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Edited Transcript of WYNN earnings conference call or presentation 6-Nov-19 9:30pm GMT

Q3 2019 Wynn Resorts Ltd Earnings Call

LAS VEGAS Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Wynn Resorts Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig Scott Billings

Wynn Resorts, Limited - President, 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 & Director

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Conference Call Participants

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* Carlo Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* Chad C. Beynon

Macquarie Research - Head of US Consumer, SVP and Senior Analyst

* Daniel Scott Adam

Instinet, LLC, 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

* Joseph Richard Greff

JP Morgan Chase & Co, Research Division - MD

* Ricardo Chinchilla

* 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 Third 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 - President, 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 Brian Gullbrants.

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 & Director [3]

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Good afternoon, everyone, and thank you for joining us today for our third quarter conference call.

I'd like to get started talking about Macau. In the third quarter, in Macau, we generated $301 million of EBITDA. However, we had a hold impact from our direct business of approximately $22 million. We held negative 1% at Wynn Palace in our direct program and 1.2% in our direct program at Wynn Macau. The way the direct programs are structured, you pay commission on turnover, not on win loss. So when you have abnormally low hold, that revenue mix significantly impacts EBITDA, and that was a $22 million impact in Macau.

VIP continued to compress, and we did see some customer trial out at Cotai, with some of the newer products at both City of Dreams and MGM. But I believe, and we all believe that, that is quite temporary.

Mass continued to grow. We maintained our share in mass market and slots at 14%. And I'm pleased to say that while the VIP trends and the mass trends continued into October, we generated over $4 million a day of EBITDA during the month of October driven largely by an 8% growth in our mass drop during that month.

Moving on to Las Vegas. We've continued to see the positive momentum that we experienced in the first quarter. We had a $13 million impact in hold in our baccarat business in Las Vegas. But if you take a look at the strategy and the way that we made the pivot to focus on taking market share in the domestic business, casino business and in slots, it is working. And Marilyn and the team are doing a great job.

We had 9% growth in our domestic table games drop and as well as 9% growth in slot handles during the quarter. Our hotel revenues grew by 5% during the quarter, and retail is continuing to really gain traction as it was up over double digits in revenue growth during the quarter. The Las Vegas strategy is working, and we are really excited about 2020.

Moving on to Boston, at Encore Boston Harbor. First, I'd like to congratulate Brian Gullbrants as the new property President. He's been with us for over a decade, and I know, and we all know, that he is the exact right person to lead that project. We've been open for 136 days in Boston, and we're learning each and every day how to become more local. We've been tweaking our food and beverage product to make sure we're giving the customers what they want. We've been working on our messaging, and we now have new messaging out to the market.

We are going to, the first time in our company's history in North America, launch a loyalty card, tiered card program, and that will be launching in Boston in the first quarter. And I'm sure as all of you that are very familiar with our business, know a tier card program is essential in a regional marketing -- in a regional property.

Our Table Games business in Boston and our hotel business have actually been quite encouraging. And we always knew the slots would take time to ramp. If you think about it when we opened our doors in our local database, we had 0 customers. Fast forward 136 days, we have 250,000 people in our database, which is significant growth.

In order to compete in a high-frequency market where people are coming multiple times a month, a robust database is necessary because you need to message to the customers what it is you're doing each week and why they need to come into the property. We are on the path to growth there, and I think that we have the right team in place.

So that's really the wrap on the third quarter. But what I'm excited about is 2020, and the reason is we began a transition with this company in 2018. We reallocated capital to Macau. We thought about Las Vegas differently. We focused on opening Encore Boston Harbor. And if you look at where we are today, I was in Macau 2 weeks ago, walking in Wynn Macau, our new property downtown with Ian and Ciarán, who runs the property, and Linda, looking at what's about to open in 60 days. We've taken everything that we know about compression of energy and space and what works in food and beverage in new hotel rooms. And we've invested in Wynn Macau to make what we think will be the best premium mass product on the Peninsula. And it will continue to gain share. We have 7,000 square feet of new retail that will be opening, 2 new restaurants, the new casino and the fully remodeled Encore Tower. All of that opens at the end of this year and in early 2020 and will position Wynn Macau as a market share taker in the very near future.

Wynn Palace remains as the high-quality environment that is really going to continue to be the aspirational property at Cotai. So it's not just our product that I'm excited about. When I was there and we were talking not just internally, but to our peers in the market, people are quite sanguine about Macau in 2020. There's a new government that's coming and the people are very excited about in December. A lot of the infrastructure projects that have been talked about and underway for years and years and years in Hengqin Island are starting to complete. Visitation in Macau has been up double digits for the last 3 quarters. So 2020 feels like Macau is well positioned for growth and that we are well positioned to capture our share of that growth.

If you look at Las Vegas, we actually have more products coming online in 2020 than we have since we opened Encore in 2008. We have a 430,000 square foot convention center that's opening in 90 days. This convention center is on our golf course and has a 390-foot promenade with 2-story glass walls overlooking the golf course, leading to an 83,000 square foot ballroom. That's almost 2 acres. And when we walk event planners into that space, their jaws drop and they ask, "Where do we sign?" That will be opening in 90 days.

On top of that, we have 3 new restaurants that will be opening in 2020, creating an entirely different segment of social dining at Wynn Las Vegas. And we are very excited about where we are positioned and how we're positioned against our competitors for 2020.

And if you think about Boston, we're at the beginning of the ramp. We're not at the end. So each quarter, we're going to be tweaking our marketing. We're going to be focusing on growing our database, working on controlling expenses and growing revenues and EBITDA each quarter. So I'm very excited about the transition that we've been through and the future of this company as we move forward into 2020.

With that, I'm going to turn it over to Craig.

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

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Thank you, Matt. As noted in our release, our Macau operations delivered adjusted EBITDA of $301.2 million on $1.1 billion of operating revenues. The quarter was characterized by a strength in both main floor core mass and premium mass, with combined property win in the Mass segment, up 7% year-over-year.

Our results in Macau were negatively impacted by a low direct VIP hold percentage, as Matt mentioned, which decreased EBITDA by approximately $22 million from a normalized level, with the hold impact weighted slightly more heavily to Palace at $13 million. Also, you'll recall that we received $11 million of insurance proceeds in the prior year quarter, impacting the year-over-year EBITDA comparison.

The team in Macau did a great job in the quarter of controlling costs at both properties without negatively impacting the guest experience. At Wynn Palace, our operating expenses, excluding taxes, were flat year-over-year and down sequentially, which helped drive a 200 basis point increase in normalized EBITDA margin compared to Q2 despite top line pressure.

At Wynn Macau, OpEx increased slightly year-over-year and was down sequentially despite some incremental payroll expenses we began to staff up for the West Casino opening. We are well prepared to drive strong operating leverage when the top line environment improves.

Our Las Vegas operations produced adjusted property EBITDA of $88 million in the third quarter on operating revenue of $399.5 million, with year-over-year growth in both baccarat and non-baccarat table drop and slot handle.

On the hotel side, REVPAR increased approximately 4% year-over-year to $269, driving $116.1 million of hotel revenue. We held low in Las Vegas, which negatively impacted EBITDA by approximately $13 million.

Bad debt expense in Las Vegas was $4.5 million compared to $500,000 in the prior year quarter, costing us $4 million in comparable EBITDA. We spent just under $60 million in project costs on group space expansion at Wynn Las Vegas, taking our spend to date to $302.7 million. This expansion is slated to open in the first quarter of 2020.

We ended the quarter with total debt of $9.54 billion and total cash and investments of $1.68 billion, including approximately $947 million at Wynn Macau.

During the quarter, we returned over $100 million to shareholders through our quarterly dividend payment. We will continue to look closely at our capital allocation alternatives, including periodic increases to our dividend and opportunistic share repurchases.

Finally, during the quarter, we completed refinancing of our U.S. capital structure, which extended our maturities, streamlined our U.S. restricted group and simplified our collateral package for the U.S. and corporate entities. We believe the simplification of our U.S. capital structure will make it easier to understand and, ultimately, lower our cost of debt capital over time.

With that, we will now turn it over to questions.

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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 Santorini (sic) [Carlo Santarelli].

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

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Matt, you talked a little bit about the low direct hold in the period. Obviously, hearing a negative number is pretty startling. Just in terms of -- and I don't know that you guys are going to answer this. But just in terms of the mix of direct relative to your junket business at the combined assets in Macau right now, do you guys have kind of a ballpark that you could provide as to the mix of direct right now on a rolling-to-volume basis?

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

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Carlo, we usually don't get into the mix between direct and our junket business. And so I'd rather not get into those specifics right now. I do think that our direct will likely have more growth potential, in particular, at Wynn Palace, going forward as we're seeing some of the smaller junket operators consolidate into the top 3. So our direct business is really on a customer-by-customer basis, with our program run by Linda Chen. And I think that as we continue to ramp that piece up, that -- I feel pretty good about where the direct business is going.

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

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Understood. And then maybe just bigger picture in terms of what you're seeing in Macau on the VIP side. Obviously, we're still facing some comparisons that were a little bit challenging in terms of role in the market, et cetera. With the performance in the quarter, and obviously what you've seen over the holiday period in October, are you starting to see any kind of stabilization in the business, maybe on a quarterly sequential basis, in VIP across the market?

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

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Well, I think that you've seen that commentary in the market that there feels like there's some stabilization. I think that a lot of people are very optimistic that we're at a stabilization point and that 2020 could be a period where we're starting to see some growth. Carlo, in the past, we've spoken about -- just to go back to your question -- direct versus junket, and it's ranged from 80-20 down to 90-10 between junket and direct. And it really is very quite volatile during the -- from quarter-to-quarter. But we think that both our direct business has growth opportunity in 2020, and that the junket business hopefully will continue to stabilize.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [6]

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Great. That's helpful. And then just if I could, 1 follow-up on Boston Harbor and the ramp there. When you think about kind of the -- obviously, driving that slot business and kind of building that database, the other side of the equation is obviously the cost side. And if I kind of just adjust for gaming taxes in the period, knowing this is very simplistic and crude way of doing it, you kind of arrive at $1.45 million a day or so to run the property. I assume you're not going to be willing in the near term to sacrifice the experience all that much. But over time, when you think about the ability to take cost out of the building with some of the changes that you ultimately make, do you see there being plenty of cushion in there to do so as we look out to '20 and beyond?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [7]

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I don't want to say there's plenty of cushion. But clearly, when you open a property, you have more staff than you end up needing when you're operating in a very efficient way, and also as well as how you procure items. You just get smarter. And so I would think that the $1.4 million will definitely be -- have a downward trajectory through 2020. Craig, do you have any thoughts on that?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [8]

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I would agree with that. That's likely to be peak for the near term.

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Operator [9]

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Next, we have Joe Greff from JPMorgan.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [10]

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Craig, could you give us hold-adjusted EBITDA margins at the 2 properties in Macau in the 3Q?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [11]

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Sure, Jeff. Macau was 30.4% and Wynn Palace was 29.2%, which is about 200 basis points higher than Q2.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [12]

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Got it. And was there any renovation disruption at Wynn Macau from the West Casino construction? And is that part of maybe the hold-adjusted EBITDA and the mass growth acceleration in October relative to the 3Q?

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

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I think there's definitely disruption from the renovation. Again, just walking the property 2 weeks ago, it's hard to quantify because we're not seeing large drops in volumes coming in the door. But about half the building is behind construction walls, the podium level. So there's definitely some disruption. And I think we're just going to see what the impact is going to be when we open our new facility in about 60 days. What -- it's really targeted for the premium mass customer. And Joe, if you know the property well, the new gaming floor feels very similar to Encore in Macau, but it's anchored by 2 restaurants and has 2 entrances to the boardwalk that go between MGM Wynn and SJM, which is very heavily trafficked. And before, it had no entrances. So we feel really confident that the way we've repositioned this property away from smaller mid-tier junket operators and to the premium mass market is going to work.

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Joseph Richard Greff, JP Morgan Chase & Co, Research Division - MD [14]

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Great. That's helpful. And then as you kind of look at the growth in mass in October, that 8% year-over-year growth that drove that $4 million of EBITDA per day, how much of that is share gain versus market dynamics and just relative growth rates in that? And then my final question, skipping over to Las Vegas. Can you remind us what some of the specific strategies in -- going after some of the domestic gaming segments versus where the focus was heretofore? And that's all for me.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [15]

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Sure. So again, the -- our drop was up 8% in Macau on the mass side. I don't necessarily think that's share gain. I think that we're continuing to keep pace with the market at about a 14% market share between mass and slots. Ian, do you have any additional thoughts on that?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [16]

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It's really just the daily hand-to-hand combat and all of the initiatives that we put in place over the last 2 years. We continue to aggressively drive our sign up of our loyalty program, and that was up 48% in the third quarter versus the third quarter last year. Wynn Macau, in particular, has driven that up very heavily. Through the construction disruption, we focused very much in our players. We've increased the number of hosts on the floor, and we're hiring up now for the new 44 tables that we're introducing at Wynn Macau. Also at Wynn Palace, we've introduced a new pit of 20 tables, just offer high limit table games area, which will also be very fruitful for us. We moved around some slot machines. So in both properties, we continue to change the floor and react to the customer base.

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

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And I'm going to let Marilyn talk a little bit about the strategy in Las Vegas.

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [18]

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Sure. So the -- really, it's a 3-part strategy. First off, with people, installing the right people on casino marketing. Secondly, making sure the marketing was correct and adding the technology that we needed to really market to those guests effectively, both our current guests to reactivate and bring in new guests. And third was using the amenities that we have. So we were able to leverage our rooms to really grow the domestic business.

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Operator [19]

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Next, we have Felicia Hendrix from Barclays.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [20]

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Marilyn, we have you -- while we have you, I may have missed this. But in the prepared remarks, Matt or Marilyn can answer this, did you guys talk about in Vegas how much your baccarat business was either up or down? Or how that performed in the quarter in Vegas?

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [21]

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Well, our baccarat drop was up for us in the quarter. We played very unlucky, and that's really the issue that we had. We had more players who were big players and beat us year-over-year. And so that was what happened in baccarat. But we still see them coming and believe that we are the property of choice for them.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [22]

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Yes. Because that's actually where my question is coming to. Because as we're at the end of earnings season and various companies had made various comments about the high-end baccarat player in Las Vegas and some have said not to expect them to kind of come back, others have done better. So it seems like you're kind of on the end of the spectrum that you're still kind of operating business as usual in that part.

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [23]

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We actually believe it's a cyclical issue and -- in baccarat. It's not a structural issue. And we think that they will continue to come.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [24]

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I agree. I mean, for people to try to predict the travel patterns of -- 1.4 billion people in China and many billions of people in Asia, to not come to the world entertainment capital in Las Vegas, I think that's a mistake over a 10-year period. Las Vegas is going to continue to reinvent itself. We're continuing to invest, and it is a place where people like to go. And so I agree with Marilyn, it's temporary. This is not a change in customer behavior.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [25]

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That's helpful. And then -- and Matt, maybe you could talk about Japan for a moment. In the quarter, you made an announcement about a change of strategy there. Maybe you could help us walk us through that and how you're looking at Japan now?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [26]

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Sure. So we've been working on Japan quietly behind the scenes for almost a decade now. We have spent 85% to 90% of our time in the Tokyo Bay Area talking to -- over the last 10 years. So we didn't necessarily change strategy. I think we just publicly said that we would not be pursuing Osaka, which is something that was -- something we are going to announce eventually. And we believe that there will be opportunity in the Tokyo Bay Area. We are working with various consortium partners now, and we're doing things quietly and behind the scenes. I spend -- I go over there about 1 week out of every couple of months. We have people on the ground. We're building up our team. I still believe that this is going to be a longer process than a lot of people are anticipating. And we're going to make sure that if there is something that's right for Wynn that it is financially sound, that the project is something that will change the company, and we're with partners that share our same values.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [27]

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And how are you thinking about returns there as -- given the potential high costs?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [28]

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And that was my point, Felicia. We are going to pursue Japan with vigor, but we will not pursue it if it does not make financial sense. So we're going to be very disciplined in terms of how any structure is put together, what the costs are going to be and what the return profile is going to be. So we like the Japanese market. We think that it will be a very high revenue market. But we're focused on making sure that it will be something that our shareholders will also like.

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Operator [29]

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Our next question is from Shaun Kelley of Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [30]

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Just wondering if you could talk a little bit more about how you're thinking about supply growth in Macau into 2020. I think, Matt, in the prepared remarks, you mentioned a little bit about some customer trial for a new product this year. There's obviously some new stuff opening in your neighborhood, but probably more like in the second half of next year. But you also have some infrastructure coming in. So maybe just some of the pros, cons as you're thinking about the longer-term outlook there.

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

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Sure. I'll give you my thoughts, and then, Ian, I'd like for you to take it as well. The major supply growth outside of SJM's property has really already happened. I think all of us operators now are continuing to refine our projects and build out in the areas where we think there will be high-returning -- high ROIs. Galaxy is continuing to build many non-gaming amenities. And we do have the Crystal Pavilion that we will be presenting, that is an additional 700-plus hotel rooms in Phase 1 and an entertainment facility. That will unlikely really begin in earnest until 2021 and complete in 2024. So I think right now, Macau has more infrastructure and more visitors coming to the market than it will an increase in supply. Ian, do you have any thoughts?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [32]

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I think we'll start to see the arrival of new product or revised product in the marketplace after 2020. I think later in '21, we'll see the arrival of SJM, which we believe run this Baller Palace, is going to drive additional business for Wynn Palace in particular. We'll see Sands Cotai go through their transformation into the Londoner, and most of that will take place in 2021. And it will be spread like a lot of the projects have been over the last 4 years. With infrastructure, we're excited about the light rail system, which has been underbuild for nearly 8 years and comes to fruition later this year, hopefully, within the next 10 to 12 weeks. And that has a drop-off point right outside of our Wynn Palace property. It connects directly to the Cotai Ferry Terminal in the airport. And we think that, that's going to bring a lot more visitors to this general area of Cotai.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [33]

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Great. And then just in the -- you gave us an inch, we take a mile camp. Just going back to the comments around October. Obviously, it implies a very nice sequential improvement from what you recognized in EBITDA for the third quarter. Just for people to not extrapolate too much into that, any color you could give around -- does that include just normalized hold because there's a big bounce back relative to what you actually recognized? Or did you hold a little heavy in that, that helped that trend at all? Or was it Golden Week or any other seasonality?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [34]

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Well, you had Golden Week, which helps October. We actually generated more than $4 million a day, a little more than $4 million a day. But on a normalized basis, it was right at $4 million a day for the month of October.

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Operator [35]

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Next, we have Thomas Allen from Morgan Stanley.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [36]

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So just sign of struck to me in the press release was that you're guiding to Boston hold of 16% to 20%, and tables in Vegas, 20% to 26%. I'm guessing a lot of that is game mix, but is some of that also, do you expect hold to kind of ramp as the property ramps?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [37]

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Yes, Thomas, it's Craig. Yes, it really has to do with how markers are handled and the ability to repay markers in the pit in Las Vegas and not repay markers in the pit in Boston. It purely has to do with regulatory.

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Thomas Glassbrooke Allen, Morgan Stanley, Research Division - Senior Analyst [38]

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Okay. Helpful. And then there was an announcement on a sports betting partnership this past quarter. Can you just talk more about what you're doing there?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [39]

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Craig, I'll let you take that one.

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [40]

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Sure. We have a sports betting strategy that's very focused on high-quality products in very selected markets. So we're likely to launch a sports betting product early in 2020 in New Jersey, and then move out to selected states and ultimately, hopefully, deploy that product in Massachusetts, where we think that will be a game changer for Encore Boston Harbor.

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Operator [41]

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Next, we have Harry Curtis from Instinet.

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Daniel Scott Adam, Instinet, LLC, Research Division - Research Analyst [42]

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This is Daniel Adam on for Harry. Just one question on our end. So you've got a $22 million direct VIP hold impact in the quarter. But if I look at your overall VIP hold percent in Macau, it came in at 3%, so at the high end of the normalized range. So I guess my question is -- well, you must have held high in your junket business. What was the positive hold impact in the non-direct VIP play in the quarter?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [43]

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We're -- it's Craig. We're quoting at net of -- up to high junket hold. So we're giving you our normalized EBITDA impact inclusive of that high hold in junket.

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Daniel Scott Adam, Instinet, LLC, Research Division - Research Analyst [44]

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Okay. Got it. So the direct impact was even greater than $22 million is what you're saying?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [45]

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Yes, correct.

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Operator [46]

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Next, we have Stephen Grambling from Goldman Sachs.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [47]

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One quick follow-up on Las Vegas. Can you just expand on the puts and takes to think about into 2020, both at the market level and then what you're doing at the property as we think about any of the initial reads you might be seeing from CON/AGG, the golf course or some of the new space?

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [48]

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Sure. The golf course opened first weekend in October. It's been great. We often have more demand than we have supply for the number of players coming to the course. So we feel really great about that. 2020, of course, February is the launch of the convention center, and we will see good growth in the convention center. But during the Investor Day, you'll recall that we talked about the room remodel. And so the room remodel is going to hit in June, and it's going to mostly take up that time with leisure rooms. But we haven't refreshed our rooms at Wynn for 8 years, and it is time to do so. So that will be factored into 2020 also. But as we think about 2020, the convention business being solid, the casino business continuing to grow, and then we plan on good FIT business and -- leisure business that will fill in the gap.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [49]

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The strategy has been -- so many of our competitors are not investing, in my opinion, as they should in our products -- in their products. And so we have a real opportunity to continue to capture market share at the higher end of the business. So we are -- we will be completely reprogramming The Lake of Dreams with new shows. We're remodeling all of our rooms at Wynn Las Vegas. We have a new convention center. We have new restaurants. We're spending the money to create an entirely new, fun experience here while a lot of our competitors are not doing that. And so we see real opportunity in Las Vegas to capture share. The market may be growing along with the economy, but we'll be capturing share.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [50]

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But perhaps, I think it's segue to my follow-up. And I realize you are on a path to deleveraging the balance sheet. But could you share any thoughts on how the cap rate, implicit interest rate and structure of the Bellagio transaction announced impact how you think about financing and/or capitalizing the business?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [51]

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Sure. I'll start off with that. So if you look at where opcos are trading and where these deals are occurring, it appears to me that the way that our North American assets are valued, we're getting full value for our real estate. And in order to grow in this business, you have to continue to invest to capture more market share. I'm not quite sure right now that this opco/propco structure in the Las Vegas market where you have to heavily invest, I'm not sure 1 plus 1 equals 2 if you look at the way the Opcos are trading. So we feel very comfortable with the way that we are running our business, with owning our real estate, and we believe we're getting proper value. Craig, do you have any thoughts on that?

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

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Yes, I would just add that, obviously, being an opco-exposed gets you to much greater volatility and sensitivity throughout the economic cycle, particularly at the tail end of the economic cycle. So there's a whole host of operating considerations. And as Matt mentioned, investment considerations that you have to take into account before you access a funding source like that.

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

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It appears to me that they borrowed $4.2 billion at an average rate of 8% over 30 years and guaranteed the debt. I think that's what that trade was. So that's an interesting source of capital, but an expensive one, in my opinion.

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Stephen White Grambling, Goldman Sachs Group Inc., Research Division - Equity Analyst [54]

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Fair enough. And then should we be expecting -- this is one last quick one. Should we expect any kind of capital investment in Boston as you're thinking about rightsizing some of what's going on there?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [55]

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The capital investments that we're talking about are reconfiguring restaurants or building out a sports bar that could potentially become a sports book. So not large capital investments. We do have 11 acres of land across the street where many developers have been talking to us about partnerships, where we could have new hotels, retail, et cetera. So we've been thinking about that more as landlords and partners as opposed to outright developers. But first, we're going to ramp Encore Boston Harbor, and then we're going to watch the neighborhood build up.

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Operator [56]

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Next, we have David Katz.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [57]

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I wanted to just address Las Vegas and specifically, there's a piece of property across the street from where you are that, if memory serves, it traded at one-time for 37.5 million acre. And obviously, you paid quite a bit less than that. What are your thoughts about what you could or might do with that given that the Vegas market has episodes of high trading and we seem to be in one of those?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [58]

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So we like owning that land as option value. We've invested significant capital in Wynn Las Vegas over the last 2 years to position this product to take more market share. We are continuing to think about what could work on the 33, 36 acres across the street. But in order to really understand what would work, we believe that, first, we need to see how Resorts World opens, which is coming in the next 18 months, I believe, get a feel for the market, watch the Raider Stadium come in. Right now, it's expensive to build in Las Vegas. The trades have more jobs than they have manpower. So what we want to do is watch and see how the Las Vegas market expands with this new product -- projects coming on board, and then we can determine what will make the most sense to increase shareholder value on that 36 acres.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [59]

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Great. And if I could, Craig, just go back to sort of what -- how we should be thinking about target leverage at this point and the capital allocation alternatives update. And I apologize if I missed it at the very beginning, I got on just a couple of minutes late.

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [60]

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No problem, David. Nothing significant has changed since we had our Analyst Day in July. We published free cash flow targets at that Analyst Day, they're available on our website. We've historically talked about leverage, steady state leverage in the 3.5x net debt level, which is actually pretty close to where we are today. We continuously look at the dividend. We'll look at it again early in 2020. And to the extent we are able to be very opportunistic from a share purchase -- repurchase perspective, we will do that. So really sticking to the strategy that we've previously discussed.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [61]

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Is there an open authorization?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [62]

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There is.

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Operator [63]

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Next, we have Ricardo Chinchilla from Deutsche Bank.

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Ricardo Chinchilla, [64]

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I was wondering if there's any progress with regards to the terms of the lease that you guys are going to do between the convention center and Las Vegas entity?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [65]

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Yes, thanks for your question. So in connection with the refinancing that we most recently did, one of our stated uses of the revolver was to purchase the convention facility from Wynn Resorts and bring it down into the restricted group. There will then be a lease between the entity that holds that within the restricted group and Wynn Las Vegas. We will put that lease in place at the point at which we make purchase, which we anticipate to be very early in Q1 2020. We haven't disclosed any terms on that lease, but you should assume it would be market.

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Ricardo Chinchilla, [66]

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Perfect. And could you please just provide us with the CapEx number for the quarter?

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [67]

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Sure. Total CapEx was $242.3 million, [which is implied.]

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Operator [68]

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Next, we have Chad Beynon from Macquarie.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [69]

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Regarding the Hong Kong travel disruption that we saw in the third quarter, do you have a sense or could you quantify what this may have meant for your customers to Macau, to the Greater Bay Area? And then also, has this ended as we enter the fourth quarter? Are you still seeing some of this potentially playing into current business fundamentals?

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [70]

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It's really hard to quantify because you're seeing visitation in Macau increase. I do think that it has impacted our premium business, that would be the fly-in traffic into Hong Kong that gets picked up in 1 of our luxury cars and driven over to Wynn Palace or Wynn Macau. But I think it's been hard for us to actually quantify that impact. Ian, do you have any thoughts on that?

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Ian Michael Coughlan, Wynn Resorts, Limited - President of Wynn Macau Limited [71]

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There's been some residual impact, more about people that would travel through Hong Kong and then come on to Macau. But I don't think it's been market significantly impactful. With all the other headwinds that are there, it's hard to break out. As long as the airport stays in operation, that's a very good feeder for us, as you referenced in the premium mass sector.

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Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [72]

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Great. And then, Marillyn, just a follow-up on the strong convention commentary that you noted for 2020. Are you still confident that this can kind of drive a 5% occupancy lift at the property? And given that there's been more details coming out over the past couple of quarters on Allegiant Air, MSG Sphere and just the timing of the city's convention expansion, could this actually be higher than a 5% lift given extra demand coming to the city?

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Marilyn G. Spiegel, Wynn Las Vegas, LLC - President [73]

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Wouldn't that be great. But frankly, I think what we've said is 4% to 6% additional occupancy, and we see that right now. But again, a reminder that you won't really see the full year impact until 2021 once the rooms come online and the convention center has been operational.

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Matthew Ode Maddox, Wynn Resorts, Limited - CEO & Director [74]

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Remember, that's long booking business. So that's a business that tends to book 18 months out. And so you'll really see the convention -- increased occupancy from the convention space come into its own in 2021.

And with that, operator, that will be our last question. So thank you, everybody, for taking the time to join today, and we'll see you next quarter.

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Craig Scott Billings, Wynn Resorts, Limited - President, CFO & Treasurer [75]

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Thank you.

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Operator [76]

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Thank you all for participating in today's conference. You may disconnect your line, and have a great day or a great evening.