永利渡假村 (WYNN) 2018 Q2 法說會逐字稿

Welcome, and thank you for standing by, to the Wynn Resort's Second Quarter 2018 Earnings Call.

(Operator Instructions) This call is being recorded.

If you have any objections, you may disconnect at this time.

I will now turn the line over to Craig Billings, Chief Financial Officer.

Sir, you may begin.

Thank you, operator.

Good afternoon, everyone.

On the call today with me in Las Vegas are Matt Maddox and Maurice Wooden.

Also on the line are Ian Coughlan, Linda Chen, Ciarán Carruthers, Frederic Luvisutto and Bob DeSalvio.

I want to remind you that we may make forward-looking statements under Safe Harbor Federal Securities Laws, and those statements may or may not come true.

I will now turn the call over to Matt Maddox.

Thanks, Greg.

Good afternoon, and thanks for joining us today.

The numbers are out, so I'd first like to address Macau.

The April to June period in Macau is typically the weakest quarter of the year due to seasonality and was actually compounded this year by the World Cup.

But let's put everything in perspective.

The market increased 17% year-over-year, with double-digit growth in both mass and VIP Wynn, supported by a 7.5% increase in year-over-year growth in visitation.

Macau's long-term fundamentals remained strong, and we will continue to lead in Macau.

Looking at the individual property results.

We continued to see growth in our mass business at Wynn Palace with mass drop up sequentially from Q1.

In fact, had the Palace held consistent with Q1, mass revenue would have been almost $30 million higher, and our mass market share would have increased approximately 80 basis points to almost 9%.

Wynn Palace's VIP revenue grew 5.1% sequentially and turnover was up 20% year-over-year.

I believe that Wynn Palace will continue to take market share in both mass and VIP.

In fact, so confident, I've assembled a team of some of the most creative people on the planet, and we're in full swing planning our entertainment-focused development on the adjacent 7-acre parcel that sits between the new Lisboa and Wynn Palace.

The entertainment center will have various whimsical immersive features, taking into account what we've learned from our prosperity tree at Macau and the Lake of Dreams here in Las Vegas and amplifying it.

The people responsible for those projects in the past, Michael Curry, one of the top theatrical designers in the world; Kenny Ortega, one of the most well-known choreographers in the world; and Patrick Woodroffe, possibly the best lighting director in the world, are responsible in working with us to help develop this concept.

The project is going to have indoor gardens, it's going to have waterfalls.

We're working on a theater concept and a new food hall that's going to focus on seafood, the best seafood that anyone can find in that region, and it will be a culinary destination for Macau.

We know that our premium customers like these attractions.

We're really excited to continue to develop this, and we plan on completing the proposal in the fourth quarter to show to the Macau government.

And we're excited about adding world-renowned gaming attractions to Macau.

Now turning to downtown.

Our mass table drop grew 21% year-over-year off a tough comp in 2017.

However, during the second half of the quarter, Wynn Macau experienced a difficult VIP environment, driven by lower volumes in several of our junket operators.

One of the main reasons, principal reasons, is that our competitors neglected the VIP market during the downturn and many of them got back into the game in the last 6 months with new rooms and more credit, creating incremental competition for VIP.

We expect this new supply will be absorbed as in the past.

And I should note, we went through an extensive analysis of the properties' operations, we reviewed the service levels, had deep discussions with our junket partners, and there is not a particular issue that caused this temporary decline.

It was really just short-term competition in the VIP market.

We are not going to compete on price by raising commissions or extending additional credit for short-term revenue gains.

We compete by having the best product and service in the market and with upcoming reinvestment in Wynn Macau, renovating all the Encore rooms for the first time since it opened over 8 years ago.

We're building 2 new restaurants in our original casino, adding 8,000 square feet of additional retail space which, by the way, still remains some of the world's best and strongest producing sales per square foot anywhere to be found.

And we're reconfiguring the West casino all in the very near future.

So the best years for Wynn Macau are yet to come.

Now looking at July that we've gotten out of this second quarter period.

We were actually experiencing much better trends in July with our year-over-year and monthly sequential growth up over 20%, significantly outperforming the market.

Our overall operation in Macau is making approximately $4.3 million in EBITDA per day with normal hold.

We have experienced broad-based strength in both mass and VIP at both of our properties in Macau in July.

Macau remains at the top of our list for capital investment, and we are honored to have the privilege of doing business there.

Moving to Las Vegas.

We generated $124 million of property EBITDA in the quarter.

Strength in the group segment, as everyone knows, was evidenced by our Q2 REVPAR growth, which also helped drive double-digit growth in catering and banquets, driving our food and beverage.

Our Las Vegas customer and overall demand remained stable.

Our third quarter, looking at Las Vegas, will be a challenge.

When we look at the third quarter, we think it'll be flat with last year.

And the reasons are not necessarily demand-driven but also event-driven.

Last August, we had the McGregor fight here in Las Vegas.

It was an enormous boost to the city and to the room rates and to occupancy.

Also the holiday, Yom Kippur, is in the third quarter this year.

So just looking at the third quarter, I believe it's more event-driven than it is an indication because our fourth quarter actually looks pretty strong.

We're seeing fourth quarter right now turning to be up over 4% compared to the last year, and we think that our overall REVPAR for the year in Las Vegas is going to grow by 3% to 4%.

Also in Las Vegas, we're in full construction as steel is being erected on our 400,000 square-feet of additional group and meeting space.

We expect to open that in the first quarter of 2020.

We've also been working on the master plan for the remaining acreage of the golf course.

As discussed last quarter, I changed this project significantly from a 3-plus billion dollar investment with a theme park focus to a more luxury resort experience.

It's early in the design stage, and we will continue to work on the master plan for the rest of the year, defining and refining the program.

We still need to develop cost estimates once our design program is complete to ensure this project will add significant value for our shareholders.

Moving on to Massachusetts.

We're actually now less than a year out from opening.

I am so proud of the 1,600 people that are building that place, our construction team, every single day.

The quality of the construction is some of the best we have ever experienced.

We're actually ready to start laying carpet on the first floor of the hotel tower within the next couple of weeks.

We've installed lush landscaping around the site, and we've renovated the polluted river bank into a living shoreline and -- that connects almost 2 miles of boardwalk.

The site is transforming into a destination resort.

We continue to expect to open in late June of 2019.

On a final note, Japan.

We were encouraged by the passage of the implementation bill several weeks ago.

We have been quietly active in Japan for a number of years now.

I've been dozens of times myself, building strong relationships in a country where trust and relationships matter.

We believe that the Wynn aesthetic, our unrelenting focus on excellence and our commitment to thoughtful immersive entertainment will resonate well in Japan, and we look forward to competing there.

Craig, I'll turn it over to you to go through some more highlights in the quarter.

Thanks, Matt.

I'll quickly run through some additional points on the quarter.

As Matt mentioned, Macau delivered $352.2 million of EBITDA on $1.2 billion of net revenues.

These results were negatively impacted by VIP hold at Wynn Macau, reducing EBITDA there by approximately $13 million from a normalized level.

Bad debt in Macau was a credit of $3.1 million in the quarter compared to a credit of $1 million in the prior year.

Las Vegas delivered $124.2 million of EBITDA in the quarter on net revenues of $421.6 million, driven by strength in hotel and F&B.

Table games hold percentage was in the normal range during the quarter.

Las Vegas experienced some unique expense pressures during the quarter with margin declining a little over 200 basis points from the prior year quarter.

About 100 basis points of this decline was driven by a combination of one-time items and a $3 million swing in bad debt expense.

In Boston, we incurred $259.9 million in total project cost during the quarter, taking the total spend to date to $1.64 billion.

We remain on time and consistent with the last published budget of $2.5 billion.

We ended the quarter with total debt of $8.3 billion and total cash and investments of $1.6 billion, including $1 billion at Wynn Macau.

Subsequent to quarter end, our retail joint venture, of which we own 50.1%, issued $615 million of debt, with the net proceeds used to pay a proportional dividend to us and our joint venture partner.

Since we consolidate the retail joint venture for reporting purposes, we anticipate we will consolidate 100% of this debt financing, which you will see on our September 30, 2018, balance sheet.

Consistent with our announcement earlier in the year, our quarterly dividend is $0.75 per share, returning over $80 million to shareholders for the second quarter.

We look forward to continuing to prudently reinvest in our business while returning excess capital to shareholders.

With that, we'll now move to Q&A.

Operator?

(Operator Instructions) Our first question comes from Carlo Santarelli with Deutsche Bank.

Matt, I just wanted to quickly touch on the comments you made about July for starters.

I thought you said quarter-over-quarter, July was running up 20% as well as year-over-year.

Is that accurate?

And if so, could you talk a little bit about the VIP contributions specifically as that seemed to be one of the bigger shortfalls in the period from the year-over-year perspective, most notably at Peninsula for some of the reasons that you said?

Sure.

The year-over-year was 20% and the sequential was June to July, month-to-month, up over -- well, up over 20%.

And we saw broad-based resurgence in both VIP and mass.

What was interesting was in the back 2 weeks of the quarter, we really began to see the acceleration.

Mass revenues -- or mass drop grew about 15% in the last 2 weeks of July compared to the first 2 weeks.

So it's a -- July has been quite good for us.

Great.

And then, if I could, just on Las Vegas.

You talked a little bit about the 3Q looking like it was going to be flat year-over-year.

I'm assuming that was in reference to REVPAR and just given the gaming volumes and obviously marquee fights would bring, I would assume that, all things equal, a flat REVPAR for 3Q would be likely a down EBITDA.

Is that correct in terms of you referencing REVPAR was looking flat for the 3Q?

That's right.

It was REVPAR.

Okay, great.

And then, just one last one quickly as it pertains to the golf course.

With respect to the current budget for the 400,000 additional square feet of meeting space, everything is the same there in terms of the broader scheme for that.

I think you said you were going to continue through design phase for the balance of this year and then sometime, I would assume, next year we kind of learn a little bit more about the ideas there.

That's right.

We have a lot more work to do on the master planning, and we'll be talking more about that near the end of this year or early next year.

Our next question comes from Shaun Kelley with Bank of America.

Maybe to stay with kind of Macau and a little bit of the difference between July and what you saw in Q2, it sounds like you guys really dug around some to kind of investigate what you were seeing for the sounds like maybe the last 6 weeks of the second quarter.

So then kind of the key question I have is what -- kind of what are the people on the ground telling you about what might have changed in July to get activity levels back?

Has competition dropped off a little bit?

Did you guys react and change or tweaked strategy a little bit?

Just kind of what do you think is driving a little bit of the kind of the resurgence back in July?

Look, July is just a much stronger month than June, given the World Cup impact and what was going on due to seasonality.

Ian, I'll let you take up what you're seeing in July.

It was the World Cup bounce back, the liquidity returns to the junket market, particularly, and also our direct program, premium mass, was up.

And what we saw during the second quarter in the junkets, in addition to new rooms having opened in other areas, is when new rooms open up, players are sometimes diverted from existing rooms just to show business for the beginning of the new rooms.

So I believe that, that was a factor.

We also had low hold in a couple of junkets in the second quarter which normalized, and that brought players back as well.

Sometimes the junkets will move players to other rooms because they're worried about increasing bad luck.

So we just basically got back to normal at all business levels in all sectors of the business.

One of the ups in Wynn Palace is we haven't plateaued.

We continued to grow our business, and 80% of our room mix is now going to the casino sector, up from 75% in June.

Great.

And maybe just as a follow-up, Ian or Matt, on we heard a little bit about possibility of either renovating some junket space at Palace or adding in additional tables there.

Is there demand and are you guys doing anything on the VIP side, either there or at the Peninsula that's notable?

Yes, we are.

And there is additional demand.

So our largest junket operator will be taking a new room in the -- probably within the next 6 weeks, and there will be quite a large increase in the tables there.

So we're really excited about it.

Ian, do you have any further thoughts on that?

That it's our biggest junket operator at Wynn Palace, and they're going to increase their table count by 40% in a really attractive gaming area with its own individual access from the street.

It's very nicely appointed at the front of the property, so we believe that, that would be a huge success.

Our next question comes from Felicia Hendrix with Barclays.

So Ian, given the quarter's results and as you look forward and you see new competition coming on, which should continue, and you work to stem the market share losses, can you talk to us about some of the things -- or some of the plans you have to kind of better face that competition?

I mean, you just mentioned a new junket operator, but that can't be the whole of your plan.

No, and Felicia, it's Matt.

One thing I should point out is our market share in July, all normal hold, was 17%, the second highest that we've ever experienced in our history.

So new competition does not mean market share loss.

What we have at Wynn Palace is we're actually opening 2 new restaurants within the next 2 months, and then we're continuing this expansion.

Wynn Palace is going to continue to be a market share taker.

We still have Lisboa coming up, we have the light rail that will be opening at some point in the near future.

We will become the hub of activity in the center.

And with Wynn Macau downtown, with the reinvestment that we're going to be putting into the original casino, it will really revitalize that property.

And so I believe that both Wynn Macau and Wynn Palace are going to continue to increase their share.

Okay.

That's helpful.

And then, Craig, I think this is an important question given the results today, and I know you don't give guidance, Matt.

You were very helpful to kind of give us some per day EBITDA data, which kind of indicates -- helps us think about the third quarter.

But when I look at consensus estimates EBITDA in Macau, you see the cadence kind of growing sequentially third quarter over second quarter and fourth over third.

The data that Matthew provides us indicates that the third quarter sequentially should grow over the second quarter, but should we expect the fourth quarter to also grow above the third?

You're right, Felicia.

We don't give guidance.

I think what we were trying to do is give you some color on how July is playing out.

And I think what we've seen is a resurgence in the business from what we saw in Q2, and that's really what we're saying right now.

Okay.

And then just final for Ian.

You're now 80% casino customer in the mix at Wynn Palace.

I know you've said before that in your ideal world, you'd get to the high -- the mid-90s like you are at the Peninsula.

Just you've moved along quite nicely.

How long do you think it could take to get there?

We are coming off an incredibly accelerated ramp up, and it is softening a little bit, but we will continue to grow market share.

As Matt said, we'll continue to take business from the market as new properties open up in our neighborhood.

And we will continue to convert rooms over to high paying casino customers, and that's worked out very effectively for us.

And ideally you'd go to 100%, but we'll see.

Okay.

Do you think you could end the year kind of in the high 80s?

Yes.

The next question comes from Joe Greff with JPMorgan.

Matt, you talked about not competing on price at Peninsula and one of the ways you'll further your competitive positioning is renovating all the Encore rooms.

Can you talk about room renovation there and elsewhere in Macau and the timetable and perhaps how disruptive that might be and how we should be mindful of that to the extent that you're looking to experience some renovation-related disruption on volumes and EBITDA?

So the room renovation will begin in the next few months.

And we're trying to stage it to not have as much -- too much disruption but clearly, as you know, that always exists.

So we're working through how we're staging the rooms that are out of commission, how long we're going to have them out of commission and what that will mean.

I don't have an exact answer as to what the impact will be.

We're -- again, we are trying to minimize it.

It will be short term, obviously.

And then just big picture-wise, I mean, to what extent do you think the VIP volumes influence, either directly or indirectly, premium mass play.

I noticed something -- one of your competitors has talked about how going after VIP would help that segment and it also helped on the premium mass side.

And then maybe you can just talk about 2Q versus 1Q sort of directionally when you look at your premium mass performance in Macau, whether it's in the aggregate or at each property.

How did it do sequentially in the 2Q versus the 1Q?

That's all.

Okay.

So in terms of the premium mass piece, what we saw obviously in the first quarter, we had a really, really strong March, in particular downtown at the Peninsula.

And the premium mass segment, as you know, faded off into the May and June period.

May was not as strong as we had anticipated, but we've really seen it come back in July.

So we're anticipating the Macau market, even with some -- August should not be that tough of a comp, given what happened last August, but we believe that the Macau market is going to continue to grow.

And then premium mass performance in the 2Q versus the 1Q?

Ian, do you have thoughts on that?

Just at Wynn Palace, we continue to ramp up premium mass.

It's a really rich source of business for us.

What we've been doing in both properties is running a lot of events, both in food and beverage and entertainment.

And that's helping us solidify and build on our premium mass customers.

So in both properties, looking at year-to-date, we're very pleased with the progress we've made.

And would you say it's the 2Q versus 1Q?

I mean, if you look at LVS which breaks it out, it was basically flat sequentially.

But would you say yours maybe performed a little bit in the same way?

Or is it -- can you just talk about the performance there?

I think overall for us in the market, it's grown at a nice pace and will continue to accelerate.

Our next question comes from Harry Curtis with Nomura.

Several just quick follow-ons.

First, on Peninsula, typically when you renovate, you take out 3 floors at a time.

Do you think that, that's probably going to be the similar pattern here?

It depends on how many rooms are per floor.

The Encore tower is 414 rooms.

And so we plan on launching that near the end of the year.

And based on the construction schedule, Ian, do you have an idea of when we think we'll be finished with that construction?

So we actually have the ability with a single load of building to do it almost one floor at a time and really narrow the disruption.

And we have a lot of experience with doing that in the original Wynn tower.

So we're very comfortable that the disruption will be minimal.

There isn't any heavy structural work, so it's really redecorating.

And in addition to that, we don't believe it's going to impact occupancy too much.

The Encore tower is 400 keys as you said.

And Ian, while we have you, you've got some historic perspective, some of these competitors who have reentered the market have come and gone a couple of times anyway.

What is your -- do you think that this time is different, that they've either got a better product or a better service that makes you a little bit more concerned about them taking share?

I think, Harry, we have enough experience in the market to not panic when we see a fall off in a particular market segment.

We -- as Matt said, we did a deep dive to look at every element of our business in the junket site, engage with the junket partners to find out if there was something we were missing, and there wasn't.

So we continue to focus on the product, the facility and the service that we give.

That's our leverage.

There's always pressure to increase advances, to increase commissions.

And when people are building new rooms and trying to get back in the game, that's the leverage they use, but it hurts them at EBITDA.

So we're not in that game.

And that's always short term, and it has been for the last 40 years in every market.

When you chase business with creditor price, you end up backing off.

So our product is strong.

We actually are -- we're moving some of our junkets around in Wynn Macau with a couple of new rooms.

And so we feel very good about our position there.

That historic perspective is helpful.

Just a quick question on Las Vegas.

We're all concerned about the group demand in Vegas in the third quarter, but why don't we take a little bit longer perspective?

Are you guys seeing much encouragement with your group booking pace and pricing for 2019?

And Harry, one point is we are not concerned with group demand at all.

It's actually quite strong.

What is a little weak in the third quarter is we don't have the McGregor-Mayweather fight, and Yom Kippur happens to fall in September.

So our group demand is quite strong this year.

And in fact, 2019 is looking strong.

Maurice, why don't you comment on 2019?

So exactly, 2019 is actually well ahead of pace.

And we're excited about, not just the pace and the amount of rooms, but we're also looking at strong ADR growth in that segment as well.

So 2019 is very healthy.

And how do you define strong?

Is that mid-single digit or more?

I would say we're outpacing our forecasted pace by 20%.

I don't know what's your budget or -- but...

So we always have a pacing that we work toward internally, and we're well ahead of that internal pace in order for us to hit our budget numbers.

That's right.

We can't tell you exactly what it's going to be, we don't have everything on the books.

But we're far ahead in our pacing, which should give us more pricing power going into 2019.

And next we'll go to Stephen Grambling with Goldman Sachs.

I guess another follow-up on the VIP weakness on the Peninsula.

I guess you noted the competitive change, but that didn't seem to impact Cotai.

So how do you generally think about growth on the Peninsula and your fair share long term?

And as a related question, do you generally see customers from Peninsula shifting interchangeably between your properties at this point or are they dedicated to the properties?

Linda, why don't you take that one?

So we do obviously see a gravitation towards the Cotai market, and that is true for both mass and VIP.

And also as the new products opening on the Cotai market, that does make, I guess, a gravitation towards the new experience.

But in general, our products are still of quality.

We believe in Wynn Macau still be the strong player downtown.

So we continue -- as we upgrade our property, I think we will sustain that market for both Cotai and Peninsula.

And just to put it in perspective, when we plan, we plan for the long term.

And so Macau is going to be the entertainment hub of the Greater Bay region which is going to be an interconnected 60 million person -- population city with a GDP of over $1.5 trillion.

The largest -- one of the largest underground rail stations is being built right outside Macau.

Everyone talks about the bridge.

But this Greater Bay region is going to be one of the most visited and powerful places on the planet over the next 10 years.

So I'm a big believer in the Peninsula.

I'm a big believer in Macau, in Cotai, in Hengqin island in that area.

It's really at the heart of some of the largest scale development in terms of infrastructure and wealth creation in the world.

2 quick follow-ups, I guess, to those comments.

The first is peers have been citing new customers coming in from further away.

How would you characterize the breadth and depth of your customers in the VIP business when you think about that competitive change in the marketplace?

Is that effectively there, capturing more of that incremental?

Or is it a share shift among the existing?

Ian, why don't you take that?

So I think we're all experiencing the same thing.

As more and more inventory has opened up on the room side, particularly in Cotai, we've seen a much greater reach into areas other than the Guangdong region.

So general visitation into Macau year-over-year was up 7%.

But from outside of Guangdong, it was up 15%, driven heavily by overnighters, length of stay is increasing.

So I think we're all experiencing the same thing, a greater reach into China.

And as Matt said, as infrastructure opens, the bridge, the light rail and Gongbei border connectivity with Zhuhai airport and Hengqin island, we will see a larger visitor arrival into Macau and primarily from outside of Guangdong.

And on your point of being an entertainment hub, Matt, can you just offer how you're thinking about the financial impact of some of the attractions being planned, whether that's a direct EBITDA contribution or just driving incremental traffic to the property?

Clearly, there would be a direct EBITDA contribution.

Without giving a forecast, what we've seen is when we hold special events in our ballroom, we oftentimes, a couple of times a month, will hold concerts for regional acts that are quite popular.

Anywhere -- they will have between 900 to 1,000 people in attendance.

We see significant pickup in our gaming activity.

And so we really think that our premium customers, to get them to come more often and stay longer, are expecting these types of experiences, along with additional culinary experiences that they can't get anywhere else in the region.

So those are really intended to focus on the premium customer and the length of stay.

And based on what we've been doing over the last 10 years, this is -- we feel very comfortable that this is going to help drive additional share gain.

Our next question comes from David Katz with Jefferies.

I wanted to ask about the capital markets philosophy.

Matt, over the years, the company has been very sharp in maneuvering.

With kind of the way that stock has performed, with Boston getting closer and closer, conclusion leverage coming down, are there any thoughts about revisiting any capital returns and how you're thinking about that over the next few quarters?

We are focused on capital returns, whether that's through capital deployment or returning straight to shareholders.

As you know, David, we have a preference, and I've always had a strong preference for dividends.

Recurring and increasing growth in the dividends, I believe, provides stability in the stock and enhances our shareholder base.

So that's something, as a management team, we will always be very focused on.

Does that -- I know nothing as hard and fast or etched in stone.

Should we be led to believe we're sort of ruling out some of the other options?

The company has done special dividends historically -- not lately, but has done special dividends from time to time.

That's right.

I like predictable dividends that grow each year, so -- along with the business.

That is -- that's our philosophy, and it will always be based on business volumes, but predictable dividend growth is something that we will always be focused on.

And with respect to share buybacks, we're an EBITDA-based valuation.

So we don't get a lot of EPS credit.

To the extent that the stock was extremely cheap, we would obviously hoover it up.

But as Matt said, we're very focused on returning capital and getting predictable long-term credit for that, which really means through the recurring dividend.

I appreciate that.

If I can ask one other.

It has been, I guess, a quarter and change since the leadership in the company has changed.

What changes or evolutions -- or what initiatives, Matt, can you sort of point to or talk about that you have put your shoulder behind or launched since taking over the leadership role?

Sure.

So I'll first start with capital deployment.

So before I became the CEO, we were about to launch a 3-plus billion dollar theme park attraction with the resort in Las Vegas.

We were not as focused on Macau.

And so what we've done, what I've done since I've gotten here and taken this role over is brought in some of the people that have always been behind the curtain on the creativity side, some of the people that I've mentioned earlier.

And we focused intently on the expansion in Macau, on renovating Wynn Macau and rethinking what it is that we're going to do in Las Vegas to ensure that it will add significant value to Wynn Las Vegas, but also to the shareholders.

So that was years and years in planning that I have changed course on and feel very comfortable with the direction that we're going.

And we continue to have real focus on, as we always have, service levels and product.

I'm not someone that's going to be cutting expenses to get to the bottom line.

That's the quickest way to cut the stock price.

We're a revenue-based company.

We're going to continue to grow revenue, take share and build the best product.

I've just shifted where our focus is, and I'd say that's probably, over the last couple of months, for the external factors, one of the single largest changes.

Internally, clearly, you've seen lots of refresh on the board.

You've seen -- we've had lots of changes in terms of some of our policies, procedures and the things that we're doing.

But our capital deployment strategy has probably been the single biggest change.

And next, we'll go to Robin Farley with UBS.

Great.

I wanted to circle back on -- you talked about the impact short term when there's new junket, competitive supply at other properties.

And I guess there'll be more of that to come in Q4.

So are you -- should we be thinking about the expectation that maybe there'll be a similar short-term impact in Q4 given what you've talked about, how you're not going to respond to some of those shorter-term things.

But competition does when new supply comes on in junkets, is that something that we should be keeping in mind for Q4?

Yes.

Again, we don't want to be giving Q4 guidance right now, and we're not going to compete on price.

When new rooms open, as Ian pointed out, junkets will oftentimes shift players over to show their new rooms.

They expand, the liquidity hits the market like a freight train.

There's lots of credit coming out of that product.

That has been going on in Macau for a long time.

We don't forecast our business based on that because it's very, very short term.

Okay.

And then a question on Vegas on the margins.

You talked about them being down over 200 basis points.

I think in your opening remarks, the comment was about 100 basis points was due to some bad debt and some one-off costs.

Should we think about the other piece of that margin pressure as maybe being up a higher cost structure that we'll carry going forward?

Robin, it's Craig.

Yes, you should think about it that way.

It's about 100 basis points of payroll, incremental payroll, that we are incurring due to some regulatory changes and the general COLA increase.

Of course, over the longer term, we'll continue to grow revenue and drive operating leverage here in Vegas.

But in the short term, we are experiencing some modest pressures.

And the regulatory changes, Maurice, why don't you let them know what that actually was?

So there were a couple of changes that were made that we had to adjust to, and that had to do with the policies that related to, more than any other area, was food and beverage.

We had a tip pool that managers participated in, in a lot of our restaurant outlets as well as our nightclubs.

And that was now declared something that no longer can exist.

And so therefore, we had to shift all the tips and take all the managers away from tip pool, and we had salary increases to all of our food and beverage outlets and nightlife and in some of the hotel areas that were receiving some of the tip pools.

So that particular shift is something that we have made some adjustment with respect to pricing.

And so I think we'll realize the ability to be able to overcome that.

But in the short term, we felt that pressure.

Next, we'll go to Thomas Allen with Morgan Stanley.

How do you think currency impacts the Macau market?

Do you think it has an impact -- do you think it impacts VIP or mass more?

And were you seeing any signs that the depreciating renminbi was having an influence on spend per visitor or anything like that?

Thomas, that's -- we talked about that some internally and have decided that we should stick to the entertainment business and not the currency speculation business.

Clearly, a depreciating currency would -- could have an impact, but we haven't seen a direct correlation, and we spend more time thinking about our product and our service.

But if you find the correlation, please call Craig and fill him in.

Perfect, okay.

And then just on Japan, what are you guys expecting for next steps?

Are there certain markets that you're focused on more than others?

Anything -- any other thing you can discuss there?

There are a couple of markets that I think everyone's focused on.

We are spending a lot of time there working on developing relationships with many of the local corporates and talking through what our proposed plans would be.

Again, I think we have a -- we're really excited to compete there, given what our product's going to be, what we stand for.

Everything in Japan is about high quality.

It's about precision.

It's about the best service, really, anywhere to be found.

And that's what we stand for.

So we're really excited to partner with some strong local firms in Japan and make a run for one of these licenses over the next 12 to 18 months.

Do you guys have any sense when the RFP will start?

I really don't want to comment on the government process there.

I think that they will lay it out in detail when they're ready to.

And our last question is from Anil Daswani.

For me, 2 questions.

Matt, you gave us on the opening remarks some details on your entertainment center on the 7 acres between Wynn Palace and Lisboa Palace.

Can you give us a little bit more color in terms of CapEx, is there intended to be any rooms on that or if you expect any tables on that piece of real estate is my first question.

And the second question, obviously, premium mass has become a bigger focus.

In the second quarter, could you give us an idea of what percentage of your mass revenues actually came from premium mass?

And have you seen that change into the strength in July?

So on the entertainment development that we're working on, it is solely food and beverage and entertainment.

It will currently take up roughly about half the site and leaving the other half for future development for things like you pointed out if they're needed.

But this will be just an entertainment and food and beverage focused facility.

And we're quite excited about it.

We're not there yet to be giving CapEx estimates for this project, that will be coming over the next few months.

We really don't break out premium mass versus grand way and quarter-over-quarter.

Needless to say, Anil, you know our brand and what we stand for.

We're a premium house.

That means premium VIP, premium mass, premium slots.

That's the customer that we cater to, but we typically do not give the percentages.

And that concludes the question-and-answer session.

Okay.

Thank you very much.

We'll talk to everybody next quarter.

Thank you.

That concludes today's conference.

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