永利渡假村 (WYNN) 2005 Q3 法說會逐字稿

Good morning and welcome to the Wynn Resorts, Limited third quarter conference call.

Joining the call on behalf of the Company today are Mr. Stephen Wynn, Chairman and CEO of Wynn Resorts;

Mr. Ron Kramer, President of Wynn Resorts; and in Las Vegas, Mr. John Strzemp, CFO and Treasurer of Wynn Resorts.

Mr. Andrew Pascal, President and COO of Wynn Las Vegas.

And Mr. David Sisk, CFO of Wynn Las Vegas.

Mr. Matt Maddox, Senior Vice President of Business Development.

And Samanta Stewart, Vice President of Investor Relations.

(OPERATOR INSTRUCTIONS).

I now would like to turn the presentation over to your host.

Mr. Kramer, please go ahead.

Good morning everyone.

As you know, we're broadcasting this conference call live on our Internet site, wynnresorts.com.

A replay of the call will also be available on our web site.

Earlier this morning we released a press release, our earnings, which is also available on the web site.

As you know, information we present on this call may contain forward-looking statements as defined by the SEC.

Such forward-looking statements are protected by the Safe Harbor amendments of the Private Securities Litigation Reform Act of 1995.

You can identify such statements by the use of words like we expect, we anticipate, and similar phrases.

These forward-looking statements may include information about future earnings, expected business developments, anticipated capital expenditures, future financing alternatives or other statements made about future periods.

The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from estimates.

Additional information concerning factors that could cause actual results to materially differ from those in these forward-looking statements is included in our most recent annual report on Form 10-K filed with the SEC.

With that, I want to turn the call over to Steve Wynn, who is joining us from Macau this morning and is going to spend a few minutes giving an update on Wynn Las Vegas, Wynn Macau.

And then we will open up the call for your questions.

Good morning.

It's evening here, we are thirteen hours later than New York, if any of you were curious about that.

As I said in the press release, I was delighted with the results of our first full quarter.

It's now been six months since we're open.

And things have begun to settle down, as we expected they would be during this period.

It's a hectic time to open one of these complicated new resorts with a whole new group of thousands of people.

But it appears now as the smoke has settled, or the dust has settled, that our hotel is achieving the highest hotel rates in the state, of any hotel over 1000 rooms in the state of Nevada.

It appears also that our win per machine is higher than anybody in the Nevada.

And I think in absolute dollars, our slot win for the quarter was probably better than our competitors.

And I think our table win also was the highest in the state of Nevada for the period.

Even though compared to our major competitors, Venetian, Bellagio and our friends at MGM, they all have either 4,000 or 5,000 rooms, in many cases 50% or more than we do.

The performance reminds us once again that it is the balance of the facility that produces the greatest results in destination resorts.

And that balance seems to be the determining factor.

We are still in the mode of the improving our margins.

I think we probably have the best margin of 29% of the major hotels that I mentioned in the state of Nevada.

But we're far from finished.

We're new, we're lowering our FTEs, our full-time employment counts, and we make another major adjustment on November 10th.

And we continue to work on our margins.

We have a lot of room left, and we're feeling like we will be able to show that as we go forward.

I think that's pretty much the way I feel.

I'm here in Macau, as I am every month now, and -- where there's a lot of excitement here.

We opened our employment center to full-scale registration of applicants in a few days.

And I was touring that today, and some real estate we're interested in.

This market is continues to be an amazing thing to view in person.

Fujian (ph) Province in South China is an incredible place.

The scene of one of the most dramatic economic expansions in modern history.

And Macau is directly in the path of that avalanche of growth.

We're proud, and delighted to be part of it.

We're looking forward to a very serious future here with multi-property development.

So I think at this point it might be a good idea to let you direct this with your questions.

I've got a couple questions.

One, could you guys talk about the fourth quarter outlook and where you're seeing RevPAR in the fourth quarter also?

We're not going to talk about specific guidance, and actual numbers.

What we clearly believe it is that the trends that we've been seeing since opening has continued in the third quarter, and we continue to believe that there's room for both revenue enhancement and cost reduction going forward.

Could you talk about, you have a property charge in other for $6 million -- mostly at the Vegas property, could you discuss what that is?

What we've done, consistent with what MGM in particular does, is to break out refurbishment charges that are part of the ongoing remodeling efforts, within the property .

The $73 million, is that before or after the $6 million of refurbishments?

The $73 million is before the property charges.

You'll be breaking that out separately every quarter.

That's correct.

Could you talk about CapEx fourth quarter, can you at least give us what you're looking for on that for our model?

In terms of -- why don't we deal with some of the specific CapEx numbers off-line.

Last thing is that, as far as Macau dynamics, what are you seeing as far as market growth?

And you're looking -- you said you are looking for partners for additional properties in Macau?

Or additional sites?

We think it's really important.

I think it's really important to the investor community in the United States and everywhere else that there be some clarification of this market and what's going on here.

There's been an awful lot of talk about Cotai, which is definitely a place that's going to become very important in the future.

The timing is everything.

Right now, the entire infrastructure, all of the growth, all of the power of this market is focused on the peninsula.

The peninsula meaning the main bulk of Macau itself.

As opposed to Taipa or Cotai, the area between Coloane and Taipa.

I was there today on Cotai, and there's a new construction site for Venetian and Galaxy, and the rest is a large open parcel.

Downtown, Galaxy is under construction with a high-rise hotel of 40 or 50 stories.

MGM is under construction with a major destination hotel.

And our property is topped out, glassed in and finishes are being applied for late summer opening in August our September, we are on schedule.

It is important to understand that in the next two or three years, virtually all of the growth here in Macau will be in the peninsula area of Macau.

Where ourselves, MGM, The Sands, Galaxy, Lisboa and the other people are concentrated.

It is also where the main transportation link takes place, which is the ferry and the helicopters.

For the volume of business.

If (ph) that's the reason why we concentrated and focused our energies on the 16 acres that we own dead center of that whole place.

I think we have the largest single assembly in downtown and the peninsula of one single resort property.

At the very beginning, we were delighted to be invited by Sheldon Adelson to join him in what he refers to as the Cotai strip that he had planned to build.

At the time, we understood that Cotai would be a place that in 2009 and 10 and beyond would become very important.

We thought that it was clearly in the future downtown.

And we didn't understand the necessity of taking a piece of land with a sub concessionaire when we were a primary concessionaire ourselves. (indiscernible) primary concessionaires, large tracts of land on Cotai are available, and we are lucky enough to be able to enjoy the opportunity to develop on Cotai.

On our own account, and in joint ventures.

And because we are a primary concessionaire, we can issue some sub-concessions.

The primary concessionaires of Macau are Galaxy, SJM, and Wynn Resorts.

There are sub-concessions issued to MGM, 50% interest in the sub concession.

The sub concession is actually with the daughter of Stanley Ho, Pansy.

And she's doing a joint venture with MGM.

The Sands is a sub concession of Galaxy, the Venetian people.

Those of us who are primary concessionaires have the option of being able to develop large tracts of land.

And we will.

In the future, on Cotai we're looking forward to it, we think it is going to be a wonderful place.

And we look forward to doing things exclusively on our own account and with others on the properties that will develop over there.

But right now, it's all about Macau.

And it's important to notice that the big developers, in addition to the Venetian folks, the big major hitters in Las Vegas like MGM Mirage and others -- they're coming in the next year or so.

We really haven't seen the depth of the Macau market yet, because the development is still several months away.

The next question, Ron you want to field --

Question for you Ron and Steve, due to the strength of the retail at Wynn Las Vegas, have you thought about maybe in the future plans and developments looking to increase the opportunities for retail?

And maybe look to other alternatives to monetize the success of that retail, given the demand for retail in Las Vegas and potentially?

How do you think about that thought process over in Macau as well?

It's an interesting question about monetizing, that is to say selling shopping centers or things of that sort.

We don't subscribe to that theory.

We believe that it's not a good idea to sell it.

You trade-off the interest rate on the money you get, which is reasonable enough for all the future growth.

If it was as simple as selling something, we could tomorrow sell a golf course in Las Vegas, for example, and have the entire Company debt-free.

We don't think that's a good idea for growth.

We'd like to continue to own things.

So when we built retail space, we enjoy 25 to 30% margin on our retail sales in our own stores as opposed to collecting rents for 8% or so, or even 10%.

We just signed some leases in Macau with, for example today Tiffany & Co. It is 15% of sales in one of our retail spaces here.

And we are about to finish the leases on a host of other primary retailers, it's very high rentals.

I don't see any point in monetizing them, I'd like to continue.

You see, we provide the traffic.

And what good is it, if you provide the traffic, if someone else is collecting the rent or getting the benefit from it?

Even if you sell it today, really all you're doing is making a play on interest rates.

We can do much better with the money in our own business.

And to enjoy all the fruits of the growth.

So don't look for us to be selling our retail or doing those kinds of things.

We will use our assets and benefit from all of them.

Again, it goes to this whole issue of the balance of a facility.

And there are plenty of examples in Las Vegas of direct comparisons of that sort.

But I think that's my answer.

In developing convention space you've got a fair amount of land on the golf course.

Probably the lack of that development acreage in Macau, can you talk a little bit about what your plans are in the convention segment in each of those markets?

In the convention business, the money is not made on exhibit space.

The money is made primarily from the people who come to the exhibits and spend money, sleep in hotel rooms, buy banquets and luncheons and cocktail parties, shop and gamble.

So we look at the convention business with a little different point of view than others.

Strategically one of the most important parts about our acreage in Las Vegas, for example, is that it's adjacent to almost 5 or 6 million feet of exhibit space, the Las Vegas Visitors Convention Bureau and The Sands Expo Center.

All of the hotels in Las Vegas, including the Venetian, pay 10% of every room dollar they collect to support and expand the Las Vegas Convention Bureau, with its 3 million feet of exhibit space, which is adjacent our property.

But we have two hotels in Las Vegas for the moment.

Which are identical.

They're very mature properties.

Both of them have 4,000 rooms.

One has 2 million feet of exhibit space, the Venetian.

Fully integrated convention facility.

And the other one is Bellagio with 4,000 rooms, they're very similar in their profile.

And in the last nine months, one of those two hotels has made $10 million a month in EBITDA more than the other hotel.

Both hotels are prime spaces, but one is enormously more profitable than the other.

Because even though it only has 300,000 or 200,000 feet of exhibit space.

And in my view, that's a key indicator of what our attitude should be.

In the future at Cotai if we want to build exhibit space, we will be able to do it.

But at the present time, here in Macau and in Las Vegas, I think our results clearly indicate the advantage of a balanced facility that directly addresses the aspiration of tourists from around the world.

Otherwise, how can you explain a performance of the 2,700 room hotel outstripping the performance of 4,000 room hotel?

Obviously the people who come to Las Vegas are looking for more than just a one-dimensional approach.

So our attitude is we'd like very much to be near exhibit space.

But there's plenty of it in Las Vegas.

And I think there's going to be an adequate amount of it here in Macau.

But first, Macau has to develop as a place where people want to go for a number of reasons.

And then they will decide to have their meetings here as well.

Good morning.

Steve, I just wanted to follow up on one of your initial comments.

You mentioned that you're reducing FTEs on November 10th.

Just if you could maybe put an expense or some sort of cost to get a sense of the improving margin.

My second question for anybody there, is just a question with regard to promotional allowances.

In relationship to the gross revenues, it was a tad higher than what we an estimated and a little bit higher than some of your peers.

And is that a consistent level or is that something that also gets ratcheted down over time as well?

Our promotional allowances were higher, but so was our table win by an enormous amount.

An enormous amount.

I mean, we're not even in business in Macau, but we have had a surprisingly amount of Asian business.

I think Wynn Las Vegas has clearly had a leading position in receiving Asian business of all the hotels on the strip.

Regardless of whether they're in Macau or not.

Our Baccarat business and our activity is substantially ahead of where we thought it would be at this early stage.

We're happy to say that.

So the promotional allowances, which are pretty much at the level -- they're exactly at the level per customer as our competitors have been experiencing for the last couple of years before our opening.

We have not increased that level of promotional activity at all since we opened the hotel.

We just sort of stepped in and duplicated what the neighbors were doing.

Bellagio, MGM, Venetian, namely those three.

So it's a function of our activity.

As far as our FTEs, generally we've been on a program to take our workforce down to a highly productive and normalized rate.

That process takes upwards of six months to a year after you open.

There's a proper level with each of these hotels where you have a certain amount of people to run the business.

There's no waste, but you can't go any lower.

When you get to that normalized number, the next person you eliminate, you have compromised the service level of the Company substantially.

And we're not there yet.

But we work with our department heads, Andrew Pascal is on the call.

And as an example of how this process works.

Andrew, can you explain exactly what this current process is and what I meant about that as it relates to, for example, the November 10th day.

We had a program, what we call our efficiency initiative, where we've gone through each department in a very organized way to address the cost structure of each operating division down to the unit level.

And they have organized plans and put them together with a timeline that really has culminated in the middle of November, for us to start realizing the cost savings.

And are getting to a pace that's more normalized.

So when Steve alludes to the fact that on November 10th we're going to start to enjoy those benefits, it's a result of our having that structured program focused on the middle part of November.

Thank you.

Celeste Brown, Morgan Stanley.

Quick question on your gaming revenue that you reported.

You reported $123 million, but when we calculated it comes to $136.

What's the difference between those two numbers?

I don't quite understand that discrepancy or I don't understand the question.

When the slot win and the table win numbers that you provided, it comes up to a different number than the number on your income statement.

David Sisk, are you on the line?

Yes sir.

I think it's a function of more that the number that we reported was net, and we gave you the gross number.

So when you multiply them out to the number of tables and the number of machines, it includes discounts.

So that difference is reflected in your promotional allowances?

No, that difference is basically back to discount, back to presentation fees, progressive accrual, those types of items being backed out of those gross revenue numbers.

Can we expect a similar percentage going forward?

You can definitely expect a similar percentage going forward.

Quick question relating to corporate expense.

I know you don't what to give guidance, is this a reasonably run rate?

Yes.

Jay Cogan, Banc of America.

Good morning, I wonder what the over/under is on a conference call next quarter.

I have a couple questions.

With respect to Macau.

If you can go back and talk a little bit more about your thoughts about a longer-term Cotai development if that is where -- going -- does that land exist today, or would that be new reclaiming land?

And in Las Vegas, either Steve or Ron, I was wondering if you could give us an update on the position of Encore, and also roughly where we should expect Capex to come in from that process?

The land on Cotai exists for the most part.

There are small pieces of reclamation that are maybe almost done, but for the most part you can walk around on the land in Cotai that is under consideration.

That's the first part of the answer.

The conference call, and me being here in Macau, we thought was particularly appropriate and necessary.

In order to give some shape to the results of the new property that, by its very design, takes a different approach to the market in Las Vegas.

That's the reason why I'm up here at midnight in Macau talking to you, because I think take it would be helpful to have us on.

I'm not sure that every single moment in our Company's history has an equal value, but this seemed to be a timely thing to do.

The rest of your question I think, if I understood correctly, was about Encore?

I'm just wondering, as you have reported numbers here and as you provided in the 10-Qs no explanation of roughly where the project is going, number of rooms, etc., I was wondering if you could give us an update as to the change in the room mix now versus let's say the last quarter.

See more broadly where the property is really going, how you're going to link it, thinking about how it integrates to the golf course.

And is there any kind of a rough CapEx number that we should be working relative to the last quarter numbers?

We have just come to the point in this long process.

You know we're very slow in design development, that's why these properties have a very special personality, I hope, because of the time that goes into the planning.

We are slower than everybody else, and Encore is no exception.

When you try to do things that haven't been done before, it takes a while to figure it out.

And you go through an awful lot of phases and stages until you get to the point where you really think you've got it sort of right.

In the case of Encore, we think we've arrived at that point.

And we've pieced together the portions, the parts of this hotel that now seem to make sense in relating to when it's -- they're all connected at the podium level.

It is very much like Paris and Bali’s.

You walk freely from one to the other.

You can even continue -- you can consider Encore to be an extension of Wynn.

Even though it has all the identifiers of its own -- of being its own separate property.

But imagine if Mirage and Treasure Island were joined and you didn't have to take the tram from one to the other.

That's the way it works.

They connect right at the hallway of theaters, which are in the center off the two properties.

So the theater district, the show district is in the middle.

So are the convention and meeting spaces, including those that we are about to add to service.

Our Encore facilities are a little bit more commodious, they're larger, a little bit more elaborate in many respects that even Wynn.

Because we felt with the addition in order to maintain the high average room rate that we've got, that our offering in terms of the space of the typical room had to the superior to anything else that was in Las Vegas.

So we've made some adjustments in the room product that we think will be very well received.

Especially by the commercial and convention people, who can stay at the hotel and use our internal transportation system right into the convention center without having to take taxi cabs or stand in long lines.

Whether you are at The Sands Expo Center or at the Las Vegas Convention Bureau, your access to our almost 5000 rooms will be instantaneous and free, no charge.

So these things, to work this out, to give the hotel some sort of surprising identity, takes time.

And we believe we've come to the point where we've got something that is reliable and will do the trick.

Remember, based upon the results you've seen, I think it's pretty safe to say that Wynn Las Vegas is well received.

It is very important for us not to disappoint anybody in their expectations.

When the place has that kind of identity in its present form, when you do something that's adjacent to it that's really part of it, you've got to stay to a high standard.

And that consistency is probably the most important part of the whole project's personality.

The final number?

The budget for this building, which we don't think is a difficult thing to do now that we've frozen the plan, will be forthcoming shortly.

But we don't have them today.

So the Capex as it relates to the budget of Encore itself is not ready yet.

What we have is financing that's available within the existing capital structure, of up to 1.4 billion, which we've said previously and we continue to believe is adequate.

Thanks a lot, appreciate it.

David Anders, Merrill Lynch.

Just to clarify, the property expenses and charges, that's just refurbishment, those are one time, because once the property is set up.

So for example, there was office space that was leased, leading up to the opening of Wynn Las Vegas, that we abandoned after the opening.

That fell into the quarter.

What we're trying to do is provide clarity and not simply look at it as lumped into accelerated depreciation.

I think this is meant to explain what is going on quarter-to-quarter.

What we did is, we've been watching the good job that MGM does in reporting, the clarity with which they do these things.

So I called Jim Murren, and we consulted with them and asked what that meant in their earnings this week.

And Jim explained to me that they want to separate ongoing depreciation associated with the normal life of their ongoing assets from things that were one time charges, like a remodel or a quick thing like ripping out a wall to make something bigger, which we're doing.

Or the adjustments right after opening that you make in the first six months, to correct your mistakes.

Things that don't fit, things that were ill-conceived, things that are too big are too small, there's a whole list of those.

It involved $9 million at the Mirage, I remember when we did it.

It involved several million dollars at Bellagio.

It is a natural part of these places that right after opening, you make these physical adjustments.

And they take place in the first six to eight months.

So we decided to separate them the way MGM does.

Christine Dranchak, Prudential.

This is Bill Lerner.

A quick one.

Maybe this is for Steve.

You mentioned in sub-concession opportunity in Macau.

What's your current thinking on whether you do that, and the timeframe there?

I think is probably time that we're getting to the point -- where it's probably a good idea to start in the next several months to clarify where we're going in Macau in the future.

I said over and over again we're going to be here, we're going to expand our energies, and we're going to build more in Macau.

I have not explained what we meant by that.

For two reasons.

First of all, in simple timing, there are steps that are taken here in this part of the world where I am, and there's a tempo set.

There's a Macau tempo.

You do things at that tempo.

Secondly, I have not wanted the distraction from the major challenge, the daunting task of opening the first real destination resort ever built in this city.

I mean, we're talking about a substantially different category of facility than those that exist here now.

In terms of this fundamental ambition and this performance potential.

So we've not allowed ourselves to wander off in deal-making.

It is the nature of our Company to talk small and go big.

Do one thing at a time and do it well.

But the future here in Macau is very important to our investors, and very important to us of course in management.

So I think we've been in conversations with many people that have approached us, as you can imagine, as a primary concessionaire we have the right to issue a sub-concession.

We've had extensive conversations, with a number of people, and in terms of joint ventures and sub-concessions.

And we have the right to do that by contract with the government here.

So we will be doing it.

And I hope to make that clear in the next several months.

Sometime during the fourth quarter I think, this sort of thing will resolve itself.

And we will be able to be very detailed about it.

I think we're probably a little premature today.

All I am saying, and I say it definitively, is that we will continue to build in Macau.

We will have access to large tracts of land.

It would be inaccurate for anyone to think that the Cotai area of Macau is somehow the province of one company.

It is in fact a place where all of the primary concessionaires will be active in the future.

That concludes the presentation;

I would like to turn the presentation back over the speakers for their closing remarks.

I apologize for the technology, and I want to thank you all for taking the time.

We will of course be available as we always try to be to talk to you and to hear your thoughts, and to answer any questions we can.

As Steve said, this has been a tremendous quarter for us, first full quarter of operations.

And this is part of our ongoing attempt to be able to communicate with our investors.

And as we go forward we will find a new technology provider to be able to better serve you next quarter.

I think with that, Steve, unless you want to have a closing remark, I think we will say goodbye.

Once again, I would like to apologize for the Q&A disruption.

This concludes your presentation for today.

You may now disconnect, good day.