WYNN Q4 2012 Conference Call Tidbits

It’s no secret that I loves me some Steve $WYNN (no positions) conference calls.  Wynn is the best in the business at clearly elucidating the minutiae of his business, and does it with detail and clarity that I have not seen matched by any CEO in any industry.  I listened to yesterday’s call, and thought Steve Wynn sounded a little despondent – he sounded sad, and I thought he’d be ready to tear the head off of the first sell-side analyst to ask an idiotic question, but there were no fireworks: not even a good rant about Wynn’s views of Obama.   Wynn did get into some classic “caisson” descriptions, and also managed to re-tell the story of how he leased Macau retail space at a premium to Prada – this is, I think, the 3rd consecutive quarter where he’s trumpeted that deal, which made me think that Stevie was a bit off his game.

Also, just a quick comment on the earnings:  I did my “luck analysis” and, using the midpoint of the company’s expected win-rates in each category, found that they benefited from great hold “luck” in the quarter, to the tune of about 71c per share in EPS.

wynn_q4_luck

Even if you use the top of the range for expected win rates for each category, they still reaped a 15c per share “luck” benefit.

Let’s get to the transcript:

On Cotai – which is still 36 months from opening:

“We’ve taken a long time to prepare the project that’s being built in Cotai and we are confident that the day that everybody gets to see it, they will be amazed. It represents progress and developments in our industry that have not been seen before. And that’s what it takes these days to get people excited.”

The “Three Little Pigs” Story:

“So, when it comes to taking home money, we get very, very healthy and we’re going to stay that way as we build new hotels in China and elsewhere in the world. An example of this building houses of bricks, if you read the Three Little Pigs, it’s got everything you need to know as a case study.

Around one year we had a sketch our Annual Report of three pigs; one sitting on the rubble of the house’s straw, one sitting on the remains of the house of wood and a chubby little pig sitting on top of the perfectly preserved house of bricks, smoking a cigar. And the headline on our Annual Report is, we build houses of brick. Well, nothing has changed. I love the Three Little Pigs as a case study and our hotels that we build currently and the ones we’re building in the future will represent houses of brick.”

The closest Wynn got to anything political was his repeated hints of how great a hotel he could build in major urban cities if only he can attach gaming:

“I have spent months now designing the new concept of an urban Wynn. An urban Wynn is a concept that’s based upon these observations. In the major cities of the United States like Philadelphia and Boston, there are many hotels that get very healthy room rates. In Boston, it’s hundreds and hundreds of dollars to get a room and they are fine companies like Ritz-Carlton and Four Seasons and others that are in those cities, but we all know, as you do on this call, that it’s uneconomical to build a really wonderful brand new hotel in a city today because of the cost of construction and the competitive room rates that prevail.

So, what does that mean? To us, it creates a wonderful opportunity. Let’s take Philadelphia and Boston for example. You can’t build a brand new hotel in Philadelphia for the reasons I just said, but with the presence of a casino room adjacent to such a beautiful hotel, you can build the best hotel in Boston, the finest project that the State of Pennsylvania or the City of Philadelphia where I went to school has ever seen; rooms of 800 and 900 square feet or 700 square feet, beautiful suites, incredible restaurants with very talented chefs, entertainment areas that are fanciful, imaginative and new and exciting and fun to be in. It’s always been a truth in our industry that the driver is the non-casino attractions. The gaming area is at best the cash register. There is nothing unique about a slot machine or a blackjack or crap table or baccarat table. In and of themselves, they have no power at all. The power rests in the experiential moment that people get when they’re in the building.”

There are a few more paragraphs that are worth reading, where Wynn tries to downplay the gaming and talk about their expertise in the non-gaming attractions: dining, shopping, shows, etc.  He concludes that topic:

“…our job in those places is to explain how we’re going to apply our brand and our experience to produce a great place that is value added for those cities that brings people from outside the region into those cities, the places pay healthy taxes and they employ lots of people.”

Q&A:  in response to a question about Cotai development, Wynn gives the answer that you’d expect from the head of the construction crew, which typifies why I think he’s The Man.   This is “The Caisson Speech.”  He knows every. single. detail. of his buildings:

“First of all, as I say, we’ve started construction this week; what you’d call hard construction as opposed to site work; the foundation of Cotai having dried out the property which took quite bit of time and $30 million. Next phase now is the creation of foundation. It’s a landfill, as you know, and it’s an example of, if you like trivia, the caissons that support the high-rise building, they are every 40 feet going sideways and therefore across the tower, one on each window wall and then two inside the building. So, these caissons are 10-feet in diameter and we have to hit bedrock, and those caissons are columns of concrete reinforced with rebar in a steel casing and they go down in our high-rise at a minimum of 78 meters and at a maximum of 92 meters giving idea of how deep these holes are. The public area – the three levels of public area and the podium building are supported by piles which are basically either steel or concrete reinforced columns that are nails that are pounded into the ground, five or six at a time, brought together as if you put your fingers on the table, spreading your fingers the top of your hand would be the pile cap and then we drive all these piles, we put a cap on top of them and we rest the garage and the public areas on top of them. That process of getting out of the ground, building the one layer of subterranean parking is going to take close to a year. Once we get into that phase at the end of ’13, then we go up with the high-rise in the rest of building at a remarkably rapid pace and we do more than one floor a week and go up 20 odd floors to full height.”

There was a question about urban concepts, trying to decipher what markets Wynn might be targeting.  The questioner also asked if Wynn would consider the hospitality business without the gaming business.  Wynn responded:

“I think there are one or – my answer would be no with one or two exceptions. I have for the past 10 or 15 years relished the idea of having a new hotel in London. That city is probably one of the greatest in the world for average daily rate and it’s a city, as you know, with highly protected historical landmark buildings. It’s very difficult to get a site in London that you can demolish and build a new. If I had the chance in Mayfair or in the right location in London to build a hotel, I think I’d love to do it. Of course, you can always apply for a gaming license and put a small room of (indiscernible) tables which would be French or icing on the cake. But I’d say that London is a great hotel town. New York City is whole story into itself. I’m not sure – if I must clear of New York as in the non-casino senses, I would be in a place like London. But generally speaking, you know we are in this business Mr. Kent and that’s pretty much where I want to stay. We understand this part of it. What I really love about the gaming aspect is that the gaming room however subordinate maybe, is still – the revenue from such a room is still the thing that allows us to light up the city, bring people and build the new hotel, bring people in from outside the area.”

He continues, talking about the proximity of Philly to Penn Station via the Acela train.

In response to a question about return on capital:

“Take a place like Philadelphia. You spend $800 million or $900 million or $1 billion; you borrow ($650 million) at great rates today. Good idea to borrow money at these rates and you put a $300 million or $400 million in equity and you make $175 million. We can’t get a return on equity like that. If you can get that kind of a return on equity, you ought to keep building those hotels. It lays a base of a long-term franchise. Once you get one of these hotels, that’s up and running and established, it’s better than their past. Tomorrow is better than today and the day after tomorrow is better. That’s the whole point of this. I don’t trust slots in a box. That’s why I’ve never done a riverboat or a racino; not our business, not interested. But a hotel, a place that has the full range of services that people learn to like and even people that don’t gamble who live in this city go to dinner. We get tremendous average rates in our restaurants. We make money with our restaurants. There’s nothing wrong with that in cities like Philadelphia and Boston. With all those kids in college, all those people visiting Boston from around the world, I love the Boston market. I think it’s a terrific opportunity for our Company to make a great contribution to the touristic profile of those cities, bringing people from outside the region into the region and creating places for the people who live in the city that have fun to go to week-in and week-out, even if they’re not hooked on a slot machine or a gambling game of some kind. These kinds of things, these values would imply to any major urban center, like Toronto, like Dallas, Houston, Atlanta, Chicago. We could be a very good neighbor in those cities. We could make a significant contribution to the tourism, the employment, and the revenues that those governments enjoy with our brand.”

I didn’t find too much of interest in the remainder of the Q&A, but the transcript is still worth perusing.

 

related: Prior WYNN Tidbits

Las Vegas Sands Earnings Beat Was Due to Good Luck

WYNN Gets Unlucky in The Quarter

WYNN Gets Lucky In the Quarter

-KD

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