Overview of operations
Wynn's hold percentage for the quarter was a little lower on a comparative basis. However, it cautions that due to volatility, short-term hold percentages are not instructive, and over the long term, its hold percentage is in the normal range. Wynn had a very large hold percentage in the United States, 31 percent, which is the largest Steve Wynn has ever heard of in a legalize casino. If it normalized its hold percentage in Macau, Wynn would have had another $15 to $18 million in EBITDA.
Wynn was given the green light on its land concession in Cotai and will have a groundbreaking in the next few weeks. It will take 42 to 46 months for the job to be complete. Labor may be issue because there is a lot of public works and competitive construction in South China, Macau and Hong Kong. The government is cooperating; once the government gives the land concession it is cooperative and helpful. Wynn is not yet able to get a final budget for the building. The plan is to dramatically increase Wynn's non-casino revenue profile at Cotai. Steve Wynn promises the project will be “unique,” but is not ready to reveal the details yet.
The project will probably be financed with 25 to 40 percent in equity and the rest with financing. Wynn is only leverages on a 2x net basis right now, so there will be a lot of flexibility in a finance package.
Wynn is open to doing another project of the same magnitude.
China and United States markets.
The Chinese market for gambling is very robust. First generation millionaires typically want to live lavishly and Hong Kong and China are making millionaires at a rate “the world has never seen before.” There is a pent-up demand in that region for living the good life.
The occupancy in Vegas was lower, but
the cash from Vegas was okay. The company is focused on keeping its
rates up and attracting the right kind of people---those who will
stay, shop, eat, amd see shows in their buildings. The company also
had two conventions fall through, which hurt it.
Financials
The company has a healthy lead time and
a very strong cash flow in China. It will discuss special dividends
when it seems appropriate.
Bad debt expense was up $8 million,
which was all in Macau. There were a few large accounts that went
past 150 days. The company is fully reserved. It is 55% reserved in
Macau right now, and collections in the second quarter have
continued to be very stable and normal.
There has been increased expenses in
Macau due to giving employees a general cost-of-living adjustment to
our line employees in March. Additionally, since the company is
coming into its sixth year of operations, so repair and maintenance
expenses are increasing.
Okada litigation
There's no new news on Okada legislation, or Okada legal issues, that we have to report. Mr. Okada has obviously filed a 100-page countersuit, which the company believes is frivolous. It is responding to that suit and has instituted a breach of fiduciary duty action against Mr. Okada, based on his behavior while he was with a director and officer of Wynn-related companies.
The full transcript of the conference call can be found on Seeking Alpha at the following link:
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