Wynn Resorts Ltd says its new casino resort Wynn Palace – located in Macau’s Cotai district – might receive only 100 new-to-market live-dealer casino tables from the Macau government prior to its opening. The firm expects the property to be granted additional tables in the post-opening period.
Wynn Palace (pictured) is scheduled to open on August 22. Wynn Resorts is the parent company of Macau-based casino operator Wynn Macau Ltd.
“We believe that we will receive an allocation of approximately 100 table games for Wynn Palace, with additional table games allocated to us post-opening,” Wynn Resorts stated in its second quarter results announcement, released on Thursday.
The firm added: “While we have not yet received formal notification of our table games allocation, if we receive an allocation of 100 new table games, we expect to move approximately 250 table games from Wynn Macau [casino hotel] to Wynn Palace resulting in approximately 350 table games at Wynn Palace and 270 table games at Wynn Macau.”
Wynn Resorts did not provide a schedule for the granting by the Macau government of additional live tables for Wynn Palace. The firm also did not provide any forecast regarding the number of additional units it expects to be granted.
A number of investment analysts expect the Macau government to apply to Wynn Palace the policy employed with, respectively, the opening of Galaxy Macau Phase 2, developed by Galaxy Entertainment Group Ltd; and with Studio City, majority owned by Melco Crown Entertainment Ltd. This would see the government granting Wynn Palace a total of 250 new-to-market tables, but allocated in phases.
Commenting on the table allocation issue during a conference call with investment analysts following Wynn Resorts’ second quarter results announcement, company chairman Steve Wynn said the firm was ready to operate “efficiently and profitably” with just 100 new-to-market gaming tables, as Wynn Palace will focus on the premium mass casino segment.
“We established a long time ago various scenarios where we can operate from 100 tables to 280 tables,” Mr Wynn stated.
“By having fewer [tables], you get to have higher utilisation,” he added. Mr Wynn also confirmed the firm would be using electronic table games – featuring live dealers but electronic betting and bet settlement – in stadium installations at Wynn Palace.
Mr Wynn however said Wynn Palace would also have VIP gaming.
Lower table allocation worries analysts
“While staff/table transfer from Wynn Macau [casino hotel] will save around US$20 million in the third quarter of 2016, we/market will be negatively surprised by only 100 new tables allocated to a US$4.2 billion project,” Morgan Stanley analysts Praveen Choudhary, Alex Poon and Thomas Allen wrote in a note following the announcement of Wynn Resorts on the table allocation for Wynn Palace.
They added: “Even though [Mr] Wynn claimed that only one-third of VIP tables [at Wynn Macau casino hotel] are profitable, shifting 250 tables from [the Macau] peninsula will cannibalise EBITDA [earnings before interest, taxation, depreciation and amortisation] meaningfully in our view. We hope it will receive another 150 new tables after the opening, without which we see meaningful cuts in EBITDA estimates.”
Other investment analysts covering the casino sector expressed similar views.
“While [Mr] Wynn tried to put a not-so-negative spin on the table allocation, we view the initial number of 100 as guided by the company as disappointing,” stated analysts Vitaly Umansky and Clifford Kurz from Sanford C. Bernstein Ltd. The two analysts added that shifting 250 tables from Wynn Macau casino to Wynn Palace could mean “cannibalisation at Wynn Macau [from the opening of Wynn Palace] maybe greater than we initially expected”. They noted that the granting of additional new-to-market casino tables to Wynn Palace post opening “could be as late as the first quarter of 2017”.
Wells Fargo Securities LLC analyst Cameron McKnight said that, “on the surface, investors are likely to be disappointed by the allocation of 100 new tables to the Wynn Palace.” He added: “While this is below consensus expectations of 200 tables, we believe 100 new tables can be yielded far more aggressively than 200 tables at the new property… That said, the lower table allocation likely reflects the tough political environment in Macau.”
Wynn Palace will feature a 1,700-room hotel, a lake with performing water fountains, and casino, meeting, retail, and food and beverage space. The total project budget – including land costs and financing fees – is approximately US$4.2 billion.
During the second quarter of 2016, Wynn Resorts invested about US$151.2 million in Wynn Palace, taking the total investment in the property to US$3.87 billion through June 30, the firm said in its results announcement.
Luck benefits Macau results
In the second quarter of 2016, Wynn Macau’s operating revenues for its only current Macau property – Wynn Macau, in the city’s traditional downtown casino district – were US$639.3 million, a 3.6 percent increase from the US$617.0 million generated in the second quarter of 2015. Casino revenues were up by 5.2 percent in year-on-year terms to US$608.4 million, positively influenced by higher win rates at the gaming tables.
Wynn Macau’s results are prepared in accordance with International Financial Reporting Standards, as defined by the Hong Kong Stock Exchange.
Wynn Macau reported net profit of US$65.1 million, down by 11.5 percent in year-on-year terms.
“We are happy with Macau,” Mr Wynn said during the conference call with analysts.
Parent firm Wynn Resorts stated in its second quarter results – using U.S. generally accepted accounting principles – that table games turnover in the Wynn Macau VIP segment was US$11.84 billion, a 23.8 percent decrease from US$15.54 billion in the second quarter of 2015. VIP table games win as a percentage of turnover was 3.98 percent, above the expected theoretical range of 2.7 percent to 3.0 percent and the 2.92 percent experienced by Wynn Macau in the second quarter of 2015.
The average number of VIP tables at Wynn Macau decreased to 183 for the second quarter of 2016, compared to 247 in the same period of 2015, Wynn Resorts stated.
Table drop in the mass market segment at Wynn Macau was US$1.17 billion, a 1.7 percent year-on-year decrease, stated Wynn Resorts. It added that table games win in the mass market segment was US$235.2 million, a 12.7 percent increase from US$208.6 million in the second quarter of 2015. Table games win percentage in the mass market segment was 20.0 percent, above the 17.5 percent experienced in the second quarter of 2015.
Slot machine handle at Wynn Macau was US$806.5 million, a 21.5 percent year-on-year decrease, which drove a decline in slot win of 34.8 percent to US$33.3 million.
The global operations of Wynn Resorts – including Las Vegas, in the United States, and Macau – generated net revenues of US$1.06 billion in the second quarter of 2016, compared to US$1.04 billion in the same period of 2015. Net income was US$70.4 million, or US$0.69 per diluted share, for the period between April and June, compared to US$56.5 million, or US$0.56 per diluted share, in the year-earlier period.
Wynn Resorts also announced on Thursday that the company had approved a cash dividend of US$0.50 per share, payable on August 23 to stockholders of record as of August 11.
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