.

I guess from a broad strategic perspective, our strategies haven't changed generally. We think the scale of what we launched is critical. But looking at markets, looking at diversifications of the product, which will fit in with private markets, is still fundamental to what we are doing.

So to just specifically answer the question, we think it's more about the scale of what we launch relative to economic conditions that we are very confident of product we're putting inside.

Carlo, this is Simon. There's a pre-opening consequence as well as what's happening in Cotai Strip. And that's that there has been a fundamental change in the demand supply dynamic in Macau between builders and the subcontractors.

And at the moment if you look at City of Dreams, and we've given some color in terms of where we are at, in terms of the cash flowing on that, we've still got a little over a $1 billion of construction cash that will flow out of that site.

And when you get the sort of supply that suddenly becomes available in the subcontractor market and in the labor market that has happened over the short term that is beneficial to developers who have been pressed in a very tight market to pay high prices for things in the past. So we'll be working very hard indeed to ensure that those benefits accrue to all of us.

And the other point with the -- from a supply point of view, clearly there's a diminished basis of table units and hotel room supply coming through in 2009. But from a pure competitive point of view, we think that the short-term positive overall critical mass from Cotai, from property connectivity, ultimately will drive performance. But certainly the approach we are taking is to optimize standalone strategies to make sure we can move EBITDA forward -- very, very positive.

Got you. And one quick follow-up. If you guys could kind of walk us through may be the mass on the variance in the hold level and how you kind of get to that $25 million -- $26 million number for Crown for the quarter. What kind of margin assumptions you are using on that stuff? That would probably be really helpful?

The short option is a very, very long answer. It's an extremely complex science as I'm sure you will appreciate when you take into account that we have multiple programs, the rolling chip play in the property, we have revenue share tables, we have commission-based or turnover-based table programs. Some of them go through AMA, some of them are direct with us. We have direct player relationship.

When you have such a complex mix, if you actually want to break down and reconcile the hold adjustments in detail, you need to look at the relative holds that we have in each of all of those separate segments, and I'm not going to bore everybody on the call here with that.

The basics of it are through the quarter we held a 2.6%. We think theoretically 2.85%. As of last night the property was holding at 2.86% year-to-date. So theoretical looks right. And if you take the difference between those two, you'll come out with a number that's somewhere $35 million on top of the $21 million that we actually reported.

Understood. Thank you very much guys.

Thank you.

Your next question comes from the line of Grant Chum from UBS. Please proceed, sir.

Hi, good evening. Can I just ask a question on the preparations for City of Dreams. I think Lawrence was saying preparing for the worst and hoping for the best. What does that actually mean in terms of the way you are thinking about the cost base at City of Dreams?

And maybe, specifically, how many people are you looking to hire for the first phase, and also in terms of the number of gaming units that you will open from day one? What kind of number -- configuration are we talking about given that (inaudible) plan saw maybe not -- not surprised by the market conditions, when you (inaudible)?

Well, I think, Grant, before I let Greg talk about the specifics, I think when I said we prepare for the worst and hope for the best, I think it's no secret that the whole global economies and a lot of financial markets have broken down. And that -- Macau has had five visa restrictions imposed on it in the last year by China.

So I think with these conditions involved -- and that's why I said we need to prepare for the fact that visa restrictions might not be loosened. Now even though a lot of people have heard that visa restrictions may be loosened as early as beginning of 2009 -- that's what we have heard -- and also I think we are -- although we are preparing for the worst, we are very confident in China's ability to take hold of its economy.

We can see by the RMB5 trillion stimulus similar package that they put in place in the last little [while]. So we all are pretty confident about how China operates its economies and lift it out of -- lift it unlike other countries.

But in terms of the detailed planning of City of Dreams, Greg --

Grant, I won't go into the specifics, but certainly we are being cautious when we look at the dissipation matrix for the property. So obviously keeping a very close eye on growth rate year-on-year and quarter-on-quarter with regards to inbound dissipation into Macau, looking at the share, we expect, but doing that quite pragmatically, and applying what we think are reasonable projected rates for penetration into gaming utilization. So cautious would be the key, but obviously using appropriate matrix to optimize earnings coming through.

I think it's most realistically the number of gaming units; it's more about utilization expectations which flow from that penetration that we are modeling at the moment. So ultimately that's about in the number of FTAs we are putting into the labor pool for the property.

As I said previously, we are still some time from having to push the button on the bulk recruitment, so we can analyze what's happening in the macro condition, then adjust the object overhead base relative to what we think is the optimized position.

And Grant, this is Simon. The Venetian put out the best third quarter numbers in Macau that we've seen in terms of single properties in Cotai. We are opening in Cotai. I understand that the visitation numbers are up over the last month or two months compared to where they were. These are all very encouraging signs that we are building in the right location, and we are building -- we are investing in a resort of similar scale and scope.

And Grant, it's Lawrence here, one last comment. In terms of preparing for the worst, I think if you look at what was done with Crown Macau and the overhead cost of $22.5 million annualized, you can see that we have a very proactive management team that are constantly reviewing operational efficiencies and where we can get more cost out of the businesses.

And so I think from what Greg said earlier on, we are preparing for a structure whereby we will be lean and mean, but at the same time offering the best possible customer experience.

And it's a good point Simon made. So Venetian in year one, it's 60,000 visitors per day, end of September run rate, 50,000 per day. So penetration and access to Cotai can be done with -- as long as promotional activity and strategies are executable.

I think when both phases -- that you may need, if you like, 10,000 people. But I guess for phase I opening, we are looking at maybe 5000, 6000, or 7000. What numbers should we be expecting.

What -- per hour?

Number of employees.

Employees. I thought you were talking about visitation.

I probably wouldn't want to get into the specifics at this stage. As you'd understand, our FTA projection has actually reduced this (inaudible) model, the business more and inching with current economic conditions. So I think a range of somewhere 5000 to 7000 would give you an indication that we are still working on that final modeling.

I see. And just turning back on the Crown cost base. Where does this $22.5 million come from? Is it actually reducing the casino floor staff or is it the back of house? Where is it actually coming from?

Yes, this is Simon, Grant. Lawrence has got a typo on his piece of paper. It's $25 million, not $22.5 million.

Where is that coming from? Between now and when we are able to open City of Dreams, we have a -- in fact I think the chief executive made some mention to it last night. We have implemented a program with our whole staff based at Crown Macau to take time off in lieu of salary. It will have the effect of taking about 10% of our salary base out, driving efficiency gain through the property from a people point of view.

That ultimately is 70% of your cost structure in a property. And it's pretty fixed. You've got to move those numbers. So we will do that over the course of the next 4-5 months while we're still moving through the pre-opening phase.

And then where we have surplus people that we've identified within Crown Macau, they will move across and become some of the first employees that join the 5000 to 7000 that will be working with Greg.

So we will absorb them over there in five months time, at which point you have then got the cost savings delivered through on a recover and go forward basis. So it's really about people just being more efficient and how you drive your rostering, and recognizing that market conditions have changed today in terms of demand and supply as compared with where we were a year ago or so.

And I think, Grant -- it's Lawrence here. We care about our people, because at the end of the day we are in the hospitality industry, and we can't expect our staff to treat our customers well if we don't treat our staff well.

So I think in Macau, as of today, I think LVS made 10,000 construction workers redundant today. We've taken a decision as a corporation to care about our people and to really grow with the people -- with our people for the long haul.

So on top of letting our people take leave, sabbaticals, we are also offering them a back-to-school plan. So it's almost like half going to work and half going to school, and we will obviously pay for the school portion.

So these are all measures that we want to show our employees that we are the employer of choice in Macau. And we think this will really pay long-term dividends. And also we're constantly at the corporate level and all levels, looking at more operational efficiency measures. For instance, although it contributed to a very, very small portion of the $25 million, I've voluntarily reduced my own salary by 35%. So it's all measures that we're continuously looking at.

And Lawrence, just one last question. I mean, given that you guys are in such a good position on opening the property next year versus say some of your other competitors, if you do a good job with City of Dreams, once the -- what are those chances on some of the other sites, on Cotai, over the next couple of years -- I mean, these sites after all haven't been -- basically no land premium has been agreed or paid. So is there a chance MPEL could have another look-in at some of these sites -- Cotai, as funding is an issue for some of your competitors.

This is Simon. I think that our view at the moment is that Macau continues to be a very dynamic marketplace. And we learn lots about it on a weekly basis. We know what our job is over the course of the next 12 to 18 months, and it is concentrated singly on City of Dreams and continued improvements at Crown Macau. That's where our focus is. And never say never, but it's not something that we're going to be concentrating on or looking at over the course of the next few months at least.

Sure. Thanks very much.

(Operator Instruction). Your next question comes from the line of Anil Daswani from Citigroup. Please proceed.

Hi, good evening guys. A couple of questions from me. First of all, Lawrence, could you comment on your strategy for junket operators at the City of Dreams? Is this something that will be targeting AMA or are you going to be targeting different junket operators? Clearly, with a property of that scale, that's got to be a strategy you've got into place now that it's only six months away?

Hi Anil, it's Lawrence. It's a very dynamic market as you can imagine in Macau right now. As you said, we have a great relationship with AMA, and we have designed and built our VIP and junket areas, and we have allocated them between the in-house Crown International Program, our own MPEL direct player program, and also areas for junkets in the VIP room.

So we know exactly what we're going to allocate for those areas. And we are in discussions with the big players within Macau, and AMA naturally is one of them. But I think it is still a bit too early because this market is changing fairly rapidly. But I think maybe I'll let Greg follow-up if there's any additional --

No, I think that's right. I think that's the most diversified approach you would think would be a positive one, but certainly the amount of space and the quality of space we have available across the two properties should enable us to optimize the return.

I'd underline also the Crown towers and Crown precinct that's being developed at City of Dreams, and we expect to raise the bar again in terms of quality of amenities. So apart from junket operators, the ability to very much push inbound direct VIP play into City of Dreams is something we're very, very positive about.

Anil, I want to reinforce what Lawrence said earlier on in the prepared comment. We do have a portfolio approach to our property. A lot of the changes that we've announced today are in order for us to be able to very clearly differentiate to what is becoming a very segmented customer marketplace -- differentiate between those two properties. And I think that that ultimately needs to work itself through in terms of how we operate those properties and who we operate them with.

And so that probably gives you some indication as to where we'll probably go with that.

Okay. And as a follow-up to that, over the last couple of months we've seen some pretty aggressive competition with some of the operators offering credit to the tune of both MGM, Neptune et cetera et cetera.

In the run-up to commission caps, which continue to look like they're going to get delayed out, possibly to the end of this year or whatever, would you potentially look at going down that route, or is that type of competition not on the cards for MPEL?

We sat back and stayed very stable with our terms and conditions with our junket operators through the course of that period in September. Short-term, it impacted us in terms of roll volumes and in terms of market share. It's not something that we choose to jump into.

We think it was probably, as you described, a one-off land-grab opportunity ahead of commission caps that didn't come through as quickly as all of us thought. And so I think that that's now behind us.

So would you rule out credit --

I'm sorry.

You'd rule out providing credit directly to the junkets. That's not something you're interested in doing?

With our -- with AMA we've emphasized very early on in that relationship, we are very creative in terms of how quickly we pay commission to them, how we settle that. That is a way of providing working capital.

Provision of working capital to your junket partners in Macau is a daily fact of life. And if you don't do it, you're missing out on business. And it's something that can be done in a very risk-manageable way because you can get back-to-back set-off arrangements against commission. And the application of a small amount of working capital delivers very high roll results.

So all of those things tend us to believe that all operators provide working capital, and we will be no different. Notwithstanding the fact that at Crown, because circumstances for us dictated that it was the right thing to do, we out-sourced that function of working capital provision to a third party, and that was the right thing for us to have done a year ago. But that doesn't preclude us from participating in certainly in a post-commission cap world, in participating in providing working capital support to our junket partners.

Understood. And there's clearly been a lot of talk about some of your competitors letting people go. One of the biggest issues in Macau has been inflationary pressures, whether it's staff or whether it's the cost of kitchen appliances, or whatever else it is in Macau. Is that letting up? Has there been any -- should we be now looking at deflationary pressures coming through for some of your numbers?

Anil, it's Lawrence. As you said, everything in Macau and the rest of the world is about supply and demand. And I think we went through a few years where there was a constant battle for labor, and a constant battle for construction workers, fit-out specialists, metal, you name it.

And City of Dreams is the only construction site that is still operating within all of Macau. We are the apple in the eyes of all construction workers now. Everybody wants to work for us. So we are in a very, very strong position.

And it's the same issue with labor as well. So I think a lot of the inflationary pressures are letting up and will further decelerate at a very quick pace.

Okay. My last question guys. I'm sorry for being so -- having so many of these. But can you comment a little bit on what's the update on Macau Peninsula or the eastern side, should we just assume those don't exist from hereon then?

I think that you can assume that they do. Both still exist. I think that any notion that we as a developer were able with internal resources or external finance resources to multiple develop sites, I think that that notion is gone. And I think that that is a decision that we took before the financial markets would have taken it for us.

We took that probably more than a year ago, and there are still two projects that we believe will get built and the two projects that we are certain we will be involved with. Perhaps in a different format from what it is today -- what's proposed today, but nonetheless they are very much on our horizon, but it's not a focus for us right now. Our job is in hand, and it's the City of Dreams primarily.

Thank you guys.

Thanks.

I'm sorry. Your next question comes from the line of Devan Patel from Banc of America. Please proceed, sir.

Hi, good evening. I wanted to see if you could give us an update on your first and second quarter 2009 Cap Expense and your current usage on your liquidity facility?

And also second question on -- if you expect to be the restriction -- let's assume that they do stay in place. Is there any change in your marketing strategies to start focusing on the rest of Asia or even Southeast Asia to bring in high profile or VIP customers?

I'm going to leave the second question for either Lawrence or Greg to have a go at, but on your first question, we've already disclosed what we think the CapEx will be for the fourth quarter, between $370 million to $400 million, all City of Dreams. In terms of them flowing through to when we open City of Dreams some time during the first half, which I guess accommodates your first two quarters of next year, we said that the total CapEx plus pre-opening activities is about $1.1 billion.

The pre-opening is about $100 million, so you are down to $1 billion, knockoff the $400 million. So it'll be about $600 million of construction phase cash outflow in the first half of next year as we run up and through the opening of phase I.

So if you look at that by reference to the $900 million of cash that we had at the end of the third quarter and the three quarters of a billion in facilities. We've actually drawn on those facilities subsequent to the end of the third quarter, and we pulled down just slightly less than another $200 million of cash into the balance sheet, and we'll effect another draw before the end of this year prior to Christmas.

So we continue to draw ahead of when the cash is actually required, which I think is the appropriate thing to be doing given that we don't know what's around the corner in the market. So that's hopefully the color that you are looking for.

Greg.

Yes, I think the inbound ideas from [main line] was still positive recently although below previous growth levels. Some of the inbounds from Hong Kong is clearly flattening, while the scales are -- they are still critically important to us. So I think the approach we would be looking at would be to make sure volume is there, but particularly look at value customers as we are looking at some of the strategies we want to put in place. So value customer and talking about property is particularly important to us.

Other markets, absolutely. So at the scale of the property we are doing on Cotai and the quality of it blends itself very much to a significant basis of experiences in target market. So as far as north Asia, Southeast Asia, at the top end of mass, as well as into VIP rolling areas and direct play, very, very important. And we'll play a key part of what we are doing.

Okay, thank you.

Your next question comes from the line of Karen Tang from Duetsche Bank. Please proceed.

Hey guys, this is Karen here. My question is with regards to what was the recent restructuring impacting the mass and global recession kind of impacting the VIP. What are you thinking in terms of table configuration at COD in terms of VIP versus mass?

And related to that, what happens to the government on table limit? When do you expect to get a table approval by the government?

And then, also related to this is that in terms of an absolute rolling contribution, should we expect A-Max to have a bigger impact or contribution at Crown or COD when it's open? Thanks.

Regarding the first question, for Greg.

Yes. In terms of table configurations, we are still far enough as to be looking at the ultimate mix of that. So we'll reorient based on the flexible floor plates we had depending on where we see the demand.

At this stage we haven't changed the [switch], but we have flexibility there. So it's not an issue for us in terms of the ability not to change and adjust to the market moving forward

So the previous indication of around 500 units, we expect to open with the flexibility and the orientation, and then we'll continue to work on.

Karen, it's Lawrence. In terms of your second question about table limits, again I think it kind of took care of itself, because let's face it, (technical difficulty) the City of Dreams for the foreseeable future, the next two years, the biggest supplier of new tables will be City of Dreams, and that will be it.

And given that the commission cap was supposed to be the more urgent matter, it hasn't been resolved yet. I don't know -- again we need to get the government's guidance on this, but given everything that's happening in the market, I think it's not a hot button issue anymore.

And with regards to the last part of your question which is -- with regards to AMA participation at Crown Macau -- I think again it's AMA's participation at Crown Macau with Ted rejoining us, obviously we'll continue to be very, very large.

With regards to their potential participation of the City of Dreams, again it's probably a bit too early at this stage, but we are talking with the market and the players are constantly moving. So I think in due course if we have more concrete plans we will announce it to the markets at that time.

Thanks.

Your next question comes from the line of Adam Alexander from Goldman Sachs. Please proceed.

Good morning guys. I just had a question. If you could give us a little more color on the reasons behind the decision to rebrand Crown Macau. Is it an issue with the brand there, and was that decision driven by MPEL or Crown Limited?

Well, we -- it's Lawrence here. With the grand opening of City of Dreams in sight, we've always thought there was a brand conflict because you have two identical brand products within Macau, and so we took a strategic decision, MPEL and Crown Limited, collectively, together. We've been thinking about it, and that's why we made the move.

I think that --- it's not well enough understood out there, Lawrence, so it's a fantastic part of the City of Dreams development that is Crown branded. There's an amazing hotel going up there, and the high rolling VIP areas and the spa and the high-end signature restaurants, they are all congregated around that area.

In effect we would have ended up with two Crown-branded areas -- hotel casino areas within a matter of five minutes of one another. This move helps us to clean up what would have otherwise probably have been a bit of a brand confusion in the marketplace, and it helps us to differentiate between these two properties to make sure that we don't end up in a situation where others who've opened a second property against a first in the market cannibalize themselves. And it's really important that we don't cannibalize the business that we are doing at Crown Macau today when we open the City of Dreams.

So that's really what sits behind it. It's not because anyone instructed us to do it. It just makes sense.

Okay, great.

At this time I would like to now turn the call back over to Mr. Simon Dewhurst for closing remarks.

Okay. Well, thank you very much for listening in on our conference call today. We look forward to reporting back to you in another three months time. Thanks very much for all of your questions, and have a good day.

Ladies and gentleman, thank you for your participation in today's conference call. You may now disconnect. Have a wonderful day.