Melco Resorts & Entertainment Ltd (MLCO) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2013 Melco Crown Entertainment Limited earnings conference call. At this time, all participants are in the listen-only mode. There will be a presentation, followed by a question-and-answer session, (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday May 8, 2013.

I would now like to hand the conference over to your first speaker for today, Mr. Geoffrey Davis, Chief Financial Officer of Melco Crown Entertainment Limited. Thank you, sir. Please go ahead.

Thanks, operator. And good morning, everyone; thank you for joining us today for our first quarter 2013 earnings call. On the call with me today are Lawrence Ho, Ted Chan, Constance Hsu, and Ross Dunwoody.

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 our anticipated results. I will now turn the call over to Lawrence.

All right, thank you, Geoff; and good morning, everyone. In the first quarter of 2013 we reported EBITDA of $274 million on approximately $1.1 billion of net revenue, delivering an EBITDA margin of approximately 24%.

Our record EBITDA and EBITDA margin performance in this quarter demonstrates our commitment to fully leveraging our competitive strengths by catering to the high-end and premium customers across both mass and rolling-chip segments, while maintaining our strict cost control discipline.

City of Dreams has further solidified its position as the dominant premium and high-end mass market casino in Macau, with mass table yields substantially higher than all flagship properties in Macau.

Our competitive advantage in the premium mass segment is derived from the fact that City of Dreams was purposefully built for attracting premium customers, including its unique hotel inventory, retail, and food and beverage offering, and its world-class entertainment attractions.

We have developed an in-depth understanding of these customers over the past three years, and continue to develop our current customer base, while also attracting new customers.

Our casino marketing initiatives, including our market-leading casino award and hosting program, drives loyalty, which is evident in strong repeat business.

As a result of the continued strength in our mass market segment, particularly at City of Dreams, we have captured meaningful mass market share, despite increased supply and additional competition in the premium mass segment. Our strict approach to player reinvestment, particularly in the premium mass segment, ensures that we focus on the most profitable customers in a strategic manner.

Our margins across all our mass market table game segment, driven by the higher margin premium mass segment, have shown strong improvements during the quarter, building on the margin expansion over the previous 12 to 18 months.

Primarily, as a result of our success in this segment, our Group-wide luck-adjusted EBITDA margins expanded 150 basis points, to approximately 24%.

In addition to the obvious success we have had in the mass market segment, we delivered record Group-wide rolling-chip volumes, despite a relocation of tables from VIP into our mass business. On a year-over-year basis, our Group-wide rolling-chip volume has expanded over 18%, significantly outperforming the market. This highlights the success of our ongoing table optimization strategy, whereby we focus on maximizing Group-wide EBITDA by yielding up each individual table.

Turning to the market, the rolling-chip segment has shown signs of renewed strength, while the mass market segment continues its impressive growth trajectory. We remain optimistic regarding the outlook for 2013 and beyond.

The Macau Government has made significant progress on a number of development initiatives, including the Light Rail system and border expansion. Regionally, Hengqin Island continues to develop, while the Hong Kong-Zhuhai Macau bridge moves closer to realization, both of which will be key drivers of Macau's medium to long-term growth.

Moving on to our exciting growth pipeline; we recently closed the transaction with our co-licensees, and also successfully completed a top-up placement in The Philippines, via our Philippines' Stock Exchange-listed subsidiary, raising approximately $325 million of net proceeds, excluding the over-allotment option which, when combined with the shareholder loan commitment from Melco Crown Entertainment, are expected to provide the necessary funding to open and operate our integrated casino resort in Manila Bay.

We intend to fully leverage our experience and expertise in delivering unique entertainment attractions through this exciting and fast-growing market, ensuring our integrated resort will offer a broad spectrum of leisure and entertainment amenities to customers when we open in mid-2014.

We will also fully leverage our extensive understanding of the junket and premium-player universe, garnered through our wide-reaching VIP operations in Macau, which we view as a significant competitive advantage.

We believe The Philippines market offers us an ideal opportunity to showcase our extensive capabilities in designing, constructing and operating world-class integrated resorts, representing a great platform for future expansion throughout Asia.

Studio City, our cinematically-themed mass market-focused integrated casino resort, remains on track to open in mid-2015. The project remains on time and on budget with expected design and construction costs remaining at $2.04 billion.

We also continue to move forward with our Phase III expansion at City of Dreams, which will provide the property with another powerful lever to grow the business meaningfully, expanding property-wide return on investment metrics; we are optimistic that we will break ground before the end of the year.

Our balance sheet has strengthened materially over the past 24 months, as a result of impressive cash flow generation from our operating assets, while, at the same time, we have taken proactive steps to maximize the efficiency of our capital structure, through various structuring initiatives. A recent example includes the refinancing of our existing 10.25% coupon debt with the 5% coupon $1 billion high-yield bond, which meaningfully lowered Group-wide interest costs.

As a Board and management team, we constantly review and monitor our capital structure, ensuring we deploy capital in the most effective way, to drive long-term shareholder value. We believe our growth pipeline, including the Philippines project, Studio City and Phase III at City of Dreams will all meaningfully drive value to our shareholders.

Any future opportunities will also be evaluated based on our strict internal return on capital guidelines. We are committed to maintaining an efficient capital structure, which in the absence of new growth opportunities will potentially involve the return of capital to shareholders, including through either dividends or buy-back.

Thank you for that, and back to Geoff.

We reported adjusted EBITDA of $274 million in the first quarter of 2013 compared to $242 million in the same period in 2012. Our EBITDA margin in the first quarter of 2013 was approximately 24% compared to 23.5% in the first quarter of 2012, and 22.5% in the fourth quarter of 2012.

On a luck-adjusted basis, assuming the VIP win rate of 2.85% across our entire rolling-chip business, our first quarter 2013 EBITDA was approximately $280 million, two eight zero million, an increase of approximately 33% when compared to the first quarter of 2012, and up roughly 10% sequentially from approximately $255 million in the fourth quarter of 2012.

The EBITDA contribution from our non-VIP segment continues to represent approximately 75% of luck-adjusted EBITDA at City of Dreams, and approximately two-thirds of luck-adjusted EBITDA on a Group-wide basis.

Highlighting our proactive approach to managing our capital structure, we recently successfully refinanced our 10.25% senior notes and RMB notes, predominantly through our $1 billion 5% coupon senior note offer. This opportunistic transaction has resulted in a reduction in recurring net interest costs by approximately $30 million in relation to the $600 million 10.25% borrowing.

As we mentioned on the last quarterly earnings' call, as a result of this refinancing we incurred a one-off accounting charge of approximately $61 million, related to the extinguishment and modification of debt.

Separately, we recently paid down the outstanding balance of our revolving credit facilities of approximately $210 million, reducing annual interest costs by over $4 million.

As it relates to our Studio City financing, we effectively secured project financing on a substantially non-recourse basis at very attractive rates and customary covenants, providing a fully-funded plan. Our net debt, as of March 31, 2013 was approximately $214 million and our net debt to shareholders' equity was 6%.

Now, as we normally do, we'll give you some guidance on non-operating line items for the upcoming quarter. Total depreciation and amortization expense is expected to be approximately $90 million to $95 million. Corporate expense is expected to come in at $20 million to $22 million.

Consolidated net interest expense attributable to MCE is expected to be approximately $40 million to $42 million, which includes finance lease interest of $10.8 million relating to the Philippines development and approximately $11.8 million of interest associated with Studio City. This reflects approximately $6 million of capitalized interest related primarily to Studio City.

That concludes our prepared remarks. Operator, back to you for the Q&A.

(Operator Instructions). David Bain, Sterne Agee.

I was wondering if you could opine on any tax change issues in the Philippines?

David, it's Lawrence here. I guess you're referring to the BIR that was recently issued by -- I think we've disclosed it in the offering memorandum. And at that same time, I think the four licensees in Entertainment City, together with Pagcor are all united on this front, and we are seeking a joint resolution on this front.

We have been aware of this potential and I think we are hopeful and a bit confident that we have a legal arrangement with the government via Pagcor, and that potentially this additional income tax issue could be neutralized by a reduction of payments to Pagcor.

But I think the important thing is that the four licensees in Entertainment City are all united on this front. And Pagcor understands the fact, and the Philippine Government understands the fact, that there are still billion of dollars of investment still to be invested in Entertainment City. And if there was a game change or a rule change at this stage, that would obviously impact that. So I think all in all with what's happening in the market and how positive it is, we are hopeful that the government will do the right thing.

Okay, great. Then just two more, if I could; one was any other opportunities to further segment City of Dreams, like the Signature Club or even Altira? Is that something that maybe City of Dreams contemplated in Phase III, for more premium mass I'm speaking to?

David, it's Lawrence again. Let Ted run over the differentiation of the segments and how well City of Dreams has been doing on premium mass and mass. But I think, as we said in the prepared remarks, we are hopeful that we can get started on the Phase III hotel development, which is a 1.5 million square foot GFA development before the end of the year.

What we're proposing to build is an iconic hotel. But, at the same time, we believe that, obviously, there is table cap. The fact that the building is going to be as iconic as it is, will give us the best possible opportunity to get potentially more tables in the future.

But, as we said earlier on as well, from a ROIC standpoint, even without gaming tables, the further differentiation of the premium mass segment, which that hotel is going to be focused on, we are confident that the incremental revenues derived from that will be -- will give us a great return.

But I think with regards to the mass and premium mass segment. Ted, do you have any --?

Sure; sure, Lawrence. I think apart from longer-term addition of another tower on COD in the next few years, in the more immediate or short-term improvement on this segment, which is looking at all these improvements in the hopes that in our premium mass area we continue to do the right thing, which is more about the premium offering. You may notice that we have done numerous improvements on the casino floor, as well as the property, the floor -- the whole area, looks more luxurious.

And also, we're looking at the segmentation on the casino floor as well. We continue to improve the two major signature club areas, whilst improving their service. So you will notice in the next two quarters coming are some improvements in the premium mass area with nicer improvement, as well as the service level that we're bringing to the property.

So in a nutshell, in the shorter term, it's all about doing the right things better and improve on the service on the, particular, premium mass areas.

Okay, great. And just because it wasn't asked on any of the others conference calls, I think, Lawrence, can I ask you, the smoking regulations, the partial smoking ban, do you see that as maybe being revisited in the near-term and maybe can you give us your view of any potential interpretations that are being discussed?

Well, it's Lawrence again. Obviously, our employees are number one priority and we want to do what's right for Macau and what's right for our employees. But, at the same time, we recognize that there's still more work to be done and the quality of the air in the casinos needs to be improved further.

I think to be honest, some of -- we will work very closely with the government to get to those standards. I think that right now those standards -- the air quality is probably cleaner than most hospitals, but we will continue to work towards that goal. But I don't want to speculate on what the government will ultimately do.

But, again, I think we -- the benefit of operating Macau is that we have a very open-minded government. And we work very closely with the Government, because they do understand that 80% of their annual budget comes from gaming tax revenue. So I think there's going to be a sensible resolution to all of it. But, needless to say, in the best interests of our most valuable asset, which are our colleagues and employees, we will do what's right.

Great. Very nice execution; thank you.

Billy Ng, BofA Merrill Lynch.

Lawrence, actually, I've questions regarding the VIP market. Just want to get your view on the VIP market, because in the last two months we see some pick-up of the volume. If you look at the rolling number, it's been up about 8% to 10% in the last two months. Meanwhile, the China economy actually is not improving at the same time.

So what drove the pick-up of the volume in VIP in your view? And do you see junkets are being more aggressive lending out now or what drove the volume pick-up?

Hi, Billy. I think our view has always been pretty consistent ever since -- for the last six months, because, as you know, this past March, the few months ago, there was a once-in-a-decade China leadership transitional -- a once-in-a-decade transitional thing, and that was finally completed in March; it started in October. And I think ultimately a lot of our customers wanted to be sure and remove the uncertainty that there was any significant change in Chinese policy.

So I'm not surprised that people are more bullish about the Chinese economy. And I think the Premier clearly said the priority is still to grow the economy at 8%. So -- and I was fortunate enough to be part of those meetings in March. So I think there was a collective sigh of relief with most people listening to those -- in those meetings. And ultimately, once that last piece of uncertainty has been removed, I think that's why you're seeing customers spending again.

I think after -- the timing of Chinese New Year had a little bit to play with March, because of the fact that the growth of the middle income earning bracket and the growth of the mass market were so significant, especially during this year in terms of the visitor volume combining with better infrastructure, widening border gates and better train access. A lot of VIPs did stay away during Chinese New Year knowing how packed it was.

But we are very happy that the strength is continuing for March and April. April had another great month. And, unlike last May, Golden Week this year is -- it was much stronger than expected. So, all in all, we are encouraged, which is why our view of the overall growth in the market is probably much higher than our original thinking at the beginning of the year.

Thanks. And then I have a couple housekeeping questions. And, Geoff, you mentioned next quarter the guidance for net interest is about $40 million to $42 million. So is that going to be a sustainable numbers, like meaning for the rest of the years or even next years, that should be around the range? And whether you will see a pick-up of the interest capitalized cost?

The gross amount should be a good number going forward as a run rate -- approximate run rate. I anticipate that our -- the amount of capitalized interest that we'd have would go up over the course of the year. But the number we've provided for 2Q, I think, is a solid number and then perhaps declining a bit over the remainder of the year.

And also what is the budget -- CapEx budget for this year and next years? If you start including the third tower -- the fourth hotel tower at COD?

Well, we haven't -- we're still working on Phase III at COD, so I haven't had -- we won't be able to provide a CapEx number on that. I think on a subsequent call, or the next couple of calls, we'll be able to provide more clarity on that.

But if we exclude Phase III, we'll have CapEx in the next quarter of something in the $225 million range, and ramping up by about $25 million in the subsequent quarter and then closer to $400 million in the fourth quarter. So that includes Studio City as well, obviously.

Okay, thanks.

Anil Daswani, Citi.

Congratulations on a great set of results. Can you comment a little bit on the margin expansion? Now, clearly, in the mass side, you've done a record hold rate of 32%. Lawrence, do you feel that's sustainable going forward?

Ted, do you want to... It's, obviously, an area that we are very proud of; so, Ted?

Yes, Anil, I think it's really a thing though in the sense that, first of all, we record our drop including all the [case drop] and table drop very accurately since our open (inaudible), and that continued to improve. I think it's due to two main reasons; really about the number of customers and (inaudible) on year-on-year basis, as well as the average betting size the customer has been increasing.

So if you notice that both the GGR and the turnover on those premiums or from mass marketing areas it's actually growing in a similar pace, which suggests that apart from those customers staying in the hotel, we still do see -- [still do] become a destination of the premium mass customer in Cotai, increasing the number of patrons that we evidence in the last few quarters. So I truly believe that is a good trend in the last -- at least four quarters.

I think as a matter of sustainability, I think it's all about doing the right thing, which is all about the service level, as well as efficiency of the floor. So I guess that's the main reason, I think.

Thanks. And as a second issue, we also saw phenomenal margins in your non-gaming arena with margin expansion, both in the rooms, as well as in the F&B. Is that something that's sustainable going forward or is that a one-off for this quarter?

I think that, while not a major contributor to the overall result, that's sustainable going forward.

Well, I think, Anil, I'd supplement that and think it is because, ultimately, when we first started it was really our world-class attractions, clubs and food and beverage venues are all major amenities that supplement to build the brand equity of what we're offering. But as we have developed this we are seeing, obviously, the -- Ted and the rest of the team have done a good job in focusing on margin, even on the non-gaming amenities.

So on top of the benefit that is already derived, we are generating profit going forward. So we're very happy with what we are offering in Macau. And, at the same time, we think in the Philippines the non-gaming component would be an even bigger pot contributor. So we will look to spread our DNA in that market in due course.

Thank you, Lawrence. Last one from me; in the Philippines over the next couple of quarters, clearly there is going to be a little bit of a drag as you get the pre-operating expenses going. Geoff, is there any guidance you can give us on the pre-opening expenses that we were expecting? Obviously, there's the lease payment, but is there any other components that we should be aware of?

Well, in this quarter, our pre-opening expense of about $1.9 million, about two-thirds of that was Philippines. As that project ramps up that will also ramp up into the mid -- over the course of the year, into the mid-single digit, and then, subsequent from that into 2014. But that's the current level, but that will increase over the course of this year.

Thank you, guys; great result.

Thanks, Anil.

Brian Mellen, JPMorgan.

Just going back to the City of Dreams margin question, we're wondering where you think they could potentially go longer term, or if there's a natural ceiling there. Do you think they could potentially get to Venetian-like levels at some point?

We certainly benchmark ourselves against some of the competition in town, and work to close that gap very diligently every day, through everything from blocking and tackling, whether it's fairly mundane things on photocopying and mobile communication costs, to supply chain, etc., etc., etc.

I think the primary driver, and I think there is room, is what's happening on the gaming floor and what's happening with the mix of business. Given our success in the mass market business, and the strength in that segment overall, we do see a potential for a favorable mix shift over time, which will drive the blended margin higher.

I don't know if, Ted, you have more to add to that?

Yes, sure. I think the question's really about the margin improvement in absolute EBITDA generated (inaudible). A couple of areas; first, I think gaming floor, we continue to see a positive trend in terms of hold percentage on the floor, as well as absolute revenue. For instance, in the last two months our revenue on the casino floor is very, very close to our neighbor already. And it's still on an upward trend, which contributes on a higher margin.

And secondly, I think our retail area, although it is relatively small compared to neighbor's I think in terms of contribution it's already up to a level which is comparable with the neighbor's. So I think that with this kind of improvement in our positioning in the last few quarters, it's started paying off in terms of this non-gaming, higher-margin EBITDA contribution. So we hope that trend continues, and you see some more improvement in the next few quarters.

Great, thanks. I just had one follow up. In the prepared remarks you mentioned increased competition in the mass segment. Are there any signs that this could become elevated enough to cause pressure there? It doesn't seem like it, but just if you could elaborate on that that would be great. Thank you.

We do notice a lot of properties are focusing on the mass [premium market segment] and (inaudible) of the focus on this area. I think I focused more that a couple of years ago, and that started paying off. If we track the re-investment rate that we track closely with the dollar we spend on the marketing initiative over the last four quarters, I think the ratio is actually quite flat. We don't see any sense or signs of [the dollar] increasing that percentage. It just means that either we are very competitive in terms of our competitiveness, or COD has already become the premium mass destination.

Well I think, as we said, ultimately as well the City of Dreams was purposely built from the very get-go years ago to focus on the premium sector. And so, we are confident that we do have a great location with City of Dreams, combined with the fact that we are extremely proud of the various awards that we have won. For instance, we have two of the Forbes five star hotels in Macau. So I think, given the attractions, the amenities that we provide, we will continue to stay ahead of the game on that front.

And I know some of our competitors have gotten more competitive, to try to chase the premium mass market, including potentially giving cash rebates and stuff like that.

But from our opinion -- from our standpoint, that's completely missing the boat, because the premium mass customer nowadays is, in my opinion, the most sophisticated customer in the market, even more sophisticated than the typical traditional VIP. And what they really want to do is climb the consumer ladder, and at the same time climb the social ladder. So I think the private events, the special attractions that we provide and can organize, will continue to keep us ahead of the game.

Operator, next question please.

Simon Cheung, Goldman Sachs.

Three questions. The first one is on the visitation numbers. I think Ted earlier mentioned that your visitation has kept growing over the last several quarters. Can you perhaps give us some numbers, let's say, quarter on quarter and year on year? The reason I ask is the year to date, the visitation into Macau seems to be a bit like only up by 4%, and just wanted to get a sense how you guys are doing better than the other guys.

Simon, I think I'm referring to the unique number of the right segment of customers, which is premium mass -- premium end of the mass customers visiting CoD. That number is actually increasing on year-on-year growth more than the market growth rate that you noticed.

In terms of visitation in the property, it's actually quite flat. The reason is really we purposely look at some of the segment, which is more on premium side of mass, and we actually purposely cut some of the promotional visitation that we did in the last few years. So starting from this year we -- middle of last year we actually purposely reduced the property visitation, whereby the quality of the visitations much more we focus on.

So I think in terms of the right category of customer, on a year-on-year growth, is actually more than the market GGR growth in the mass segment.

Would you be able to perhaps share with us some numbers, percentage terms? That would be very helpful.

In terms of visitation numbers on a quarter-to-quarter basis, we have roughly about 42,000 visitations per day in City of Dreams in the last few quarters. So, basically, it's flat.

In terms of the right category, which is a premium part of market, I can't give you the exact number, but I would refer to something more than 40% growth year on year.

Okay. Second question's on your Studio City. I think in the last conference call you mentioned that about 95% of the piling work has been completed. Can you guys share with us what is the progress over there? Maybe more color on that.

Sure, Simon, it's Lawrence here. I think most of the piling work is substantially completed. At this stage, we have started our base slab work, and so that's a significant milestone for us, which we're very happy about.

And so I think in a few months you will see the structure coming out of the ground, but I think so far whether it's construction labor, foreign labor approval, or anything related to statutory approvals, it has been very, very smooth, and we've gotten the full support of the Government. And we intend on building a resort that is extremely unique, never seen previously in Macau, so we're very excited.

And how many workers do you have? Last time you mentioned about 550 or something.

I think at this stage we're at about 800 to 1,000 workers, depending on the day.

Okay. The last question, on Philippines, do you now have any other guidance on the ROIC given the tax issue? Maybe before -- in the case that you cannot resolve it with Pagcor, what would happen with the cash return of the property? Thank you.

Simon, are you asking about the Philippines?

Yes, Philippines, the ROIC -- expectation of the ROIC with or without resolution on the tax issue.

Our view is that the tax situation will be resolved favorably; so no change in our expectation on ROIC.

I think, Simon, ultimately, Philippines it's developing very nicely, as you can see from the recent upgrades from both Fitch now and also S&P, I think, to investment grade. So Philippines is going to be a much bigger market than I think most people will expect.

And judging from the Government, and their recent initiatives to increase foreign direct investment, and I think just take, for example, the fact that our MCP listing, and the fact that it was injected through the back door, it was a very smooth process all along, and so I think we're very confident.

Richard Huang, CLSA.

I just have a question on the mass premium area at City of Dreams; apparently that the minimum bet went up quite a lot, and it has already been quite high at around -- a lot of tables have a minimum bet of HKD1,000 or even over HKD1,000. So going forward, does the Company still see a lot of upside in building up the mass gaming tables in City of Dreams? And what are the plans to execute that? Thank you.

I think a lot of people are focused on our minimum bet table. I think you also have to notice that we do change. So from two years ago we actually introduced the -- what we call dynamic pricing strategy on the table. So we do not really purposely increase the number of -- increase the minimum bet. It's actually we are forced to increase the minimum bet according to supply/demand that we have on the floor.

So we do not really have a purpose to increase to a certain level the bet; it's actually the customers' expertise-- I mean their appetite is actually increasing in the premium side of it. So we just adjust according to need. So, that suggests that the efficiency on the floor also play off in terms of the better revenue, i.e., the hold percentage increase in the last few quarters. So I see an upward trend, and that trend is actually continuing.

Okay, thank you.

Howard Gilbert, Credit Agricole.

Wanted to follow up on your opening comments about border expansion. I recall that the Gongbei border gate was close to finishing its expansion, and wondered if you can update with us what the status of that border gate is right now.

Hi, it's Lawrence here. I think on the Macau side, the border has increased to 500,000 visitors a day, but I think it's on the Zhuhai side that they are still finishing some work. We've been told that hopefully by summer, but definitely before October Golden Week. So I think that's positive.

But I think even more positive from our Company's perspective is the fact that there are significant talks about increasing, or expanding the hours of the Lotus Bridge border. As you know, City of Dreams and Studio City are located in Cotai, and as a matter of fact Studio City is 30 seconds walk from the Lotus Bridge border. So the expansion of hours, and I think also from a visitation standpoint, if you look at this year, one of the biggest year-on-year growth areas is the visitations going through the Lotus Bridge border.

So we are very confident that going forward that will be an even more significant area to transport people into Macau. So I think all in all the infrastructure projects in Macau are going smoothly, and we're extremely encouraged.

And one follow-up question. I know you mentioned earlier a variety of things on the capital expenditure front, and I'm not sure I got the right details. I wanted to see if you could tell us what you spent on Studio City in the first quarter, and what you think the spending for 2013, overall, should look like? Thank you.

Well total spending for 2013 is between $800 million to $1 billion. And on Studio City in this quarter, the CapEx was approximately $40 million.

Thanks so much.

Philip Tulk, Standard Chartered.

Most of my questions have been answered, but, Geoff, could you break down the tables by type, by casino and in Macau?

Sure. So at Altira, we had about 140 VIP and about 32 -- 141 VIP, 32 mass; at City of Dreams, 212 VIP and 240 mass.

Thank you. Lawrence or Geoff, should we be concerned about this Taiwan issue that came up in January and I don't know if you can say much about that, maybe it's ongoing, when do you think we're going to be in a position to hear more about that?

Philip, we're cooperating with the authorities and, as we mentioned in our press releases, the Company hasn't been implicated right now. We've had employees who were questioned, so we will continue to work with authorities. And again, we maintain the fact that we've done everything properly and according to the law. And how we conduct ourselves in Taiwan is carbon copy identical to all of our competitors, whether it's US, Australia or Macau. So I don't think this issue would have any effect in terms of our Taiwan aspiration.

Fair enough. I guess one final one, Lawrence, is there still a plan for a walkway between City of Dreams and Sands Cotai Central? I recall that being on the plans at one point.

No, I think on the plans is it's really -- obviously the government wants the entire Cotai area to be connected. With the weather in Macau, the fact that it's hot and humid most of the time and raining other times, it makes perfect sense to have elevated and covered walkways linking up all the properties in Cotai, and I think that was the intention of the government.

So I think we've been diligently and enthusiastically working with Sands China on coming to a solution. I think from our side, we are ready to go, so we're just really waiting for our neighbor.

Okay. Thanks, guys.

Karen Tang, Deutsche Bank.

I was walking around your City of Dreams floor yesterday and I realized that on the second floor, you guys are adding more stadium style ETG. Can you remind us how many more ETG seats you are adding and then can you give us a rough sense on performance? For example, revenue per seat, how does that compare to the other normal slots? Thanks.

All right, Karen. The -- we just previously added the additional seats there, so we have total roughly about 190 stations on the floor at the moment.

The performance, before we add additional stations, the performance per station is roughly about 50% above the average slot performance on the floor. So -- and after we add those units onto the floor, we -- it's actually ramping up quite quickly, and it is about slightly above the old floor average slot at the moment and we see an upper trend towards the number that we just mentioned.

That's excellent. Thank you.

Kenneth Fong, JPMorgan.

Congratulations on the very strong set of results. I have a question regarding the cost structure and as well as the margin. If I look at on a quarter-on-quarter basis, your rolling chip and slot revenue are pretty much flat year -- quarter over quarter. Mass revenue is up around $28 million. And yet, on a luck-adjusted EBITDA, is up around $25 million. So effectively, most of your game revenue from the mass is actually translating to the EBITDA. So is there any one-off costs in either quarter that could have -- lead to the margin increase, or am I missing anything by doing the analysis on this way? Thank you.

I don't believe you've missed any one-offs in there. It's really just a reflection of our getting the flow-through on the incremental gaming revenue that we're generating through our collective efforts.

Okay. But in the first quarter, your costs should also increase slightly because of the wages hike, right?

As your modeling should anticipate as of April, an increase and is fairly market-wide of a 5% wage rate increase in your model. That's not inconsistent with what we experienced last year as well, despite incremental supply in the market and incremental staffing need across the market. So this year, we think 5% is very manageable and one that we expect to be consistent throughout the year. But I would encourage you to reflect that in your models going into the next quarter.

Okay. That's all from me. Thank you very much. Congrats again.

Thank you.

Thank you, ladies and gentlemen. In the interests of time, I would now like to hand the conference back to the management for any closing remarks.

Well, thank you, everyone, for joining us. And we look forward to hosting another call three months from now.

Thank you, ladies and gentlemen. That does conclude the conference for tonight. Thank you for your participation. You may now disconnect the line.