Wynn Resorts Ltd Earnings Call Insights: Cotai Construction and Las Vegas Results

Wynn Resorts Ltd (NASDAQ:WYNN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Cotai Construction

Shaun Kelley – Bank of America Merrill Lynch: Steve, I just wanted to start by asking about Cotai. Obviously, it’s a huge milestone to get the construction approval and to be able to move ahead there. So, could you just walk us through what a few of the kind of the upcoming milestones are here in terms of what some of the dates are around driving piles and kind of the next phase beyond that? And in particular, what’s the labor situation like with two other projects probably already kind of in the ground and moving on Cotai and the flexibility around labor in particular will be helpful?

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Stephen A. Wynn – Chairman and CEO: Sure. First of all, as I say, we’ve started construction this week; what you’d call hard construction as opposed to site work; the foundation of Cotai having dried out the property which took quite bit of time and $30 million. Next phase now is the creation of foundation. It’s a landfill, as you know, and it’s an example of, if you like trivia, the caissons that support the high-rise building, they are every 40 feet going sideways and therefore across the tower, one on each window wall and then two inside the building. So, these caissons are 10-feet in diameter and we have to hit bedrock, and those caissons are columns of concrete reinforced with rebar in a steel casing and they go down in our high-rise at a minimum of 78 meters and at a maximum of 92 meters giving idea of how deep these holes are. The public area – the three levels of public area and the podium building are supported by piles which are basically either steel or concrete reinforced columns that are nails that are pounded into the ground, five or six at a time, brought together as if you put your fingers on the table, spreading your fingers the top of your hand would be the pile cap and then we drive all these piles, we put a cap on top of them and we rest the garage and the public areas on top of them. That process of getting out of the ground, building the one layer of subterranean parking is going to take close to a year. Once we get into that phase at the end of ’13, then we go up with the high-rise in the rest of building at a remarkably rapid pace and we do more than one floor a week and go up 20 odd floors to full height. So, (indiscernible), the trick is getting out of the ground and that will take most of ’13, and then ’14 and ’15 will finish the job and get the structures and the interiors installed. So, the labor situation for this phase has been handled already. As you know, we’re financed less than 2% for this project and we were this past summer. And finally, the government has been very cooperative in giving us the labor we need to do the next phase of our construction. So, I think that the government – you’ve noticed, many of you, the rather slow progress of the approval process. That has been a process controlled by the government specifically to meet the scale of labor that’s needed. And so, the government in controlling the approval process has taken into account the kinds of labor approvals they’re going to have to give us and they’ve done it efficiently and correctly and cooperatively. So, I don’t see a labor problem in our future. We’ve never had one in the past, I might add. In spite of some of the publicity that surrounded other projects, we’ve never had to struggle with labor. We’ve been able to get the help we need for our construction companies and for our subs and our buildings have pretty much proceeded on schedule. We have no reason to think that this one is going to be any different. I hope Mr. Kent that’s a satisfying answer.

Shaun Kelley – Bank of America Merrill Lynch: Then the second question was just kind of given your prepared remarks around some of you are looking at new urban concepts. I couldn’t help but notice that you guys made a fairly high profile hire relatively recently. So, kind of wondering as you think about the Wynn brand going forward – to spin the question a little differently, would you ever consider the hospitality business without the gaming element to it as you look at some of the larger cities and some of the needs that are out there? Just curious on that.

Stephen A. Wynn – Chairman and CEO: I think there are one or – my answer would be no with one or two exceptions. I have for the past 10 or 15 years relished the idea of having a new hotel in London. That city is probably one of the greatest in the world for average daily rate and it’s a city, as you know, with highly protected historical landmark buildings. It’s very difficult to get a site in London that you can demolish and build a new. If I had the chance in Mayfair or in the right location in London to build a hotel, I think I’d love to do it. Of course, you can always apply for a gaming license and put a small room of (indiscernible) tables which would be French or icing on the cake. But I’d say that London is a great hotel town. New York City is whole story into itself. I’m not sure – if I must clear of New York as in the non-casino senses, I would be in a place like London. But generally speaking, you know we are in this business Mr. Kent and that’s pretty much where I want to stay. We understand this part of it. What I really love about the gaming aspect is that the gaming room however subordinate maybe, is still – the revenue from such a room is still the thing that allows us to light up the city, bring people and build the new hotel, bring people in from outside the area. In Philadelphia, they have a group of casinos, for example. Some of them are owned by friends of mine. But basically they are boxes of slots. They have a high tax rate for slot machines in Pennsylvania, but they have a much more reasonable tax rate for table games. Table game businesses is not a big deal in that city at the moment. As you know, many of those places were built before they allowed table games, but our hotel is conceived as a hotel that will be able to bring people from outside the region who will come for conventions or other reasons to Philadelphia, stay in our hotel. And because I have beautiful rooms, I can put a table player in there and take advantage of a preferential tax rate and get table business. On the ACELA train, it’s 66 minutes from Penn Station to 30th Street Station, and we are 10 minutes away from 30th Street Station. If you think about that for a minute, Philadelphia takes on a little different color and speaking as a Philadelphian inspires my four years at school at the University. I think that’s a good idea. We have this fabulous 70-acre site on the Delaware River, and there’s a brand new $75 million interchange on I-95 that dumps directly across the street into our property; very, very desirable, provocative situation, and that would be done at about the same time our hotel is done. I like that setup, but it is a casino hotel at the end of the day. It’s an integrated destination as opposed to slots and a box.

Las Vegas Results

Joseph Greff – JPMorgan: Steve, Las Vegas results I thought were encouraging. Can you share with us what you’re experiencing thus far early in 2013 and share with us like what you’re seeing on the Group side and from a bookings perspective? Last year, in Las Vegas, I guess you even characterized the environment that’s being a little bit uneven with certainly strength in the (indiscernible) and nightclub segment and then room rates up and down depending on what’s going on in the city, if you can share with us what you’re seeing there, that would be helpful?

Stephen A. Wynn – Chairman and CEO: I’m going to let Marilyn deal with that because she’s so confident and on top of it.

Marilyn W. Spiegel – President, Wynn Las Vegas: So, Joe, obviously, the convention business is the one that allows us the most stability to forecast what’s going on. We feel really good about 2013. We are tracking above in room nights; we’re tracking above in rates, and we’re seeing the same kind of strength going on into 2014. So, that’s going to lay the base and we hope that’s going to really maximize the great hotel year. Obviously, we will still be focused on bringing in a hotel guest who want to engage in every part of our non-gaming business. Super Bowl this weekend and we are partnered with the business that we have coming in for Super Bowl and Chinese New Year is right around the bend. So, we are very hopeful for a great first quarter.

Joseph Greff – JPMorgan: Steve, you’ve spent a decent amount of time in this call talking about urban Wynn Philadelphia and Boston and other cities that you did mention. When you look at your return thresholds, return on invested capital criteria, how do you think about those things?

Stephen A. Wynn – Chairman and CEO: Take a place like Philadelphia. You spend $800 million or $900 million or $1 billion; you borrow ($650 million) at great rates today. Good idea to borrow money at these rates and you put a $300 million or $400 million in equity and you make $175 million. We can’t get a return on equity like that. If you can get that kind of a return on equity, you ought to keep building those hotels. It lays a base of a long-term franchise. Once you get one of these hotels, that’s up and running and established, it’s better than their past. Tomorrow is better than today and the day after tomorrow is better. That’s the whole point of this. I don’t trust (slots in a bucks). That’s why I’ve never done a riverboat or a racino; not our business, not interested. But a hotel, a place that has the full range of services that people learn to like and even people that don’t gamble who live in this city go to dinner. We get tremendous average rates in our restaurants. We make money with our restaurants. There’s nothing wrong with that in cities like Philadelphia and Boston. With all those kids in college, all those people visiting Boston from around the world, I love the Boston market. I think it’s a terrific opportunity for our Company to make a great contribution to the touristic profile of those cities, bringing people from outside the region into the region and creating places for the people who live in the city that have fun to go to week-in and week-out, even if they’re not hooked on a slot machine or a gambling game of some kind. These kinds of things, these values would imply to any major urban center, like Toronto, like Dallas, Houston, Atlanta, Chicago. We could be a very good neighbor in those cities. We could make a significant contribution to the tourism, the employment, and the revenues that those governments enjoy with our brand. Whenever possible, we’ll take our story to those cities. We’ll put our cards on the table. We’ll present a project that’s appropriately designed with as much excitement and originality as we can muster, and I hope that we get picked. This process is very often. These processes are political in nature and factors come to bear that are not things within our own control. But I’m always excited and anxious to put our cards on the table, make our presentation and hope that we’ll get accepted for who we are. But we avoid hyperbole, we avoid, last week, I got a phone call, my office it was on a weekend, and I was in Sun Valley, Idaho and my secretary said, tomorrow, will you please accept the call at a fixed time from the President of Forbes, five-star rating service; I said sure. I got on the phone with this wonderful man and he said, Mr. Wynn, I wanted to give you the good news in person before we release it publically, but we’ve just added Encore Macau, the hotel and the spa, each with a five-star rating. One of the only four five-stars in China was held by Wynn Hotel and Wynn Macau spa and now you have two hotels in Macau, both of which have received five-star ratings in the hotel and in the spa. You enjoy five-star ratings in Wynn, Las Vegas with your spa and tower suites, and now you’ve also got five stars in Encore, Las Vegas and Encore spa. That means that you’ve got four hotels each with five-star ratings in two locations. That gives you 40 starts, and to use his words precisely, ‘that’s the most on the globe’. Well, I’d say I’m sure excited to get this phone call, have all those five-star ratings complete across the board. They’re very important to us. They can tell the public who we are. They’re consistent with our aspirations and our brand. And thank you very much for the phone call. That was this past week. That’s where we’re going – a little slower, a little more meticulous, but it builds a base on which this company can enjoy a franchise in longevity.

Joseph Greff – JPMorgan: Matt, one final quick one. How much of the $2 billion in cash at quarter-end was held in Macau?

Matt Maddox – CFO and Treasurer: 75%.

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