Wynn Resorts, Limited (WYNN) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Wynn Resorts Third Quarter 2012 Earnings Call. Joining the call on behalf of the company today are Steve Wynn, Marc Schorr, John Strzemp, Matt Maddox, Merilyn Spiegel, Scott Peterson and Robert Gansmo, CFO of Wynn Macau. [Operator Instructions] Now I would like to turn the call over to Mr. Maddox. Please go ahead, sir.

Thank you, and good afternoon, everyone. I'd like to first apologize for being a few minutes late. We were just rounding everyone up in both China and here in Las Vegas. Before we get started, I just need to remind everybody that we will be making forward-looking statements under the Safe Harbor of Federal Securities law, and those statements may or may not come true. With that, I'm going to go ahead and turn it over to Steve for opening remarks.

Well, I think everybody has got the numbers. It was a good performance in Las Vegas this past quarter. We're catching up with the whole percentage, which was abnormally low for the first half of the year. And as is usually the case, those things even themselves out and we're getting back where we should be. And if you normalize last year, which was high, abnormally high, and you normalize this year, which was abnormally low for the 9 months, we're ahead of where we were before. Our volumes in Las Vegas are satisfactory and improving slightly, ever so slightly. And we're enjoying the advantages of being a niche operator, so our average rates are higher. And we're satisfied with our hotel, food and beverage, and gaming results under the circumstances, considering what's going on in the country. In China, for 9 months, we're dead-even with where we were last year. And we're quite incredibly almost within $1 million in terms of EBITDA for 9 months, roughly $100 million a month. And that's the level that we've been operating at for some time. And considering that there was so much new capacity added this past year, most of it taking aim at the same kind of customers, I'm heartened by that. We feel the strain of competition in certain areas, like our high limit slots, where our brethren at Cotai have done a very nice job in their high-limit slot rooms, which caused us to revisit our high-limit slot area. And that will be fixed shortly where we'll be, as usual, prettier, I hope, than the other guys. But at the moment, the level of competition in Macau is terrific. I mean, the people that have built the new hotels, Galaxy and Venetian, they have really done a good job, and they built very, very nice places. And everybody is on their game over there, thinking about how to please customers and learning from their competition. And so it's a tight game in Macau, and no place to take your eye off the ball for even a minute. And I don't think that we are and -- I've got full confidence in our organization that we will continue to garner more than our share of the business and stay more than competitive. We're underway at Cotai. And I think, generally speaking, the numbers and the information about our existing operations speak for themselves. We did announce a special dividend of $8 a share to be given to our shareholders straight away. The record date is all part of our announcement. And with that, we've also decided, at the recommendation of some of the members of our board, that a lot of attention these days is being placed on yield. Debt is paying so little. Treasuries are, of course, yielding virtually nothing, at least for the moment. And so the bond market is not a really great place for investors these days, considering the dividend levels -- the interest levels, rather. So instead, there's a lot of attention being paid to stocks that have good, strong, consistent predictable yield. And we feel that we can be predictable and have a nice yield at $4 a share a year or $1 a quarter. So we're changing our dividend policy beginning in 2013 in the first quarter to $1 a quarter or $4 a year. And if business continues to ramp up and improve, as economic conditions allow and as we add elements to our portfolio, then we'll increase the regular dividend. And that's a strategy I'd like to follow, and I think it's probably a good idea. It'll also allow us to be eligible for inclusion on some of the lists that funds invest in that are dividend-type funds. So for those reasons we made that decision, and it's now public. I think that covers everything of current importance, unless my friends at the table or in China want to add anything. This will be a good time, if there's any announcements or comments we want to make other than taking questions. Matt, Marc, Scott, Kim, no? But then our stockholders meeting is in a few days here in Las Vegas, and that appears to be a very normal course of the business activity that will not be marked by drama or anything other -- anything else unusual. Our proxies are in hand. I don't think anything exciting is on the horizon that could compare to this year's election. So we'll take questions.

[Operator Instructions] Your first question comes from Joe Greff with JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Steve or Ian, in Macau, I was hoping you can just give us an update in terms of what you're seeing on the collection side, either on a direct basis or what you understand on a junket basis. Are you seeing anything that would suggest that collections are improving or stabilizing? And then I have a couple of follow-ups.

[indiscernible]

Yes.

Robert, that's our Chief Financial Officer, Joe. He pays special attention to this as does Marc Schorr and Ian and I. But Robert, you can get right to the point. Now you've -- how's that -- you want to answer that question?

Sure. I mean, look, we all know that credit has tightened in the marketplace, and so I think we've been probably more prudent than we had been in the past. And we've always had a conservative philosophy, and we continue that. Consequently, our collection rates haven't suffered.

That answers your question, Joe? Joseph Greff - JP Morgan Chase & Co, Research Division: It does. And then, Matt, on the dividend announcements, I guess that's plural, at least with the special dividend, how are you sourcing that? Is that largely on the cash that you have here in the U.S., or are you looking at utilizing some of the cash or cash flow from Macau?

There's plenty of cash in United States right now to fund these dividends. And so our board in Macau will be meeting later in the quarter to discuss the Wynn Macau dividend policy. Joseph Greff - JP Morgan Chase & Co, Research Division: Okay, great. And then how much of the cash at the end of the third quarter relates to its -- to your Macau operations?

At the -- what I would say is, post dividend, which is probably more relevant after the $800 million, the Wynn Macau will have roughly $1.4 billion of cash, and United States will have close to $500 million. So we'll have about $1.9 billion of cash post dividend.

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

Matt, just one more on the dividend, while we're kind of on the subject. But just kind of -- can you help us think about what -- is there kind of a targeted payout ratio from here or going forward? And how will this impact special dividend policy going forward? You guys have been actually pretty consistent on the special dividend. I do know it's special. But just kind of what we should think about in the future on that as the recurring has been boosted here?

Well, I think I will answer that one myself. This conversation has taken place between myself and Matt and Kim Sinatra and the board, which includes Linda Chen and Marc Schorr. And we've been trying to figure out what was the most intelligent way to do it. We believe that companies should make money for their shareholders, period. That's the reason we exist. And to create safe, steady, secure jobs for the people that make the enterprise breathe, our staff. As long as we keep our staff healthy and safe, we'd like to give the shareholders of this company the maximum benefit possible from the company's operations. And I say that because so many of us on the board are shareholders, including key members of management, have most of their net worth invested in the company's stock. So we think like shareholders. The -- it's clear that dividends are a good form of savings. And so therefore, distributions of companies under the current tax policy are intelligent. If -- and so the dividend policy of companies are very often affected by the tax policies of the government. When the taxes on the dividends are too high, then companies don't distribute, the shareholders don't get the dividends and Uncle Sam doesn't get the tax on the dividends. Instead, the companies keep the money in and use it for other things. Sometimes, that's a good policy and sometimes, it isn't. Now we've been able to keep a balanced program of growth and investment in our industry and our properties, as well as giving -- having distributions because we've been very fortunate to have healthy businesses. Going forward, I think that the basic attitude that we've had is still valid: protect and allow for growth, for the safety of our employees in terms of their job security; make sure that as we expand and undertake new projects that we have proper capital structure; and then any excess capital should be distributed, provided that, that distribution doesn't cause our shareholders to have a confiscatory tax consequence. So when the government put in the 15% tax rate for dividends, it caused a lot of companies to distribute money and a lot of dividend taxes to be paid. I'm not sure the same thing will happen if the tax policy changes dramatically. And what we'll do at this company is measure our earnings, our capital responsibilities and our feeling about what you and I would call excess capital, excess cash flow, and make a balanced decision. Right now, as you can understand, we're anxiously awaiting the activities of the lame duck tax discussion to take place in Washington which, of course, would be affected by the election. Other than that, I really don't have anything else to offer. It's a bit of an uncertain time as it has been for many months, very difficult to do long-range planning with a government that moves as much as this does on so many issues.

No, I think that's pretty clear, Steve. And maybe if I could just switch gears and ask about kind of the operation in Macau real briefly. I guess, as I looked at just the table counts sequentially and the slot count sequentially, I think you alluded to it on the premium slot business a little bit. Just kind of -- is there some opportunity on -- we noticed that Mass obviously showed some sequential improvement this quarter after being under a little pressure. But VIP volumes were a little lighter than we expected. So just kind of anything you guys are doing on either targeting new junket business or moving more tables over to the Mass side?

I'm glad you mentioned that, really, because I had forgotten. We had stuff out of service in Macau during the last quarter: retail, some food and beverage and some junket space. And we have a brand-new stunning junket space that is going to open, I guess, in a few days.

First week of November.

First week of November. We have a brand-new junket space that folks are taking from international and the international group. And it's sort of a precursor of what we're doing in Cotai. We experimented, we found this wonderful space on the second floor, and we've taken about 1 year to redo it and to reconstruct it. And it has gorgeous windows that look out on the Main Boulevard across at our neighbors at the Lisboa Hotel. And this new junket space is going to kick in with one of the major powerful operators in China in just a few days. We also juggled around some other space that we moved and so we had some of our tables down. And that impacted us on the high end. I think that you'll see in the first quarter, and part of the fourth quarter, the impact of that. I want to again, repeat that we had never really put the kind of heavyweight focus on high-limit slots that some of our competitors did lately. And when they opened up those high-limit slot rooms, they were very well received by our customers. At one level, at the very, very, very high level of slot business, we control a great deal of the market. But there's -- in that high-limit description, there's sort of a meaty, thicker part of that group, and we lost some of that business because our facilities weren't as sexy as our competitors. And I think you'll trust me when I tell you that we know how to fix that, and we have finished the drawings, and that work is underway. And Marc, when is it finished?

It should be finished, hopefully, by Chinese New Year [indiscernible], by February, March next year.

This coming Chinese New Year?

This coming Chinese New Year.

Yes, we'll be back in action by Chinese New Year with that correction. And so I think that, that business will start to climb back up where it should be.

Your next question comes from Carlo Santarelli with Deutsche Bank.

[Audio Gap] remarks. I was just wondering, as it does pertain to your VIP business, do you guys feel as though we've hit an inflection point as it pertains to maybe share going away from new competitor openings and maybe some neighbors being a little bit more aggressive? And as well as if we take that in light with your comments on obviously having some tables out of service in the quarter?

Look, if anybody in my industry stands up and says publicly or privately that they're absolutely certain that they can stop someone else from cutting into their business, then they're inexperienced and unsophisticated. It is a battle every day. It's a constant, constant struggle against very smart people about the use of credit, the deployment of facilities, the competitive use of discounts, that is to say, screwing with the price. All of these things are moving all the time in Macau and in Las Vegas. The worst thing that happens is that when one player achieves a good deal of dominance, as we have in the past in the sector, well, it drives the competition to extreme response sometimes because they get frustrated. And when they do, sometimes they overreach. It happens in entertainment. It happens with disc jockeys in nightclubs. It happens with big customers in a Baccarat game. The fellows that -- the men and women who have the second-tier property or the property that's trailing, they get frustrated and they try and buy the business using a number of techniques. That, of course, immediately rebounds to us, and our sales and marketing people say, "Oh, well, so and so gave this customer or this junket operator this. We're going lose some business if we don't equal the price." And at that moment, in every business in the world, regardless of what industry we're talking about, the rubber hits the road, and it usually comes to the boss or to the top people in the company. If we could only lower the price, if we could only give away a little more, then we won't lose this businesses and we'll keep this volume. Everybody fights for the top line. The government in Macau publishes these numbers every Monday with market share, top line. And that, of course, gets played against the executives of each company. Why are we now -- why are we 12 instead of 14? Or why are we -- why with all of our casinos, aren't we doing better against Wynn or whatever? Well, I don't think there's a CEO or a Chief Financial Officer or a Chief Operating Officer in United States of America or Europe or Asia that isn't faced with this predicament every single month and year of their career. And that's where discipline and experience comes to bear. Look, we're giving away as much in promotional allowances in the casino as we can afford. Believe me. If I thought I could afford more promotional allowances, if I could make this place more user-friendly in terms of the way we treat our big gamblers, I would do it in a minute, because I probably could talk to myself into believing I'd get more customers. But the fact of the matter is that's not really what gets you more customers. And when you overreach, when you pay more than you should, and I've been watching for 45 years, I've been watching guys come into the industry, get promoted in one hotel or another, try and buy the business, either using credit or using discounts or using shopping sprees or misusing airplanes, they last for a couple of years then they disappear and a new guy comes along, or the company's performance is poor and the stock suffers and the shareholders aren't happy. We're staying as close to the line that you can -- as we understand you can get, when it comes to what consideration can we give our customers. But at the end of the day, remember this, I go to these meetings and all of us in this company are convinced of one thing, only people make people happy. And it's our service and our environment and our service levels and the way we treat people that allow us to maintain a price for our product, which is a service product, that allows this company to perform well financially. And we are not controlled by our neighbors. We certainly are informed by our neighbors, but we cannot be controlled by them. So at any given moment, it's possible for someone to steal some of our top line business. But we're all in the same town, whether it's Las Vegas or Macau, and we're all in the same business and we understand cost structure and we understand expenses and all that sort of thing. And when you start giving away more than a certain amount of the revenue to people that get you business, promotional allowances or profit sharing or whatever you want to call it, then you don't have a good business anymore. So I'll take the risk of losing some top line in order to protect my bottom line. And even sometimes, I have to say, it's possible to lose some of the bottom line when the market is under extreme pressure. I don't know, it is a long-winded answer. But I'm trying more to tell you how I think rather because the answer to your question is sometimes we get chipped away, sometimes we chip away at the other guy.

Understood, that was helpful.

It's a marathon, not a sprint.

A quick follow-up for Robert. It looks like you guys did a really nice job controlling expenses at Macau, come to about $1.2 million a day in other OpEx outside of commissions and gaming taxes. Is it -- is there anything in those numbers as it pertains to any kind of provisions that have changed? Or is that kind of a steady run rate number for daily OpEx at the property?

I see that as what I would call a pretty steady run rate. We haven't made any fundamental changes. It's just what I would say a constant monitoring of what our cost base is.

Your next question comes from Felicia Hendrix with Barclays.

Steve, as we look out over the next 3 to 4 years, say, on Cotai, there's obviously now going to be a lot of cranes and construction. Just wondering if any of the recent announcements regarding competitive supply changed how you view your project on Cotai and how you're thinking about government cooperation regarding labor and tables in light of all the imminent casino construction?

I want to make sure I understand the question. There's going to be more than -- there's going to be at least 3 new hotels, MGM, ourselves...

SJM and Galaxy.

And Stanley Ho's company and...

The Galaxy.

The Galaxy folks are adding a phase 2. Those are the projects that have been announced and are proceeding, one way or another. MGM has taken -- has moved to another mile post in the process of being able to break ground. Those processes, you recall, tend to be protracted. We passed it, and we're at work in a process that will culminate in the 16th. Are you asking me -- if I may ask, ma'am, the cooperating and...

So I guess there's 2 parts to the question. One is, obviously, as you were the first and you're farther along, but there's just been several other announcements. And I think one of the ones you mentioned also the Las Vegas and Parisian [ph] , but there's going to be a lot of new products coming on the Cotai -- to the Cotai area over the next 3 to 4 years. So just wondering, as you think about your project, does any of these new announcements affect that? And then I guess the second part of it is how are you thinking about labor and tables? There's always a lot of news discussing potential gating factors coming from each of those in terms of the future projects.

Well, I didn't understand the last part of what she's saying.

Yes, I think the question is, have we changed our project at all because of what other people are doing?

No, no.

And number two, are we worried that there'll be enough labor and tables for the project?

Yes, not tables, labor. The answer is the government won't let us -- wouldn't let us start a project unless they had seen our proposal and how many tables we have. And all that is -- was decided years ago and is folded into the government's thinking. The issue of labor, well, it's not the other projects, believe it or not, ma'am, that are the problem. It's public works in Hong Kong and Macau. My god, you should see the things that are going on with the light rail system and other things, the bridge from Hong Kong. Is it good news or bad news? There's so much work going on. As that country expands, it puts pressure on labor and pressure on labor cost. We have to deal with that. But of course, we built our other 2 hotels during similar expansion periods. This is not new. As a matter of fact, there were more projects under construction when we built Encore than there are now. So -- but it's tough, and you know you need the government's permission for imported labor. That's something that's -- you got to have the foreign worker visas. The government is very protective of the local labor market. And they want the Macanese [ph] , the Macau people to be fully employed before they let other people come from outside the region. Though fortunately, at the moment, the local market is fully employed for all intents and purposes. And so the government is taking a more relaxed attitude towards that, at least they say they are. We're not under pressure with labor at the moment in our foundation work, but we're not in that heavy period that you're familiar with when buildings are being -- when you're pouring concrete and when you're using hundreds and hundreds of electricians and plumbers and sheet rockers and concrete finishers. Then the people on the job starts to get to 2,000, 3,000, 3,500 people a day. Right now, we're not -- the foundation can't absorb that kind of labor. So we don't have any problem nor do I see us having a problem in the next 12 months. As it develops, depending upon the art of construction of the other -- the competitive projects, and I don't mean just gaming, I mean public works of the government and the city itself and other businesses. And remember, you've got to consider the whole Pearl River Delta as a unit, which means Hong Kong, which is -- the island in Kowloon, Shenzhen, for all intents and purposes, Zhuhai, Dongguan and Macau. That's one giant 40 million, 50 million, [indiscernible], I don't know how many millions of people, and everybody is working there. And the government is very aggressive. So labor is going to be a challenge. And the only thing, if there's something that says -- a way of ending this response, we're not dealing with anything we haven't dealt with before. And you could take a look at our 12-year history in town. We broke ground in 2002, '03 on our projects. We're 9 years in building hotels and operating hotels and fighting the labor battle in South China. It hasn't been that bad actually, just requires a lot of focus.

And my next question is for Ian and Linda. The question that --

Linda is not here.

Oh Linda is not there, okay. So Ian, it's on you.

We don't have Ian and we don't have Linda. I'm sorry. We have Robert Gansmo.

Well, there's got to be -- okay. So anyway, my question is on the general market trends on the VIP side of the business in Macau. And I'm just wondering, are you seeing any change in the decelerating VIP trends that we've seen since May? It looks like September seemed better than the prior 2 months. Just wondering, do you think that's the beginning of a trend? Should we expect that to -- should we expect that kind of trend for the rest of the year to -- or the rest of the year to bounce along as it has over the past few months?

Matt Maddox.

So Felicia, everybody likes to focus on the weekly data coming out of Macau. I would pull back away from that. And as you watch everyone's results, I think you'll hear from all the operators, things have stabilized in Macau. You are seeing more credit from the junket operators, everyone is feeling a little better than they were a few months ago, and it's reflected in the region.

And do you expect that to persist?

Like I said, we're not going -- I'm not going to speculate on the week-to-week numbers. But what I can tell you is things feel stable in Macau.

Your next question comes from Steven Kent of Goldman Sachs.

Steve, can you just tell us when you plan on showing some of the renderings for Cotai, some of the project? And maybe, Matt, you could talk about financing on the project, when that's going to be finalized. Essentially, I'm just trying to get a feel for when you'll start to move dirt in a much more significant way. And maybe, Matt, you could lay out the CapEx progression?

Well, I'm glad you're really interested in seeing the pictures. We're -- this is something we've never done before. We built a building in Las Vegas. This 32,000 square feet glass building next to our staff parking lot. And we built into that building the ability to build both the queen, queen and the king typical room, our suites. A big piece of our casino, smoking and nonsmoking, the corridors and the suites. In effect, we'll be able to take a camera, walk in this facility and make you think the place is open, full sides [ph] . We've never done it before. We spent quite a bit money on this because we're taking this hotel to another level. But instead of showing you renderings, I'm going to let you walk in it. I'm going to let you feel it. Let you be there. And not a computer rendering, either, the real deal: the carpet, the chandeliers, the decor, touchy and feely. If you come out here, Steve, you can go and it see yourself in person. And so -- and pictures of the outside, the fountains, all of the stuff is designed. We're polishing and finishing the suites in the model. Our models are done, except for one thing we're finishing in November. But we're going to take movies and photographs and everything. But this project, before it's finished, will be completely understood by everybody, including our competitors.

Steve, the last time you did that was actually with, I think, with the Vegas project because I can remember touring that. And one of the issues was that you wanted also, you yourself wanted to be able to walk around it and make adjustments and the like, so...

And we did already. We walked in it and made the adjustments, Steve. That's why I said next month because we made some changes. And we're very, very happy. It's the finest work we've done. Roger Thomas and his group have really outdone themselves. We've got a different look, and a new -- we've got a new sensibility that we're going to expose to everyone. So as to seeing it, by the end of -- by before Christmas, it's available and we're going to photograph it. And if you're out here, you can go see it. And if not, we will send you a disc or something. With regard to moving the earth. The site, as I mentioned earlier, was complex because of water and subterranean garbage. It's a big landfill. And our part of the landfill, we love having the 52 acres, but our property had a particular problem in one corner, it was very wet. And we had to do a process of compressing that earth with drainage wicks in it. And we lowered the ground on about 8 acres by almost 2 meters. And when we finish that drainage process, it's going very well. And we think that we're going to start by the end of November, next month, the actual pile, the caisson construction. So we're moving dirt, but we're moving it out of the low-grade out and putting huge, deep 78- to 92-meter caissons in the ground. Our shallowest caisson is 78 meters deep. That's to get 2 meters into rock. And our deepest caisson that holds up the high rises, the high-rise columns, we're down as low as 92 meters below grade. Now we had 60 meters when we built Encore in Macau. So that was a time-consuming -- once we get out of the ground, which will be probably 1 year from now, once we get above -- we get to where we poured the basement, the one level of parking below grade, which will start next -- in '14, then it will go very fast, because it's only a 20-odd storey concrete building poured in place and the public area is 2-storey podium. That will go very fast. The problem in Cotai for us is getting out of the ground. That's the problem all over Macau because so much of the place is landfill. Everything on our side of the street in downtown Macau and the peninsula, the Star Wars, MGM, Wynn, The Arc, every one of those places where the ferry terminal is all the way down. That was all water in 1995. Ocean. That street that's in front of our hotel was an oceanfront street. Beach was there. So building over there is tough in terms of foundation work and expensive and slow because we've got to go so deep. So that's why Matt has had so much room to do the financing, and I will let him pick up the beat. We finished the first $2.2 billion, $2.3 billion at LIBOR plus 1.75% in June.

Yes, end of July.

End of July, right.

That's about 60% of the project cost. And so that closed July 31. Most of the spending will be from mid-2014 until mid-2016, like most projects. So we actually have enough capital on hand to finish the project today. There could be some further financings just for balance sheet optimization in 2013 or 2014. But today, we're in really good shape.

Allowing for dividends.

That's right. 75% of the CapEx will be mid-2014 to mid-2016, which is normal.

We're going to try to make New Year's, Chinese New Year's in '16, 4 years from now, 3 years from now. We're going to try and do that. We know we can make Memorial Day, we want to make Chinese New Year of '16. But as the lady said from Deustche Bank, it's about labor -- from Barclays rather, it's about labor, will we be able to get enough, how tough will it be. We never had a problem on Encore. Other people did, but we didn't. We went zipping right through. The problems that we faced were normal to construction, but we didn't have what you would call a labor problem that slowed us up. I don't think we're going to have one this time either to tell you the truth.

Your next question comes from Tom Marisco (sic) [Marsico] of Marisco (sic) [Marsico] Capital Management.

First of all, I want to say thank you for the operations, the special dividend. And I think that the cost on our original shares now is way negative. Not many companies can give you those types of results given the turbulence that we've had in the economy over these years, so thanks from our shareholders. I also saw that you won the Condé Nast Award in Las Vegas, so you continue to treat your customers well there. And my question, Steve, gets to what are your small business customers in Las Vegas and in China saying about the world as they see it? You've got uncertainty as far as the political situation here in the United States with the election. And then with the change of leadership in China, you're also going through a change in politics and the political landscape there and the issues surrounding Bo there. Has that had any impact as far as you see it on your developments in Cotai or the Macau market? And has the smaller business customer or the CEO of a bank like a Wells Fargo that used to have their atta-boys in Las Vegas, is that starting to come back, whereas before, after the collapse in 2008, certain people didn't think that you should be going to Las Vegas?

Tom, last week, I came back from a -- I went all the way around the world. I spoke at a conference in London, had business in Dusseldorf, Stuttgart and Berlin. And then I went to Singapore and Macau. And I was at a conference in Singapore, and I was at one in London. And there were international bankers and panels and speakers from Mainland China, from Singapore from all over Asia and Europe. It was a very good chance for me to get some insight on the very questions that you're asking about. One of the key things -- nobody needs a comment from me about the uncertainty in the United States and how that will hopefully be resolved on November 6th in the United States. And I think everybody in the investment community is very sophisticated on what's at stake. And I know all but small businessmen are, and what's at stake in the United States, depending upon the outcome in the Senate and the House and the White House. In China, it's very interesting. I had occasion to be in the company of a very influential, well-informed and high-placed source, of political insight in the People's Republic of China last week, 10 days ago in Singapore. And some very interesting things were said. And if they are true, they'll be noteworthy to all of us as we look at the Chinese market. The point was made that there's a feeling in Beijing that in order to service the expansion of that economy going forward from where it is today, having achieved a critical mass of today's proportion, to go forward, changes have to be made in the PRC. And this source made the point that there was some thinking in Beijing that they had to privatize and liberalize some of the institutions in that country. And that meant that some of the state-owned businesses, and you know the list as well as I do, Tom, were going to be -- they were going to release their control of those enterprises and either privatize or allow them to go public or do other things. And so there was going to be a liberalization of central government control in the hopes that, that would, by decentralization, allow the country to be more agile and flexible in response to its growing needs of consumers and industrialization. That overwhelming central control, at this point, was, as it is in America, a detriment to rapid expansion and job creation. And this source shared with myself and other people that were present. And I assure you, I don't want to get my name in the paper quoting anybody because these stories are often repeated in the local press in China, but there was a feeling that less government central control, not get -- not the less government central monitoring, but the ownership and day-to-day control of these institutions was not in the best interest, overregulation and overcontrol, to promoting growth in the PRC and creating jobs. If that statement is accurate and Xi's government is going to be characterized by that, then I believe that will get a great deal of press going forward and will be a discussion lively held, because it will mark a slight change again in the direction of leadership of China. My source may be wrong. He may be adding a personal interpretation that doesn't -- is not accurate. But it's interesting that someone of this caliber made that observation. Because if it's true, I'm hoping that the government in Washington, D.C. will take note of it. If the People's Republic of China think that job creation and small business expansion is best served by decentralization, then that's what the business community of the United States has been telling Washington, D.C. in ever louder voices for the past 12 or 15 months. It would be interesting if we finally -- if they finally get the clue from China rather than from their own country. But I did hear that, Tom, and I heard it from a fancy [ph] source 10 days ago. And that will be very good news for us because the more you release the entrepreneurial zeal of China and the way that temperament of those people are, the more unbelievable the results will be. That's a hustling, hard-working, entrepreneurial risk-taking culture over there. And unless someone holds them down, they're up and at them.

Steve, have you felt that there's been a pause around the change in the leadership that's occurring in China? Xi was out of the picture for a couple of weeks. We didn't know if he hurt his back or if they were making other decisions. Did you see a pause in activity among...

I'm not a moment-to-moment watcher. Things tend to be very predictable over there, Tom. And his ascension into that position has been long...

Anticipated?

Yes. And if all of a sudden there were any changes, that would be the first time in modern Chinese history that such a thing has taken place. They're not fickle there. They tend to plan ahead, make their moves, stay on track. They revisit strategy, but they don't revisit long-term planning. The name of the game in China is job creation. Morning, noon and night, Hu Jintao and Wen Jiabao, since the day they took office, they've been busy creating jobs in China to help make -- [ph] create a better life for the people of that country. And that has been the great priority, the expansion of that economy in order to meet the needs of their demanding public.

And so with the expansion that we're going to be seeing with the new hotels on Cotai, do you feel that the infrastructure projects around the bridge and the rapid transit line will be completed continuous with the development of the casinos?

The rapid transit, will. That's well underway. They're going. I believe the bridge is, too. Everything is scheduled for finish just about the same as the time we are, which is wonderful. That whole business with the bridge is really -- it connects Hong Kong, Shenzhen, Zhuhai, the whole Pearl River Delta becomes one town. If it's almost -- it's staggering to think about it. It's the reason why we have the confidence to invest another $3.5 billion or $4 billion in that market. I mean, you -- there is -- in spite of the stiff competition that we just discussed earlier in the phone conversation. And it's formidable stiff competition. I have to give a lot of credit to the Venetian and the City of Dreams and the Galaxy folks. There's no grass growing under their feet. They're smart fellows.

Your next question comes from Harry Curtis of Nomura.

It's really a sort of a 2-part question. The first is, it goes back to the VIP sort of pause that we've seen in the VIP segment. There's a theory that -- out there that a lot of the wealth or most of the wealth in China has been tapped. Do you think that, that has any validity to it? Or do you think that just some of your customers in Macau have been dialing it back a bit partly in anticipation of the transition? And the reason, and this goes to the second part of the question, that I ask is that I'm interested in how you're designing Cotai. Are you designing it with the VIP segment in mind? Or do you...

Yes.

Okay.

That's the easy part, right? But you asked the first part of the question, has most of the wealth been tapped. What do you mean by that? Identified, you mean identified?

No. That are we 70%, 80%, 90% of the way penetrated in the VIP market?

No, no, I don't think so. Marc? Matt?

No, I don't think so.

No.

Stanley Ho has been doing it for 40 years.

Yes, we're Johnny-come-latelys over there. Stanley Ho has been -- God knows -- every time we think we've got a line on this place over there, we get surprised, Harry. We get surprised. The country is so huge and the percentage of penetration of the gaming, based upon the repeat visitation, is so small that I don't think that we have done that. I think it's very important that the invitation, represented by all this new construction, that that's the volume. That's the volume on the speaker of the outreach of Macau. The louder that invitation of Macau is, the more deeply you can penetrate that market.

That's why they're building all the non-gaming halls.

And that's right, all the guys, Marc is saying, they're building all the non-gaming. Well, Galaxy and Sands and City of Dreams and MGM, I'm sure, as well as Stanley Ho's company and ourselves, the 6 of us, we really, really are keying up fancy stuff, really beautiful things by anybody's standards. And I believe there will come a time when the invitation to Macau will be so loud, so strong that people will start to come from even further away. So I think we're on solid ground as far as long-term growth. Just look at the -- you know what kind of expansion we've had as far as facilities. And look at the revenue levels that climbed up. Don't you think you sort of can answer that question yourself if you take a look at it? You're seeing everything we see.

And with that in mind, do you design Cotai with more of the higher-margin Mass, higher or upscale Mass business as your target market? Or is it really a blend between VIP and Mass?

Both. We want Mass Market and we want the VIP. But within that answer, there's a level as well. Our typical room is 900 square feet, 20 by 45. It's a mini-suite. Our typical room is a mini-suite. It's like -- Harry, have you seen a Cotai room? The Encore room in Macau?

Oh, yes, that I've seen.

That's a typical room in Cotai. Cotai is like Encore Wynn. Now that's our Mass Market room. So you can imagine, we're after -- our general casino has a higher yield per table than anyone else, and it's growing right now in the Peninsula. So when we say the general casino in the Mass Market, we deal to the top end of the Mass Market, as well as to the, of course, the VIP guys through the junket operators. And in Macau, our retail sales, Louis Vuitton, Chanel, Christian Dior, Cartier, Prada, Miu Miu, Graff, Bulgari, Tiffany, Rolex. That's our lineup of stores. Gucci, Hermes, they're all going with us. We made had a deal this month -- well, actually, 2 months ago. You know where the coffee shop is in Macau. We took part of the coffee shop. We didn't need as much of the coffee shop buffet, so there was 2,000 extra feet that we turned over to retail. I made a deal with a guy for $6 million for 2,000 square feet. $500,000 a month fixed rent for 2,000 feet, 5-year lease. I'll say that slowly. 2,000 feet, fixed rent, $500,000 a month, $6 million a year.

U.S.

U.S. Now the guy that paid this is one of the most sophisticated businessmen in Europe. And he's got a great business there. And he didn't even blink about paying the rent. So we're dealing to a niche part of the market, the top end. I think there's plenty of those folks in China. And we're going to give them -- our idea in Macau, in plain terms, there's this terrific competition among our neighbors. We have to make sure that our facility is so going away, fetching, that it will be everybody's first choice, and then the other guys are largely [ph] over who goes second. But we had to distinguish ourselves completely. And because we've seen the fine job that the other guys have done, it stimulated and provoked us to reach higher and to do even a better job. And that's what I think we've done. That's why it's taken us 2.5 years before we broke ground. We've been designing this place steadily all that time. And you know we've got a lot of experience doing that, so you can imagine how hard we've been working. I hope that satisfies you.

Your final question comes from Robin Farley of UBS.

I've got 2 questions. One kind of shorter term and one longer term. [indiscernible] when we're trying to think about the impact of your above average hold in the quarter, can you give us a sense of whether that was mostly on business that was direct business or was that through junkets, just when we think about the EBITDA impact of that? And then I have another question after that.

Our business here is -- it's all direct, in a manner of speaking, although the credit was guaranteed by some junket operators on some of it. And some of it was -- but our business with the Chinese is expanding rapidly in Las Vegas. And as far as our EBITDA calculation, you can see it on our reports and it is what it is. I mean, there it is.

And so -- yes. And so, Robin, in Macau, it was pretty much the same hold percentage.

She was asking about Las Vegas, weren't you?

No.

No.

No, I was asking about Macau.

It was pretty much the same hold percentage in both direct and in the junket business.

Did I misunderstand the question? Oh, I'm sorry.

Yes, but that's okay. And in Las Vegas, we were actually within the normal hold range.

Okay. No, I was asking about Macau, about the above-average hold. But Matt, I think you answered it. My other question is -- I guess it kind of goes back to like, well, saying that things in Macau have stabilized. And I know, Steve, a lot of your comments about sort of post-2016 and the very big picture were helpful. But I guess, if we're just thinking about the next sort of 12 months or so, I guess, what gives you comfort that things have stabilized? Because I thought it was also [Audio Gap] to see some of your retail revenue from Macau down, just given the correlation between some of the luxury Hong Kong retail that we've seen with VIP revenues. So I guess just in terms of next 12 months, if next 12 months isn't too near term for you to think about, what's giving you comfort?

Well, Robin, we had some retail under construction during that quarter. So that may -- I can't quantify how much of it was due to that. So...

And it was really just -- we had some -- a few less watch sales. It was some large purchases last year. So when you go store-by-store, most of our same-store sales are actually up, except for a few -- except for 2 outlets. What I would tell you again is $290 million to $300 million of EBITDA out of 1,000-room hotel per quarter is extraordinary. And we're really not seeing anything that's making us change our minds about what direction it's going.

Well, let me rephrase the question. I was just pointing out the correlation that we've seen sort of longer term with the Hong Kong luxury retail. But what I was really -- with your comment about stabilization in VIP volumes specifically. In other words, retail is just kind of a side thought to it. But when you look at your -- at the markets, VIP volume declined and your VIP turnover declined, what gives you comfort that in the next 12 months -- what gives you comfort [Audio Gap] already or that these trends won't -- that we won't continue to see those kinds of declines?

Well, oh, I see -- well, look, you may see some declines because we got nipped by competition or by hold percentage or both. But, I think Matt and Marc were talking about the market as a whole, weren't you?

And I'm also asking about the market as a whole, where we saw VIP volumes down in the third quarter. So I'm wondering what gives you comfort that, that has stabilized in the market overall?

And so -- okay, so Robin, everybody in the summer got nervous. And I think it's pretty widely known that credit tightened up quite a bit in the summer over there. What you've seen, and I think as you watch your weekly numbers, you'll see that it's began to loosen again, a lot of people feel very comfortable. And if you look at the number of people coming into our casino every day, and we count these down every day, were getting great headcounts, and our customer database at the high end is continuing to grow. So it's a robust market and it really feels better to us today than it did a few months ago.

If you watch that market and you're a sharp analyst and you drill into those weekly numbers, I guarantee you that you will screw yourself up and will come to the wrong conclusion and you will lose sight of the trees through the forest. Be careful about short-term results in our business. Just look at China, the questions about the macroeconomic environment. Those are the ones that are going to determine the long-range performance of all of these companies. Well, you see the relevant performance of each of us, who gets more than their share, who gets less than their share, et cetera, et cetera. Who's got the newest place? And that lasts for a while and then it goes back to where it was before. Those things aren't going to change much. Horses run true to form, the companies will run true to form. The question is what about the market itself? That's the question, I think, that when you -- when we have these calls and some of you make us focus on that. We may not have all the answers. But generally speaking, we think that the market is terrific now, and that everybody who's in business there is going to have good news going forward. Now, what -- to quantify that, I know many of you, that's your job. To quantify it, give it a number at what range it is on the stocks, stuff like that, but be careful about those Monday numbers. We get variations with hold percentages. We have days where we win $35 million, $40 million in one day. We get days where we will make no money or lose $5 million.

No, I wasn't really focusing on the numbers. It was more over the next few months, just what leads you to think that the market was stabilizing from the declines.

You know what the trouble is, Robin?. The reason we're lousy at answering that question is we don't care about the next few months the way you do.

Exactly.

I don't mean to say that to be critical. I'm describing that our focus -- that's not a question we ever deal with except during a call like this.

No, I understand. I just wondered what made you say it would stabilize given the comment you just made.

Thank you, everybody. See you next time.

This concludes today's conference call. You may now disconnect your lines.