As hotel bookings pick up after the omicron-caused slowdown in January, Wynn Resorts told Wall Street analysts Tuesday it has no plans to sell its Las Vegas real estate, though it will use proceeds from a land sale at Encore Boston Harbor to help fund a $2 billion resort in the United Arab Emirates.
Wynn executives used the fourth-quarter earnings call to delve deeply into the United Arab Emirates’ integrated resort project on Al Marjan Island in Ras Al Khaimah, UAE.
Wynn CEO Craig Billings said they’re “thrilled about the project, which will further diversify our business while extending our brand to the Middle East and Europe.” He called the location on Al Marjan Island “stunning and a great setting for our resort.”
Regarding analyst notes and media reports on the project, Billings said that since no further enabling legislation is required, it eliminates a multi-year process like has been seen in other markets. Regulations are well advanced and modeled on those in Singapore and the United States, while the licensing structure and tax rates are reasonable, he said.
“With a regulator in place and the regulatory framework taking shape, we will be licensed to conduct gaming,” Billings said. “We’re a go with this project.”
Master planning has started and architecture and design will be mobilized “in due course,” Billings said.
“I expect our ultimate design will be one or more iconic buildings to take advantage of the pristine beach locations and show respect for the unique cultural aspects of the region,” Billings said. “We’re big believers in Ras Al Khaimah becoming an amazing tourism and hospitality destination. When we open that property, 95% of the world’s population will be within an eight-hour flight of a Wynn Resort’s property. I don’t think anybody else can say that. This is not only an opportunity to leverage our existing database, but an opportunity to grow the database. The Dubai airport has some 80-plus million passengers passing through it every year. That’s astounding. The UAE is already a substantial destination not only for the region, but also for Europe, Brits, Germans, and folks from all over the place. This is a significant customer acquisition opportunity that is really a material extension of our brand.”
Billings said this is the first transaction in which Wynn has been paid for its “know-how and service excellence via a management agreement. I expect it to provide a very high return on invested capital.”
Analysts said the resort will be developed with partners Marjan, the island’s master developer, and RAK Hospitality Holding.
Wynn will underwrite the $2 billion project with 50% debt and 50% equity, of which Wynn’s portion will be 25% to 40%, Billings said. That’s in addition to the management contract.
“The land is astounding, beautiful and nearly shovel ready,” Billings said. “Execution risk from a construction perspective, the way we see it, is pretty low.”
Just prior to the earnings call, Wynn announced the sale of real estate under Encore Boston Harbor for $1.7 billion through a sale-leaseback transaction with Realty Income.
Billings called it “nothing more than a financing and capital structure decision” and told analysts that while it allows the company to retire near-term debt, provide long-term capital to grow its business in the U.S. and abroad, and provide additional financial flexibility, there are no plans to get involved in a similar arrangement in Las Vegas. Other casino operators, as Caesars Entertainment and MGM Resorts have done. Billings also said that the Encore Boston Harbor leaseback deal is more favorable than those in Las Vegas.
“Las Vegas is a very different market compared to regional markets,” Billings said. “Additional market deleveraging in an economic downturn is more extreme, as we saw in 2009 (with the Great Recession), and the need for continuous and sizable reinvestment in order to stay relevant is high. It is fundamental that we maintain consistent service levels and (capital expenditures) through the business cycle. I never want to be in a position where, in the midst of a downturn, we have to choose between our world-class service and escrowing rent or paying rent and investing in our property.”
Billings said the breakage cost of a sale-leaseback of Wynn Las Vegas “would be significant.” Beyond the tax leakage, the capital structure involves bond financing at Wynn and the holding company above it.
“A sale of our Las Vegas real estate would trigger an acceleration of that debt, driving over $600 million in leakage,” Billings said. “For now, we believe we’ll deliver far more shareholder value by continuing to own our real estate in Las Vegas and I’m confident our equity valuation will continue to reflect that.”
Operating revenues from Las Vegas were $493.9 million for the fourth quarter of 2021, a 186.3% increase from $172.5 million for the fourth quarter of 2020. Adjusted property (earnings) for the fourth quarter of 2021 was $186.2 million, compared with $21 million for the fourth quarter of 2020.
Billings said that keeping the Wynn team intact, despite COVID and a host of new investments (including room remodels as part of a $200 million makeover), are bearing fruit. They’re continuing to take market share in delivering the property’s highest annual adjusted earnings, he added.
“The team in Las Vegas had a stunner of a quarter,” Billings said. “Drop was strong, handle was strong, and (revenue per available room) was strong. To us, the results are a further indication that our unrelenting focus on service and great products are resonating with premium customers who were cooped up in 2020 and the first part of 2021. They’re traveling and spending again with a vengeance.”
As other Las Vegas gaming executives have reported in earnings calls, Wynn had a slowdown in January due to the omicron variant, particularly with group visitation, after achieving 86% occupancy in the fourth quarter overall and 91% on the weekends.
Future bookings, however, have positioned the properties well into March and beyond, Billings said.
“Our hotel occupancy in January was 61% and with the latest wave of COVID quickly receding, we expect occupancy to increase to the mid-80s in March,” Billings said. “As we increasingly distance ourselves from our competitors, we believe we have strong pricing power on rooms, food and beverage, and nightlife for 2022.”
Wynn boasted a $441 average daily room rate in the fourth quarter, 37% above the level during the fourth quarter of 2019. Slot handle was 40% higher than the fourth quarter of 2019 and table handle was 41% higher despite depressed international play, according to Vincent Zahn, senior vice president and treasurer.
In Macau, “The market continued to experience subdued visitation” during the fourth quarter and the results reflected that, Billings said. There’s pent-up demand based on the showing during Chinese New Year, he said. During the holiday, turnover per day in its direct program was up nearly 175% from 2021 and down only 12% from 2019, Billings said. There’s strong spend per customer and new custom signups.
Operating revenues from Wynn Palace were $194 million for fourth quarter 2021, a 12.4% decrease from the $221.5 million in fourth quarter 2020. Adjusted property earnings from Wynn Palace were a negative $1.4 million for the fourth quarter of 2021, compared with $28.7 million for the fourth quarter of 2020. VIP table-game win as a percentage of turnover was 2.59%, below the property’s expected range of 2.7% to 3.0% and above the 1.97% experienced in fourth quarter 2020. The table-game win percentage in mass-market operations was 22.7%, above the 21.6% experienced in fourth quarter 2020.
Operating revenues from Wynn Macau were $131.7 million for fourth quarter 2021, a 27.6% decrease from $181.9 million in fourth quarter 2020. Adjusted property earnings from Wynn Macau were negative $24.5 million for the fourth quarter of 2021, compared with $10.7 million for the fourth quarter of 2020. VIP table-game win as a percentage of turnover was 2.85%, within the property’s expected range of 2.7% to 3.0% and below the 3.10% experienced in the last quarter of 2020. The table-game win percentage in mass-market operations was 17.4%, below the 17.9% experienced in the fourth quarter of 2020.
“We remain confident that the Macau market will benefit from the return of visitation over the coming quarters,” Billings said. “As we’ve seen before, when Macau is more accessible, demand snaps right back. Long term, I remain incredibly enthusiastic about the prospect for Macau. Between the shift to higher-margin premium mass customers and to customers having more motivation to visit than just gaming, the market is evolving. We’re prepared to adapt and grow our business as we embrace those changes.”
