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Edited Transcript of WYNN earnings conference call or presentation 9-May-19 8:30pm GMT

Q1 2019 Wynn Resorts Ltd Earnings Call

LAS VEGAS May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Wynn Resorts Ltd earnings conference call or presentation Thursday, May 9, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig Scott Billings

Wynn Resorts, Limited - CFO & Treasurer

* Ian Michael Coughlan

Wynn Resorts, Limited - President of Wynn Macau Limited

* Marilyn G. Spiegel

Wynn Las Vegas, LLC - President

* Matthew Ode Maddox

Wynn Resorts, Limited - CEO, President & Director

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Conference Call Participants

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* Anil Jeevan Daswani

Citigroup Inc, Research Division - MD and Head of Global Gaming Research & Hong Kong Country Research

* Carlo Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Felicia Rae Kantor Hendrix

Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst

* Harry Croyle Curtis

Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging

* Joseph Richard Greff

JP Morgan Chase & Co, Research Division - MD

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Stephen White Grambling

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Thomas Glassbrooke Allen

Morgan Stanley, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Welcome to the Wynn Resorts First Quarter 2019 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.

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [2]

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Thank you, operator, and good afternoon, everyone. With me today in Las Vegas are Matt Maddox and Marilyn Spiegel. Also on the line are Ian Coughlan, 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.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [3]

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Thanks, Craig, and good afternoon, everyone, thank you for joining us. The quarter was pretty much in line with our expectations and I think I'd just like to jump right in and talk about Macau. So in Macau, we generated $386 million of property EBITDA and, as we've discussed in previous quarters, VIP was down and the premium area continues to be choppy. However, what we saw was, we saw real strength in our core mass. In fact, our core mass increased over 13% year-over-year, and what that shows is that our strategy is working. We've built 5 new restaurants at Wynn Palace over the last 24 months. Our visitation continues to increase.

And what's interesting, in March of this year, Wynn Palace achieved its highest normalized EBITDA on record. And 78% of that EBITDA was from the mass business and non-gaming. If you look at Wynn Macau downtown, we're continuing to perform in line exactly with our expectations as we're renovating that property. The Encore Tower, which are probably the nicest rooms in all of Macau, the average size of the room there is 900 square feet, is in a full renovation now. Not just a soft goods renovation, but a full renovation, and that will be complete by the end of the year. We also looked at the success of our Encore casino in Macau, and those approximately 30 games are one of the most productive casino floor plans on the planet.

And we thought how -- what can we do to replicate that in half of our casino, our original casino, what we call the West. And so we begin a project about 9 months ago that should wrap up at the end of this year, that will take our original casino that's right now chopped up with various junket rooms and the energy has been suppressed, and it will turn it into what I think will be the nicest premium mass destination in downtown. We'll have 7,000 new square feet of retail entering this area, 2 restaurants flanking the new casino and this should all be finished by the end of the year. So Wynn Macau's best days are ahead of it. 2020 should be a great year for Wynn Macau.

In Las Vegas, everything was pretty much in line except for baccarat. And I think it's no surprise to the people on this call, baccarat was down for us quite significantly, just as it was for the market. So all of our competitors felt it, baccarat was definitely soft in the first quarter. What I have been impressed by is Marilyn coming in and her team, understanding that baccarat is in a temporary decline, have focused on the non-baccarat casino business. And for the first time in a long time, our table drop, excluding baccarat, in the first quarter actually increased 10% over last year. And I give a lot of credit to Marilyn and her team and the new marketing people that she has brought on to focus on areas where we have not focused as carefully in the past, and I think it's an area of growth for us in the future.

There's been a lot of discussion about new jurisdictions opening up in Asia and around the world, and that maybe baccarat's best days are behind it in Las Vegas or that Macau can continue to see some cannibalization, and what I would say to that is I totally disagree. We've experienced gaming expansion in the United States for decades. And we're experiencing it now in Asia. But what always happens is customers will go try out the new product, they'll go to a place where they're getting free money and big discounts, but that never lasts. Customers with money and choice always go to the place that they enjoy the most. And you cannot replicate Las Vegas or Macau anywhere else on the planet. The number of hotel rooms, the entertainment options, the infrastructure, the service levels can't be replicated. And so our company and our growth profile are properly situated to bet on the future growth of the 2 best gaming jurisdictions in the world. Las Vegas and Macau. And I am a very firm believer that our product is positioned perfectly in both of those markets.

In Massachusetts, we received a decision from the MGC regarding their investigation last week. Importantly, there was no impact on the suitability of the company or its key employees to hold the gaming license in the state, and we are ready to move forward with the opening of Encore Boston Harbor. However, we are still reviewing the decision as it relates to some of the secondary and tertiary conditions imposed by the commission. We do not believe, if we choose to appeal that, that will impact our ability to open the project at the end of June. So the regulatory process has consumed a great deal of resources at both the company and with the regulators. We are focused on opening this property within weeks, and we feel very confident that it will be the nicest integrated resort on the East Coast.

But before I turn it over to Craig, I'd just like to remind everybody about why I'm such a big believer in this company. We've been through a significant transition, and there's been some turmoil over the last 15 months. But that is now behind us. And if you look at our future and you look at our company and our growth profile, I believe it's unparalleled in this business. In Macau, we have 1,300 rooms, 700-plus in Phase 1, plus the Crystal Pavilion that we've made significant progress on for Wynn Palace, and that project is needed for Wynn Palace to continue to grow, and we're really excited about it. We're about to open Encore Boston Harbor, which is a step change in our EBITDA, in weeks.

Here in Las Vegas, we have a new convention center opening, doubling the amount of convention square footage we have over the next 6 months, multiple new restaurants coming into the property and a fresh look at the way we think about our casino business. So our growth profile is quite strong and I am a big believer and we're all big believers that Macau and Las Vegas, best days are ahead of it.

With that, I'm going to turn it over to Craig to get into some of the details.

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [4]

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Thank you, Matt. I'll run through some additional points on the quarter. As noted in our release, our Macau operations delivered $386.5 million of adjusted property EBITDA on $1.25 billion of operating revenues. As Matt noted, the quarter was characterized by continued choppiness in VIP and premium mass offset by meaningful growth in main floor core mass, with combined property win in that core mass segment up 13.1% year-over-year.

March was particularly strong with Palace experiencing its best month ever in mass drop, mass win and EBITDA. Our results in Macau were positively impacted by VIP hold, increasing EBITDA at Wynn Palace by approximately $25 million from a normalized level. Bad debt expense in Macau was $1.8 million in the quarter compared to $300,000 in the prior year.

Our Las Vegas operations delivered $108.3 million of adjusted property EBITDA in the quarter on net revenues of $401 million, with year-over-year growth in non-baccarat table drop and slot volumes. As discussed on our fourth quarter 2018 call, a large group shift from Q1 to Q2 this year negatively impacted RevPAR growth and food and beverage revenues in the quarter.

We expect offsetting outperformance in RevPAR in the second quarter. Consistent with the broader Las Vegas market and our commentary on the fourth quarter call, baccarat volumes declined year-over-year and such declines were the primary driver of the year-over-year EBITDA decrease.

The property held high, adding a little over $5 million to EBITDA. Bad debt expense in Las Vegas was $3.6 million compared to $400,000 in the prior year quarter. Compared to the prior year quarter, EBITDA margin in Las Vegas was negatively impacted by the swing in bad debt and operating deleverage from baccarat. We spent $48.8 million in CapEx on the additional group space at Wynn Las Vegas, taking our spend to date to $181.5 million.

In Boston, we incurred $233.4 million in total project costs during the quarter, taking the total spend to date to $2.26 billion. We ended the quarter with total debt of $9.2 billion and total cash and investments at $1.8 billion, including approximately $900 million at Wynn Macau.

During the first quarter, we returned approximately $81 million to shareholders through our quarterly dividend payment, and today we are pleased to announce a $0.25 or 33% increase to that recurring quarterly dividends. Our recurring dividend is now $1 per share, returning over $100 million per quarter to our shareholders. Consistent with our sharp focus on capital allocation, we will continually evaluate periodic increases to our dividend as well as opportunistic share repurchases as valuation and broader capital allocation priorities warrants.

With that, operator, we will now open up the call to Q&A.

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Questions and Answers

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Operator [1]

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

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [2]

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Matt, Craig, if we can go back and kind of discuss Macau. As you guys talked about specifically at Palace, you really saw a nice boost in mass and obviously -- on base mass, I should say, and obviously some of the changes that you're making at Peninsula should certainly further that effort. If we think about the Macau market, in a flattish environment for say 2019. And you guys think about your positioning. Obviously, given the impact of your positioning in VIP and premium mass, you would expect some share loss there. Do you believe with some of the growth you're seeing in mass and some of the pivoting that you could do, that you would be able to offset some of the share losses from both a margin and EBITDA perspective over the course of the year?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [3]

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Carlo, its Matt. When we're looking -- it's always hard to predict exactly going to happen in Macau, but we do believe with our product that we'll be able to stay within that market share range of, at the lower end of it, of 15% to 17%. As you know, our competition has been ramping up. MGM just opened The Mansion, which is quite nice product. Morpheus is ramping up. So Cotai is a really competitive place, but we feel like Wynn Palace is perfectly positioned to continue to maintain its share. And Wynn Macau is really about 2020.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [4]

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Understood. And Matt, if I could, just one follow-up as it pertains to some of the tariff news that's out there, et cetera. Are you guys hearing anything, I guess more specifically from some of your higher-end players, as to the impact some of the ambiguity around that is having right now?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [5]

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I think anytime there is uncertainty in the world, all of us feel a little bit nervous, whether it's you sitting in your office at Deutsche Bank, me in Las Vegas or someone in Shanghai. That's just a natural human reaction. I can't say that there is clear data pointing to slowdown, and we're looking forward to moving forward.

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Operator [6]

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The next question comes from Joe Greff with JPMorgan.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [7]

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I have 2 questions. One is on Las Vegas on the baccarat segment. To what extent is the softer demand recently experienced a function of things that aren't related to the macro or say shifting geographies that you referred to, Matt, but rather maybe other structural things, whether it's capital outflows or other?

And then my second question, it relates to M&A. I think maybe most of us were probably some -- to some degree surprised about the Crown news. My question isn't necessarily about Crown but about M&A in general. What are the criteria and the goal posts that you have when evaluating M&A opportunities and what are the things that fit, what are the things that you look for financially and strategically?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [8]

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Sure. So on the baccarat side in Las Vegas and I'll also let Marilyn jump in here, but I don't really think we are seeing any long-term sustainable trends. I think we're experiencing exactly what you understand. And we definitely think the second quarter is going to be a little better than the first quarter based on what we're seeing right now. So I don't want to be predicting baccarat volumes. But Las Vegas, over the long term, is a global destination for those customers from around Asia and I feel very comfortable with that. Marilyn, what do you think?

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [9]

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There's really no structural change here that would impact these players. So it's all the global headwinds and I think that hopefully that these players will be back, as that's what the past has been.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [10]

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On the M&A front, so Joe, as I laid out in my opening remarks, our growth pipeline is quite robust. And the large capital spend is now behind us after a multiyear capital development program as we are about to open Encore Boston Harbor and really become -- really start generating lots of free cash flow, which is one of the reasons that we raised our dividend by 33% this year. When it comes to M&A, we will always be looking for opportunities for assets that are Tier 1, first class assets with licenses that are protected in cities that are global destinations. So while we are not pursuing any acquisitions at this stage, we will, along with all of our competitors, I'm sure, be looking at opportunities that you can't replicate through development. We are a development company at heart, we're focused on new projects, but we will continually look for -- to enhance shareholder value without increasing our leverage profile and without hurting our free cash flow story.

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Operator [11]

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Our next question comes from Felicia Hendrix with Barclays.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [12]

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Matt, just peeling back the layers a little bit more on the market share issue, and you've said this a lot on your past calls, you wanted to stay in the 15% to 17% range. But if you could just help me with the math for a second. If we use the DICJ data, which I realize is still flawed, it looks like mass share in the quarter did decline sequentially. And I'm just trying to reconcile that with your commentary that you saw strength in the core, so is that basically just because you did lose more premium but you're gaining core but it just didn't offset it? Is that all that you would read into that?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [13]

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That's exactly right. So premium, we definitely lost some share in premium mass and the premium mass business around town was down. Core mass, which is we define it by geography and by average bet, core mass was up over 13%, but that was not enough for us to keep up our share in the market. I think our win was up roughly almost 3% sequentially and that was less than the market, and that's because we're more reliant on the premium segment. But our strategy is working and it shows that Wynn Palace and Wynn Macau can really compete in any market. And Felicia, you've been watching this for a long time. People get really focused on core mass because that business is always there. Premium and VIP get compressed temporarily, and then the growth happens. So I don't know how long that, that area is going to be compressed but what I do know is the demand still there. And so we feel very comfortable that when that business begins to come back, we are going to be perfectly situated to capture it.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [14]

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That's super helpful. And then you were talking earlier, answering Carlo's question, and you said but we'll stay in the 15% to 17% range, but we are now perhaps at the lower end. Is that also kind of indicative of what you're seeing kind of in early May?

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [15]

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Felicia, it's Craig. I would say that the trends that occurred in Q1 market-wide really have continued into -- have continued into Q2 through May. It's a very core mass driven growth market and we don't -- we skew towards the premium end; that's true in mass as well. So to the extent that there's outsized growth in core mass, we will benefit from that partially, but clearly not as much as the market because there are others in the market who directly cater to that segment.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [16]

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Right. Okay, that's helpful. And Matt, just a clarification. At the beginning of your comments, you alluded to gaining competition globally and some perhaps that you're experiencing in Macau. And while that's not a new comment in general, I don't believe I've heard you say that on a call like this or I've heard Wynn in general talk about this. So how would we interpret that comment relative to your performance in the quarter?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [17]

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I don't think you should look into the performance in the quarter at all. I've just noticed some of our competitors and other people tend to be commenting a lot on these emerging markets, in particular, in Asia, and that they can have an impact on the large global gaming jurisdictions. And I just don't believe that Macau and Las Vegas are going to be cannibalized by those small tertiary jurisdictions that are emerging. In the short term, they could. We're not seeing that right now. But over the longer term, people always go back to the places that they enjoy the most. And so I wasn't addressing that relative to this quarter, I was just addressing it relative to what we're seeing in the market and what we believe will be the long-term success of Macau and Las Vegas.

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Operator [18]

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And next we have Shaun Kelley with Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [19]

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Maybe just to stick with Macau and the core trend there. Could you just discuss -- I think you've talked about the share shift as it might relate to other markets. But Matt, I think you also called out just that some of the competition is moving around. Do you think we were in a fairly normalized environment as it would relate to that competition in Q1, meaning is there more to fear as we move forward? Or do you think like, look, this is the right environment now and we're pretty comfortable with how your product is situated with what you're seeing in the market at this moment?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [20]

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Yes, Shaun. I definitely think we're in the normalized environment right now. There are no large-scale gaming jurisdictions coming on in the next few years. Some junket operators may move business around but that's always temporary. And it will come back to the places where the customers want to go.

Ian, do you have any thoughts on that?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [21]

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We go through this. After 12 years in Macau, we get these periods of sporadic volatility, VIP wanes for a variety of reasons and then it ticks back up. People always gravitate to quality; we're always there to pick it up when it comes back. So we stayed in the junket game when other people backed out. We made hay while the sun shined. Now there's pressures on commissions and incentives. We're going to remain true to what we've always done and people will come back. In the meantime, we grow premium mass and general mass.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [22]

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Great. And then same theme, but moving back to the Peninsula. You obviously are undergoing a meaningful renovation there. Could you walk us through the cadence of how you expect that to progress throughout the quarter -- throughout the balance of the year? Was there a meaningful disruption in Q1? And then -- and is there a number or anything worth calling out there? And then how should we think about that -- if there was or not, how should we think about that continuing throughout the balance of the year?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [23]

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Sure, I'll jump in and I'll turn it over to Ian. I don't think there's any number we should be calling out, because what we had before the construction was a sleepy casino that actually wasn't generating a lot of business. So this is more of growth CapEx that we're putting to work. We definitely have rooms out of order in the Encore Tower, which have been impactful on our business. But I don't -- I think it's hard to quantify right now. And 2020 is really the year to judge Wynn Macau and its earning ability. Ian, what are your thoughts on that?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [24]

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There hasn't been significant noise disruption. That was all dealt with in the early stages. We have anywhere from 80 to 100 rooms out at any given time in Encore. And we're getting them back progressively. There is the hoarding wall effect when you wall up areas to do work. That does affect the energy of the space. It has affected retail a little bit as we've brought in new brands. But in general terms, there's not a number to put to it and it's not significant. And we're looking forward to getting it complete at the end of the year.

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Operator [25]

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Our next question comes from Thomas Allen with Morgan Stanley.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [26]

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So in your prepared remarks you talked about you're taking a fresh look at how you're thinking about the casino business in Vegas. Can you guys just talk, and Marilyn, maybe talk about some of the changes you've made since coming back.

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [27]

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So the key has really been to take a look at our casino block and to grow that. And to invite the folks who come to town who didn't used to stay with us to experience the hotel and our food and beverage offerings, and it's been well received. So we've seen very nice growth in the casino block as it relates to the past.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [28]

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And then I think you removed the parking fees. Can you just talk a little bit about that decision?

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [29]

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When you think about the parking fees, although if you came here and you spent $50 you had a validation, it was frankly an irritant to those folks who would drive into the parking garage. And frankly, most people who come here do spend more than $50, but why upset them? And so we did that. It also helps us with our high-end local customers. It's been so well received, we are very pleased that we've moved forward on it.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [30]

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Helpful. And just quickly on Boston. We're 1.5 months out. How are things progressing in terms of getting in the staffing in line and then infrastructure around the property?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [31]

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The construction is almost essentially complete. The building looks like it's in -- it is in great shape. Staffing, we have 90% of the people either on board or within offer. So we are in line to -- and on time to complete almost everything we need to have a great opening. I don't know if the opening date will be June 23rd or a week or 2 later because we're going to make sure that it's flawless. And clearly, the regulatory complexity we've been through has been a challenge. And so we are now doubling back and the team we have on the ground there is terrific. We are ready to open. We may give ourselves another week, we may not, but the property looks great.

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Operator [32]

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Our next question comes from Harry Curtis with Instinet.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [33]

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While we are on the topic of Boston, now is a probably a good time to begin to set expectations for the ramp in Boston, particularly margins given that you -- most Wynn properties when they open tend to run kind of rich in high service levels and labor. So if you could take the opportunity to set some expectations on that front?

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [34]

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Harry, it's Craig. Yes, I think it's a fair assessment to say that not only do our properties tend to run very high service levels early on and account for some given level of attrition. But regional properties, as you know, tend to ramp much more slowly from a marketing perspective. So we haven't given any specific numbers or any specific margin expectations yet. But certainly, we would expect that property to ramp up over the course of '19 and all the way through '20.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [35]

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Very good. And second question is just going back to the Crystal Pavilion. What details can you share about timing cost and features that you're excited about?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [36]

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So -- we're working on that now, Harry. We are going to have a reveal of the Crystal Pavilion in a pretty public way. I'm not sure if it will through an Analyst Day or something else down the road. We're finalizing a lot of the different features. I think that you're going to find them very interesting. It will be in the next couple of months that we'll be laying out this program.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [37]

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Okay. And then my last question. It's really going back to your commentary about some customers in Macau just trying some of these smaller newer Asian casinos. To what degree do you think some of those customers are just gravitating there because the regulatory environment in Macau has just gotten a lot tighter?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [38]

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I don't think that's the case at all. I think when new -- people will say that because they're marketing their properties in these jurisdictions. But the fact is, oftentimes when places open, they offer bigger commissions, more liquidity, larger credit lines. And that typically is very temporary.

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Operator [39]

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The next question is from Stephen Grambling with Goldman Sachs.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [40]

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With the Boston property essentially complete in terms of the investment, can you just remind us how you think through CapEx, not only for that property, but more broadly? And as cash flow inflects how you stack your priorities across debt versus redeploying cash back to shareholders versus growth investments?

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [41]

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Sure, Steve. Well, subsequent to the opening of Boston, we will have some trailing CapEx right, as we pay out the remaining construction costs. Those get accrued and then obviously paid throughout the remainder of '19. And then we are working on the additional group and convention space out back in Las Vegas as well. That opens in early 2020. So really 2020 is the inflection point that you talk about. It's rapidly approaching, as you note, and capital return is absolutely top of mind for us. The recurring dividend is really the cornerstone of our capital return policy and I think you saw we raised that 33% today, really as an indicator of our belief in our business and our belief in that cash flow inflection point. As we grow and generate additional free cash flow, we'll carefully prioritize that between immediately available growth opportunities, most notably, the Crystal Pavilion, capital return and then the maintenance of some dry powder for future opportunities, whether Japan or otherwise.

And then of course, with respect to share repurchases, we will always be opportunistic with share repurchases, but that's really valuation-dependent on the stock.

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Operator [42]

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Your next question comes from Anil Daswani with Citigroup.

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Anil Jeevan Daswani, Citigroup Inc, Research Division - MD and Head of Global Gaming Research & Hong Kong Country Research [43]

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The first question is with regards to this base mass business and the strength that we're seeing in the base mass business. How much is that eating into your room inventory at the different properties in terms of the comp ratio at both Palace and Macau is my first question.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [44]

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Ian, do you want to take that? We haven't lowered our threshold for ADT in order to get a comped room in Macau. So I'm not sure what eating into means exactly. You still have to qualify in a certain way. Clearly, we're not having as many junket rooms, so our problem, Anil, as you know is we don't have enough rooms. And we need more rooms at Wynn Palace and that's really -- at the weekends we're out of space. And so more mass customers are getting rooms, just as a direct reflection of direct and VIP being down. Ian, do you have any thoughts?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [45]

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So that's correct. We've been able to gainfully shift rooms from the junket allocations as business has waned over to our mass segment. And ADT is on the way up, we are putting better customers in those rooms. So the comp level ratios are similar to what they have been in the past, around 80% for Wynn Palace and 94% for Wynn Macau.

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Anil Jeevan Daswani, Citigroup Inc, Research Division - MD and Head of Global Gaming Research & Hong Kong Country Research [46]

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And my final question is could you give us an update, Matt, on the progress in Osaka and in Japan? I mean are you guys still as committed to that as you have been in the past?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [47]

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We are. We will actually be making a trip there next week. And so we have a team on the ground. We have a team here in the United States that's focused on Japan. We're building quietly our relationships with potential partners over there and we're focused on various jurisdictions in Japan. So we're looking at this over the long term and we'll be continuing to monitor the situation and participate where we see fit.

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Operator [48]

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And our last question comes from David Katz with Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [49]

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I wanted to just go back to the M&A boundaries a little bit. And I heard what you said about your leverage levels and accretion. But can you help us think about any other sort of strategic aspects of attributes that may be compelling to you, whether that's in different segments of the market, right, whether more value-driven customers might help your branch out? A little more meat on those bones would be really helpful.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [50]

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Well, I hate to lay out our strategy for everybody, David. But I'll tell you what we're not going to do. We are not going to go into the value business. We are high-end operators, we are quality operators, and we will be looking at quality assets around the world. We're not regional gaming operators. So that's not an area where we're going to be branching out in a significant way, given there will likely be lots of regional gaming properties for sale. So we're focused on where the growth is happening globally. We believe that Asia will continue to grow faster than the West. And if there are opportunities in those areas where believe it fits with our profile and it will be accretive and it will be able to capture long-term growth for our company and our shareholders, we will take a look at it. But we do not have anything right now that we are focused on.

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Operator [51]

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I'd now like to turn it back over to our hosts for final closing thoughts.

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Craig Scott Billings, Wynn Resorts, Limited - CFO & Treasurer [52]

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Well, thank you, everyone, for joining us today. And we look forward to talking to you next quarter. Thank you, operator.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO, President & Director [53]

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Thanks.

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Operator [54]

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Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.