Melco Resorts & Entertainment Ltd (MLCO) 2010 Q2 法說會逐字稿

Good morning, and thank you for participating in the Second Quarter 2010 Earnings Conference Call of Melco Crown Entertainment 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 Crown Entertainment Limited. Please, proceed.

Thank you, and good morning. Lawrence and Ted are here with me in Hong Kong and Greg and Constance are dialed in from Macau. Before we get started please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of Federal Securities laws. Our actual results could differ from out anticipated results.

Lawrence?

Thanks, Simon. Good morning, everyone. We continued to demonstrate solid underlying progress in the fundamentals of our business during the second quarter. Mass market table games revenue increased 9% and rolling chip volume increased 24% in City of Dreams from the first quarter of this year. Our database of customers continues to grow, which allows us to better penetrate the more profitable mass market.

Looking forward, we expect our VIP business to continue to thrive, and we expect to drive further growth in our mass market business as we open the remaining amenities at City of Dreams. The most significant of these is the opening of the House of Dancing Water in September. I am convinced that this will be the most spectacular theater show ever staged in Asia, if not the world, and I believe it will meaningfully enhance the brand awareness of City of Dreams, especially in mainland China.

More broadly, we remain bullish on the opening of additional integrated resorts in Cotai in 2011, as we believe supply drives demand. This is the logical continuation of what we have experienced in Macau since the liberalization of the gaming market. The migration of visitor traffic and gaming revenue to Cotai is inevitable, in my opinion, and we are very well situated to exploit this trend at City of Dreams.

Macau is in the enviable position of having China as its primary feeder market, and we are confident that the Chinese economy will continue to drive gaming revenue growth in Macau for the foreseeable future. I believe China's economic ascendancy, combined with the expansion of its middle class, will continue to provide a robust source for visitor and gaming revenue growth in Macau for many years to come.

I will let Simon provide a more detailed review of the quarter, but I will first comment on the organizational restructuring that we announced earlier today. With the completion of City of Dreams, we have stopped being a company focused on development and we are now focused on maximizing the financial performance of our assets.

Over the past few years -- past few months, we have completed a detailed review of our business so as to maximize the efficiency of our operations in the pursuit of improved ROI and margin expansion. The restructuring of our operating management team aligns functional responsibilities across all of our properties.

Macau is a unique market and we believe this structure better addresses the realities of how we do business. This structure will allow us to leverage the strength of our portfolio more efficiently, and it is expected to drive revenue benefits as we can more effectively cross-sell between Altira and City of Dreams.

Macau is a dynamic and constantly changing market, and this restructuring will streamline our organization and allow us to be more competitive as we execute our operating strategies. The reorganization is core next step development for us, and we expect to see tangible results from it over the next six to 12 months. We believe that it is the right time to effect this change, and we have identified the right people to make it happen.

Many of you already know Ted; he helped me establish our gaming presence in Macau in 2004 with Mocha Clubs, eventually becoming the CEO of that unit. For the past two years he has boosted the efficiency of Altira Macau and established strong relationships with a wide array of junkets.

Under his leadership, Altira won the prestigious Five Diamonds destination and he has also executed the recent and seamless transition to a traditional direct business model. Ted will continue to report to me in his new role as Co-COO, Gaming.

I am also pleased to announce that Nick Naples has joined us as Co-COO, Operations, reporting to me. Nick is a veteran of the business, and I believe he can take our brand awareness to the next level. He has extensive experience in Macau and has worked at a number of high quality lodging companies over the years. I am confident that Nick will hit the ground running and make an immediate contribution to our team and our efforts.

Finally, I would like to personally thank Greg for his years of service to Melco Crown Entertainment. He has been with us since the early days and has been a key component in establishing our presence in Macau. I wish him and his family the best as he moves on to the next stage of his career.

So, back to Simon.

Thanks, Lawrence. We reported US$73 million of adjusted EBITDA in the second quarter of 2010. I will provide some additional color to try and help preempt and answer some of the inevitable questions that we will get during and after this call.

Using a normalized blended VIP home rate of 2.85% across both City of Dreams and Altira, theoretical adjusted EBITDA was US$89 million in the reporting quarter. If we add back the nonrecurring provision of US$9 million, our normalized run rate EBITDA increases to US$98 million for the second quarter.

Putting this in sequential context on a like-for-like basis, a theoretical adjusted EBITDA in the first quarter of this year was US$81 million. The 21% jump in theoretical adjusted EBITDA was driven by an approximate 10% increase in gaming revenue. Our operating cost structures are stable. In other words, we are experiencing the same operating leverage as our peers.

Looking forward, we expect to continue to participate in the growth of the rolling chip market in Macau and we will maintain pricing discipline as we address this segment. We continued to see growth in our mass market business in July and we are very comfortable predicting sequential volume growth in the third quarter of this year that is not dissimilar to that in the second quarter.

We anticipate a step up in visitation and mass gaming revenue growth with the introduction of a variety of new amenities at City of Dreams, including Cubic Night Club, the Hard Rock Cafe, our retail expansion, and, of course, the House of Dancing Water. While we've grown with the market in second quarter and third quarter, we are targeting to take some share in the fourth quarter of this year.

Now that we are through the mandatory quiet period, I would like to take the opportunity to provide some commentary on the high yield transaction we completed in May. We closed a US$600 million senior note offering, and we completed a nearly simultaneous amendment to our existing bank facility. The coupon on the senior note is 10.25% and they mature in 2018. They are callable after four years.

All of the proceeds from the bond issue, net of issue expenses, are to be used to repay approximately one third of the bank facility. The pricing on our existing bank facility is a HIBOR plus 250, significantly below current market rates, and this may reduce further by as much as 100 basis points through the leverage grid over the coming few quarters.

By doing the bond deal and processing the bank loan amendment, we made our bank loan fit for purpose. The blended cost of debt across both facilities is approximately 6% -- low relative to our peers.

We received some inquiries about why we did not pursue a full refinancing of our bank facility. The simple answer is that the blended cost of debt would not have meaningfully improved with full bank refinancing, and our maturities are improved under the high yield bond refinancing option.

The other advantage we perceived was that the bond offering in conjunction with the bank debt amendment delivered a faster, cheaper and more certain refinancing outcome. If the extreme volatility in capital markets that we have witnessed over the last three years persists, we will continue to prioritize certainty of financing outcomes over just about everything else.

Two final quick points. Our financial covenants remain largely intact with the maximum leverage ratio at four and a half times senior bank debt, which excludes the senior notes. As a result, debt is now effectively $1.1 billion for the purposes of the leverage maintenance covenant test going forward.

Secondly, we pushed out the date of the first covenant test under the bank amendment from the first quarter to the fourth quarter of this year. As a basic guideline, our full year EBITDA for this calendar year is required to be above approximately US$250 million so as to avoid any breach of our maintenance leverage tests.

As I normally do, I will give you some guidance on non-operating line items for the third quarter of 2010. Depreciation and amortization cost is expected to be approximately US$78 million. Net interest expense in the third quarter is expected to be approximately $30 million and pre-opening expense will be approximately $4 million, which is primarily related to the House of Dancing Water.

With that, let's go to the Q&A. Operator, back to you. Thanks.

(Operator Instructions)

Your first question comes from the line of Larry Klatzkin from Chapdelaine. Please, proceed.

Can you hear me?

Yes.

Hi, Larry.

Hey, guys. How you doing? At least I have lost no bets recently from you guys. The -- when five and six open up what kind of potential upside do you guys see as far as the group goes, including yourselves? Is this something that you are eagerly anticipating and expect some real growth in Cotai?

Larry, it is Lawrence here. As we have always said, we believe that supply drives demand in Macau and when sites five and six and probably more quickly when Galaxy Cotai resorts open up next year, we believe that it will help our business because at the end of the day it will further the center of gravity away from Macau Peninsula into the Cotai area, which is really the area that the Macau government has planned to be the entertainment district of Macau.

So, I think, from a visitation standpoint for people to get in to Macau, and with all the infrastructure coming online soon in the new ferry terminal and light rail a little bit later on, we certainly think that Cotai is without a doubt the best place to be in.

And then, as far as the growth -- what, July is up over 70% at this point, month-to-date. Are you guys -- any chance China reacts like it did a year and a half ago with a little frightened to how high the growth rate is? Do you think they are kind of endorsing the new executive and that they are going to be fine with this kind of growth on a short-term basis?

From what we have heard around town, the Macau government is actually very happy with the growth rate and Chinese policies, as you know, are unpredictable at best. But as we have always said, it was a very low base last year. Don't forget the first six months of the year -- actually the first seven months of last year were low basis. And Chinese policies usually they don't look at short-term, they do look much longer term.

If anything, we have also heard from our sources that visa applications are being processed even speedier than previously before. So, all in all, from a macro and political standpoint, things are looking good and, ultimately, we are extremely happy to be beneficiaries.

Great, great. And then as far as new jurisdictions, Lawrence, you said that it is definitely something that you guys are considering in the future. Is there any new news on like Japan, or India, or Taiwan or anything?

Well, in terms of Japan and Taiwan, places where we have looked at and have done some work on in the past, it is still going through a governmental process. Rest assured we are staying very close to see potential movements there.

Okay. All right, good. Well, listen, congratulations on the ramp up of City of Dreams and I am excited to see that you continue to open to various parts.

Thanks a lot, Larry.

Your next question comes from the line of David Bain from Sterne. Please, proceed.

Great, thank you. Hey, guys, I was hoping to get a percentage of VIP on revenue share versus rolling chip, and if there is any plan to change that mix longer term.

Yes, hi, Dave. It is Simon Dewhurst. The -- blended across both properties we are at around about 20% on revenue share, 80% on turnover or rolling chips form. If you look at it at a property specific level it is about 30% revenue share at COD and about 10% at Altira.

Okay. And is there any chance or any plans to change that mix longer term, or is that pretty much where you guys (inaudible)?

Our approach on that is that as an operator we have very flexible arrangements with the junket universe that we work with. So, it is not something that we are dictating. We are flexible and if junkets wish to roll on revenue share with us, we have a program, or if they wish to roll on a turnover basis, then we also have a program.

And some junkets will switch in and out from one month to the next, depending on how much risk appetite they have and how their working capital fits and so on. So, our approach is to be flexible. Gone are the days where the market didn't have enough competition in it such that you were able to dictate terms. That was a 2006 phenomena, not a 2010 or a 2011 phenomena.

Got it, okay. And then, do you guys have a long-term percentage target for mass versus VIP at City of Dreams after House of Dancing Water, Hard Rock Cafe, Cubic, everything has a chance to ramp? Is there a long-term kind of goal that we should look for?

Well, the best way to look at that is to break it out in terms of split of EBITDA. And we are -- at the moment, we have up to around about 50% at theoretical hold rates on VIP. We are at around about 50% of our EBITDA coming from mass activities and about 40% -- 35%, 40% coming from our VIP business. The rest of it is non-gaming related.

Do we think that we can move that mix to nearer 60% coming from mass? Yes, we would like to think that we would be able to do that. And clearly, that would come from a step up in overall mass volumes, associated amenities as we have suggested we are aiming for.

Okay. And then just on that provision, I guess that relates to -- is that pretty much the extent of the loans that were made to that group?

No. We are provided 50% against the outstanding amount. We have a process in place. We had collateral in place. I think that the culmination of that process will take quite a long time. We don't want to over provide for the position, but we also don't want to under provide for it, so we think that if it is the right provision then I doubt that it will change.

Okay, thanks. And just last one, actually, given the movement with Macau Studio City, do you think that things have taken a positive, or a step in the positive direction, or kind of the same or wrong direction in terms of those parties getting something going there?

David, it is Lawrence. For Macau Studio City we have stayed in tune with the process. Of course, they are locked in litigation in Hong Kong. So, I think, honestly, other than the government sending them a letter asking them for progress, it has made some progress, but it would be very little of it.

From our perspective, our focus for the next 12 months is solely on making the new organizational structure and making use of the organizational structure to maximize our earnings at City of Dreams and our existing assets, so it actually works quite well within our timeframe. But, having said that, if they start moving quickly we would be most interested as well.

Okay, great. Thank you.

Thanks, Dave.

Your next question comes from the line of James Kayler from Bank of America Securities. Please, proceed.

Hey, Lawrence, and Simon, how are you doing?

Hi, James.

You know this a little bit, but could you -- you mentioned in the opening comments the kind of the as adjusted or kind of run rate EBITDA. Could you just bridge us from the reported EBITDA to the -- I think you said US$98 million number? Could you just walk us through the components?

Yes, if you take the US$98 million and knock US$9 million off, which is the provision that I explained about a second ago, just to get to a normalized run rate. And you are then at theoretical, which is at the midpoint in our expected range of between 2.7% and 3%, so --.

But we held blended across both properties at 2.7% in the second quarter. We held blended at around about 2.92% or 2.93% in the first quarter of this year. And so, that calculation basically gives you a clear understanding on a like-for-like basis as to how the progress that we are making in volume terms is translating into EBITDA.

I know you guys don't give a property by property hold, which is fine. But obviously just looking at the property EBITDA numbers it looks that City of Dreams was sort of below expected and Altira was probably above. Is there a -- does it matter kind of which property holds better or worse? Is there a bigger impact if you have low hold at City of Dreams just given the scale of the project?

Not in aggregate terms, no. If you change in hold at one property or the other will have the same impact on consolidated EBITDA. What is certainly true -- and you made reference to it, let me give you a bit more color.

Altira, as you say, held above the top of the range. It was somewhere between 5% and 10% above the top of our expected range, and City of Dreams was below the bottom of the expected range and you get to the blended point of 2.7% across the two properties.

What you can see from that, is that first of all, it is nice to have two properties operating in the scale of the rolling chip business ensures that you mute down the inevitable impact of hold over time, and so that is key.

And, secondly, what you can see from that is that whereas perhaps in the past with just Altira, which was so heavily dependent upon VIP business, that a bad hold quarter decimated EBITDA, whereas a poor hold quarter at City of Dreams doesn't decimate EBITDA. It comes in below expectation and that property is still a profitable property. Does that make sense?

Yes, that is very helpful. Just a few housekeeping things because I am bond guy -- can you just remind us what the restricted cash is for on the balance sheet and that what it is kind of set aside for?

Yes. It is -- of the $600 million of bond proceeds that we raised in May, we have parked $133 million of those proceeds in a restricted account. And that money will be applied against repayment on the bank loan that happened in the first three quarters, the first one being in December of this year, and then March of next year and June of next year.

In other words, we have no repayments under our bank loans until September of 2011 that need to be funded out of the free cash generated for the business. What does that do? It allows us to continue to build up a deeper base of free cash in the business. So, that is the main part of it.

The other part of it is that we still have about US$60 million -- US$50 million or US$60 million of restricted cash which sits there to meet the retention payments that are still outstanding to contractors who helped to build City of Dreams. And that will clear away through between September and October of this year. Those final payments will go out some 12 months after we open the property.

Okay. And -- the amortization payments on the bank, the ones that pre-funded, are -- if you just -- is it safe to just equally divided that 133 over those three? Are they equal payments?

No. No, and it actually scales a little bit, so the payment that is due at the end of this year is around about $35 million, a similar amount in March of next year and then the balance is due in June of next year.

Okay, perfect. And just -- can you just remind us what you think sort of run rate maintenance CapEx is, and then is there any other spending for City of Dreams other than the $50 million to $60 million and what the timing of that cash outflow might be?

Yes, well remember the $50 million, $60 million is already in the ground and operating -- the retention payment. It is not new CapEx, it is CapEx from last year that we just haven't paid yet. And, as I say, the timing outflow of that will be -- it is normally you have extensions out 12 months from the end of contract.

So -- those assets at the property around Grand Hyatt that didn't come on stream until the back end of last year, the retention payments related to that -- those contractor packages will flow out of the back end of this year. So, that is when you will see that restricted cash dropping down to zero through the end of this year.

As far as our maintenance CapEx is concerned it is probably around about US$30 million to US$35 million across our portfolio of assets on an annualized basis.

Perfect. And then just last question, there has been some press reports and analysts reporting that basically the mainland government has allowed visitation to increase in Macau. Can you just comment if you are seeing that in recent months and what the -- why you think that might be and what the effect might have -- might be on the mass business?

Hi, it's Lawrence here. As I said earlier on, we are -- from our sources we have also heard the same message, which is the mainland government is processing the visas more quickly for the individual travelers. So as we know, if you look at the numbers in June, I think it was up 30% and individual travelers starting from the second quarter has been on an uptrend.

From a mass market standpoint, of course, the individual travelers along with the travel tour groups contribute a significant portion of that business, so I think it will continue to contribute to that. But it is still early days in terms of some of these loosening measures, and I think we do need to see a few months to see whether these faster visas processing process is here to stay, or is it just a temporary summer thing.

Certainly, it would be right to say that we have seen a very robust market in the last two or three weeks as we have been running through July with clearly very strong visitation trends into the market and a good uptick in terms of our own performance metrics.

Okay.

Your next question comes from the line of Dan Yu from JPMorgan. Please, proceed.

Hello, everyone. Could you give us a little bit of your thoughts around growth rates around the back half of the year, especially from September onward as comps get a little bit tougher, and how you think that is all going to play out?

Yes, Justin, it is Lawrence. As you rightly pointed out, comps do get much tougher starting from August. So, I think for Q4 I still think that Macau you look at -- Macau is a direct play on China consumerism, so as long as the Chinese economy is growing well, Macau should be, should continue its ramping. So, I think to the last quarter of the year we should see in excess of 30% growth considering the 70% that we are currently seeing. So, I think that is probably a conservative estimate.

Okay, thank you very much.

Thanks.

And your next question comes from the line of Lawrence Haverty from GAMCO. Please, proceed.

Hi, Lawrence, Simon. One quick one, when is your best guess on when this ferry terminal opens? This has been an epic.

Well, Lawrence, according to the Macau government's recent press release they are looking to open it in the early stages of 2013. So, having said that, the temporary ferry terminal is operational and they have added Macau Dragon or a new ferry service. So it is operational, but the full terminal which will be bigger than the -- much bigger than the existing terminal, and will be the main terminal, which is the future Pac On terminal, will -- we have to wait until early 2013.

So, we are eagerly anticipating that. And, as I said earlier on, is their infrastructure projects have restarted since the new administration took over, so we are very excited about that with the light rail, with more bridges and also the ferry terminal being a key component.

And, with regard to the show, the House of Dancing Water, your competitors are having a lot of trouble with their show, to put it mildly. Why should this one be having a fate much different than the other one? And what are you going to price the admission at, or have you decided that yet?

Yes. I think, The House of Dancing Water is different from ZAIA because ZAIA was really a show that was in development at Cirque du Soleil, whereas -- since we struck up the partnership of Franco Dragone Entertainment five years ago. Franco has personally been involved in every aspect of -- he is directing the show in Macau as we speak, under rehearsal, but he has been involved in every aspect of the design of the show in terms of the theater that we have fitted out for him, all the specialty equipment.

And also, Franco spent a lot of time with me to understand the Chinese culture and some of the Chinese preferences. And he has gone around China to really see what sort of entertainment appeals to people. So this show is really designed and dedicated with -- it is a water-based show, so it fits in with the total theme of City of Dreams and Chinese people's feng shui.

So, all in all, this is a tailor-made show and we have done a lot of market research along the way to try to understand what will draw visitors from mainland China. So I -- and so far in the rehearsal that we have seen it has been truly spectacular. And I am one of these show freaks. I have seen most of the shows in Las Vegas, and I think this show blows all of those shows away.

And how much is the ticket going to be, or is that still not decided?

The ticket prices are decided, so there is going to be a range there's -- is going to be three-tiered, with the lowest tier being around US$50 per ticket and the highest tier being close to US$200.

Okay, great. Thanks very much.

Thank you.

Thanks.

Your next question comes from the line of Justin Kwok from Goldman Sachs. Please, proceed.

Hi, thanks. Thanks for taking the question. A couple of questions -- number one is the follow-up on the water show that we have discussed, exactly what the total CapEx and outstanding CapEx that we are looking at and the running costs that we should expect?

The CapEx in regards to the show as far as the theater is concerned is part of our as built cost. That part of the show development was completed many months ago, Justin. It was approximately -- US$250 million of that total build across that City of Dreams is invested into the construction of the theater.

The show production itself -- and obviously we are now moving literally into the last four or five weeks of that, it has been in development for more than a couple of years now. The whole -- the total show production costs was approximately US$60 million.

All right. And the future of the running costs or the maintenance costs for this show?

Yes. I have provided guidance on this in the past. My expectation is that fully loaded on a day to day basis, the cost of manning the theater, paying the artists, running all of the utilities and so on will be approximately US$100,000 a day.

Okay, thanks. And my second question is throughout the conference call you have also mentioned on the database of customers where you are in the process of building up for these and others and the City of Dreams.

And what is your -- what you are having now, what is your target? And how do you see it is going to drive on the, on terms of the mass drop for this property for on quarter-on-quarter basis? It seems that the second quarter the mass drop among this seems to be have flat bit on that front, so I just wanted get a sense on your expectation on this ramp up.

Justin, I am going to get Greg Macau to elaborate, but in terms of our customer database, for City of Dreams we are over 300,000. Our target for yearend is close to 500,000, but in terms of -- Greg, can you elaborate, please?

Yes, sure. I think it is important when you look at the mass drop progression to take into account a couple of factors. There was significant cash drop growth from Q4 to Q1 if you look back historically. And Q2 saw quite a realization of yielding the hold rates on both the mass gaming floor as well as in the slot business, which really drove the revenue in those areas from Q1 to Q2, with the mass table revenue being up around 8.5% or so and slot revenue up by in excess of 20%.

So, I think that yielding of the hold in win rates is still something we definitely focus on and is a really important component of revenue growth in those areas. If you focused on Q2 specifically, June was a little bit softer than what we expected. We saw quite a bit of normal cash drop. We think things are [due] to some of the World Cup activity which was occurring around that time.

Interestingly, the second half of July we have seen a significant rebound in drop activity in the property, in fact, it is tracking in the second half of July around 10% in excess to the average Q2 drop run rate, which is pleasing. As Lawrence referred to, one of the key components here is to grow the loyalty database, and when we opened the property here we had zero.

That -- we are approaching 380,000 active members now with a target of in excess of 450,000 by the end of the year. How you ought to utilize that data is critical, so we have quite a sophisticated approach to working the particular keys in the data there.

So looking at that loyalty database use, combining that with that significant amenity growth to the property, including House of Dancing Water, which is not just a standalone impact, but also has a significant impact on the broader brand appeal in our key markets, combined with the ongoing focus on sub-brand development in our mass gaming areas, I think, positions us very solidly for further volume growth in the second half combined with that ongoing hold yield growth.

All right, thanks. My last question is on some housekeeping numbers. On the $9 million provision, is that -- I should look at that as just a provision solely on City of Dreams, right? Am I thinking correctly on this front?

No, Justin. The $9 million is at Altira and I provided some color on that earlier on the call.

Okay, thank you. Yes, that's all. Thanks.

Thank you.

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

Good evening, hi. I just want to come back to the commission structure for the junkets -- the commission on the roll versus the revenue share. It does seem your proportion of commission on roll is much higher across the Company than the other concession companies.

And just looking at -- I know for this whole six months the difference in EBITDA from actual to theoretical is not huge, but just going from the 2.7% hold or going from a 2.92% to 2.7% it seems to make a massive difference to the EBITDA. I just wonder, are you saying that you would ideally want to shift the mix more towards revenue sharing, but competitive dynamics just don't allow you to?

Or philosophically, are you saying actually we are quite happy with this ratio between revenue share and commission on the rolling chip?

Yes, hi, Grant, it's Simon. If you take -- looking backwards never tells you what is going to happen if you look forwards. But if you look backwards and you take the like to date hold performance that we have had across all of our properties -- and remember we don't mix don't any cash play into our VIP hold calculations at all; some of our competitors do and that inflates their numbers. So we are giving you the purest, cleanest data that we can in terms of hold.

If we look backwards against that hold performance we have probably benefited by having the -- certainly at the commission cap weight level we have benefited from being on turnover program rather than revenue share, and revenue share is more expensive.

Now, if you have a quarter where your EBITDA, where -- sorry, where your hold rate is high then obviously if your biased like we are to turnover schemes, that drives your EBITDA up nicely. And conversely, if you have a quarter with low hold and you are biased to the turnover, so the volatility is higher, no doubt about it.

If you are entirely dependent in your EBITDA makeup on VIP play, and back a few years ago we were pretty much, then clearly if you could push to revenue share you can reduce that volatility, albeit long-term it will cost you more money. Our focus was not to take that approach. Our focus, as we said, was to move to a more mature model by building our mass business and our non-gaming contribution, which is what City of Dreams is all about.

So, we will continue to be focused from an EBITDA yield perspective. We will continue to focus on driving the best performing EBITDA segments across our portfolio. And then as far as our orientation to the junket universe is concerned, we will continue to be somewhat differentiated from some of our competitors by offering them flexibility.

All right. And are you saying often that flexibility helps to gain -- helps to secure more loyalty from some of them, or --?

I think if you are the sixth operator in the market to open up your operations or the fifth operator to open up, versus the first or the second, you have to be a little bit more creative in terms of how you present yourself to the marketplace. We have talked about this before.

We are way beyond the point of first mover advantage in this town now, and we built our systems and we trained our employees so that we are able to offer this type of flexibility. And it is recognized by the junket universe. And, I think we would all be of the view that it helps to underpin a good portion of the loyalty that we have seen with our junket universe, some of whom have been operating with us now for the better part of three years.

Sure. That is helpful. Thanks.

Thanks, Grant.

Your next question comes from the line of Aaron Fischer. Please, proceed.

Hi, guys, well done. The results are pretty good given the market share was a little volatile during the quarter, so it is a good performance of EBITDA level.

Just on the market share number, though, with all these attractions which are sort of opening up over the next few months, and just given the fact that you have got a pretty good property there as well, like how do -- what do you really think the right market share is for you guys over the next six to 12 months?

Well, we gave a bit of a steer earlier on which is that we are looking to gain some market share in the fourth quarter. And I think that not -- having said that, this isn't about chasing ego, it is about chasing EBITDA. And the mix of how you generate your revenue share is much more important than the absolute amount. And so, I don't want to create the impression that we have become a company that is chasing market share because we are not.

I -- Aaron, it is Lawrence. I totally agree with that. We have always been focused, especially after we opened City of Dreams, on really increasing EBITDA and our free cash flow. As you know, the market share statistics every month is highly skewed towards VIP operators. We have done quite -- we have done very well on the VIP.

But, I think the key for us in the next stage of development and opening up all these amenities is really trying to integrate these wow attractions and amenities and drive up further our mass business and the slot business.

Yes.

So, from a bottom-line standpoint, they will contribute because they will bring in a mass crowd. But, I think on the top-line, again, market share on the --

Yes, actually I really agree with Lawrence. I don't really get too bothered by the market share. But maybe if we could get back from an EBITDA point of view then, what could you do in terms of EBITDA versus now once these attractions open up? Could it be 50% more or -- what sort of uplift we could see over the next 12 months?

Aaron, I am not going to give a forward forecast --.

Okay, one other comment because I --

Aaron. So, Aaron, what I will say is and I have illustrated in the way in which we prepared our comments today, you talk about -- a lot about the importance of leveraging across the P&L given fixed cost structure and we absolutely agree with you. And a relatively small increase in revenue performance will drive a multiplied impact of the EBITDA line if it is the right type of revenue.

And we are -- we look with a bit of envy, but also with very great recognition to the level of performance that the operators have been running in the market for two or three years longer than us with their mass products and now achieving through those properties.

We recognize that we are a couple years behind them in that development cycle in terms of getting properties open, and that is not something that we can change. But we look at the way in which their EBITDA is growing, and it gives us great confidence for the future development of our own properties.

On the -- it just seems to me that the market seems kind obsessed by VIP right now. But, I think if we look out the next four remaining months you have got obviously two great properties, well, potentially great properties opening in Cotai which is one which is obviously next door to five and six with the Galaxy projects. And I agree with Lawrence on the comments that supply does really grow the market, particularly on the mass side.

But what I am a little bit worried about is whether -- one of those two operators can execute well, and maybe you can guess which one I am talking about, and whether that could destabilize the market if they were unable to achieve the returns they are looking for.

Aaron, are you referring that -- the operator that does not execute well would use pricing strategies?

Something like that, yes.

No, to be honest the market in Macau and also in Cotai, in particular, is one of integrated resorts. So if -- pricing strategies work for the more traditional hotel casinos where gaming is the only attraction and the people who go there are only interested in gaming.

So, whereas when you are talking about an integrated resort and you have the accommodations, the amenities and all the entertainment attractions or conventions and exhibitions, people generally go there for more reasons than that and they do go bring their family and friends along.

And part of the reason we also announced the organizational restructuring today is really again to put more focus on the two areas where we are trying to put more strength into gaming and non-gaming. And because at the end of the day if you get non-gaming elements directly correlated to the gaming, especially from an integrated resort standpoint. Because if the accommodations aren't good, the customer isn't good and the entertainment isn't well integrated into the gaming element, then you are not going to derive the maximum benefit out of it.

Got it, great. But a third one, (inaudible) one of those look like a handful, but probably I probably should be asking you about the occupancy rate at Grand Hyatt and how that has been tracking.

Greg, do you want to fill us in on that?

Yes, sure. The Grand Hyatt has been an obvious focus for us in terms of growing occupancy there across the first half of this year. We have seen some good movement there, but if we focus on June in particular, we were around 80% occupancy for that month, which was the highest level they've been since the property was basically fully operational. So, that was a good step forward.

We obviously want to grow that more so we are working, as you would expect, very actively with the Asia-Pacific Hyatt team, who are very focused and have put a lot of effort into both sort of short-term sales strategies and inbound FIT into the property, as well as some of the longer lead time business around MICE and other areas.

So, we are reasonably satisfied with the progress across Q2 with a target of obviously pushing that towards high 80s, 90% across the second half of the year. So, that was a reasonable step forward. At the same time, always looking at the type of cost relative synergies that can effectively be implemented between the two businesses as well.

Okay, excellent. Thanks very much.

Thanks, Aaron.

And your last question comes from the line of Karen Tang from Deutsche Bank. Please, proceed.

Hey, guys, just a little housekeeping question. What is the percentage of direct VIP customers at City of Dreams? Thanks.

At COD, just below 20%, Karen.

Thank you.

Thanks, Karen.

We have no more questions. I would now like to turn the call over back to Simon Dewhurst for any closing remarks.

Yes. Thank you very much for your time listening in on our conference call today and also for your questions. And we look forward very much to reporting third quarter results to you in about three months time. Thank you.

Thank for joining today's conference call. You may now disconnect. Have a great day.