Wynn Resorts Q4 2021 Earnings Results & Report

Wynn Resorts EPS Results

• Actual EPS: -$1.37
• Consensus EPS: -$1.24
• Beat/Miss: Missed by -$0.13
• One Year Ago EPS: -$2.45
• EPS Beat Rate: 3 of last 8 quarters

Wynn Resorts Revenue Results

• Actual Revenue: $1.05 billion
• Expected Revenue: $1.03 billion
• Beat/Miss: Beat by +$21.53 million
• YoY Revenue Growth: N/A

Wynn Resorts (NASDAQ:WYNN), Ltd. is a developer and operator of luxury integrated resorts, with a focus on destination casinos, hotels, restaurants, entertainment venues, retail, and convention facilities. Its properties are designed to combine gaming with premium hospitality and leisure experiences.

The company operates Wynn Las Vegas and Encore Las Vegas in Nevada, Encore Boston Harbor in Massachusetts, and Wynn Macau and Wynn Palace in Macau. These resorts serve visitors in the United States and international markets, offering accommodations, casino gaming, dining, nightlife, retail, spas, entertainment, and meeting and convention services.

Wynn Resorts was founded in 2002 by casino executive Steve Wynn. The company is led by Craig Billings, who became chief executive officer in 2022. Wynn Resorts is also developing Wynn Al Marjan Island in Ras Al Khaimah, United Arab Emirates, in partnership with local entities; the project is intended to expand the company’s presence into the Middle East.

Wynn Resorts Q4 2021 Earnings Call Transcript

Key Takeaways

• Sale-leaseback of Encore Boston Harbor real estate at 17× rent (5.9% cap rate) will generate ~$1.7 billion in capital to fund new parking, non-gaming amenities and greenfield projects while potentially retiring higher-cost debt.
• Wynn Resorts will continue to own Las Vegas real estate to avoid over $600 million in debt breakage and preserve operational flexibility amid higher CapEx needs and potential downturns.
• A new integrated resort in Ras Al Khaimah, UAE—where no further gaming legislation is needed—will operate under a management agreement, delivering high return on invested capital via fees rather than equity risk.
• Wynn Las Vegas achieved record Q4 EBITDA of $186.2 million (37.7% margin) and Encore Boston Harbor posted $68.2 million (33.4% margin), both exceeding pre-pandemic levels thanks to strong gaming volumes and RevPAR gains.
• Wynn Interactive drove $785 million in Q4 turnover (29% sequential revenue increase) and reduced EBITDA burn to $79 million, with Q1 2022 burn target ~ $40 million after refocusing on profitable user acquisition channels.

Presentation

[Operator]

Welcome to the Wynn Resorts Fourth Quarter 2021 Earnings Call. All participants are in a listen-only mode until the question-and-answer session of today's conference. To ask a question, press star one on your touch-tone phone, record your name and I will introduce you. Please limit yourself to one question and one follow-up. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the line over to Vincent Zahn, Senior Vice President and Treasurer. Sir, you may begin.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Thank you, Michelle, and good afternoon, everyone. On the call with me today are Craig Billings and Brian Gullbrants in Las Vegas. Also on the line are Ian Coughlan, Linda Chen, Julie Cameron-Doe, Frederic Luvisutto, and Jenny Holaday. 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 Craig Billings.

[Craig Billings, CEO at Wynn Resorts]

Thanks, Vince. Afternoon, everyone. Thanks for joining us today. I'd like to start by saying that I'm genuinely honored to be speaking to you as the CEO of Wynn Resorts. I joined Wynn in 2017 because I had spent much of my career admiring the company for its dedication to its craft and to its people. I'm excited to lead the company forward, and I know that our best days are ahead of us. Before we talk about the fourth quarter, I'd like to give you some additional context around a couple of transactions that we've announced over the past few weeks. First, let's touch on the sale-leaseback of our real estate at Encore Boston Harbor that we announced today.

[Craig Billings, CEO at Wynn Resorts]

We've discussed the sale of real estate on past earnings calls, and we've always maintained that we believe our valuation over any reasonable period of time reflects the value of our real estate. We believe that to be the case today. Why execute a sale-leaseback? A sale-leaseback is, after all, nothing more than a financing and capital structure decision. In our case, this transaction benefits our capital structure in a few different ways. First and foremost, it provides long-term capital to grow our business. In this case, capital to deploy adjacent to Encore Boston Harbor in the construction of additional parking and complementary non-gaming amenities that will drive Encore Boston Harbor to even higher levels of performance, and capital to deploy in attractive greenfield projects like our development in the UAE, which I will discuss in a moment.

[Craig Billings, CEO at Wynn Resorts]

Second, it enables us to potentially retire near-term debt with a higher cost of capital than the lease. I would note here that this sale-leaseback transaction was executed at 17 times rent or a 5.9% cap rate, a record for regional gaming assets by some two turns and an attractive long-term cost of capital. Third, it brings a new partner into our capital structure. Sumit and the team at Realty Income have been great partners in executing this transaction, and I would note that there are a number of highly bespoke terms in the lease that reflect our longer-term goals. These terms were only achievable due to the unique way that Realty Income is structured and their willingness to engage and align this transaction with our goals. Overall, this transaction gives us a lot of additional financial flexibility.

[Craig Billings, CEO at Wynn Resorts]

The transaction will close near the end of the year. Some of you may ask, what about Wynn Las Vegas? In response to that, I would note a few important points. First, Las Vegas is a very different market when compared to regional markets. Potential operational deleveraging in an economic downturn is more extreme, as we saw in 2009, and the need for continuous and sizable reinvestment in order to stay relevant is high. As many of you know, it is fundamental to us that we maintain consistent service levels and CapEx throughout the business cycle, and I never want us 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 between paying rent and investing in our property. In fact, our 2021 results speak to the power of our proprietor's mindset.

[Craig Billings, CEO at Wynn Resorts]

With a host of new investments bearing fruit and with our team intact despite COVID, we continue to take market share and deliver the property's highest-ever annual EBITDA. Further, the breakage costs related to a sale-leaseback of Wynn Las Vegas would be significant. Beyond the tax leakage, our capital structure in the U.S. has bond financing at both Wynn Las Vegas and a holding company above it. A sale of our Las Vegas real estate would trigger an acceleration of that debt, driving over $600 million in breakage. For now, we believe we will deliver far more long-term shareholder value by continuing to own our real estate in Las Vegas, and I am confident our equity valuation will continue to reflect that. Let's turn to our announcement regarding an integrated resort development in the UAE.

[Craig Billings, CEO at Wynn Resorts]

We're thrilled about this project, which will further diversify our business while extending our brand into the Middle East and Europe. I'm sure all of you are familiar with the UAE and with Dubai in particular. It's a dynamic country and we are proud to have the opportunity to deliver our exceptional hospitality there. Ras Al Khaimah is about 45 minutes north of the Dubai Airport via a first-class multi-lane highway. The location on Marjan Island is stunning and will be a great setting for our resort. I do want to provide some clarity on a topic I have seen in a number of analyst notes and media reports regarding the project. In any new jurisdiction, there are three things that need to happen to have an integrated resort with gaming. The first is enabling legislation. Is gaming legal? The second is regulation. How will gaming be conducted?

[Craig Billings, CEO at Wynn Resorts]

The third is licensure. Who can operate a gaming establishment? With respect to this project, no further enabling legislation is required. We're not looking at a multi-year process for legalization like we have seen in some other markets. Regulations are well advanced, having been modeled on those of Singapore and the United States. The tax rate and license structure are very reasonable. Finally, with the regulatory framework taking shape and the regulator in place, we will be licensed to conduct gaming in Ras Al Khaimah. In other words, we're a go with this project. We're commencing master planning now, and we'll begin mobilizing architecture and design in due course. I expect our ultimate design will be one or more iconic buildings that both take advantage of the pristine beach location and also show respect for the unique cultural aspects of the region.

[Craig Billings, CEO at Wynn Resorts]

We're big believers in the potential for Ras Al Khaimah to be an amazing tourism and hospitality destination. Lastly, I would point out that this is the first transaction where Wynn Resorts is being paid for its know-how and service excellence via a management agreement. I expect it to provide a very high return on invested capital. We have a lot happening around here, and I'm personally very excited about the future. Turning to the fourth quarter and starting in Las Vegas, the team at Wynn Las Vegas had an absolute stunner of a quarter. $186 million in EBITDA despite holding a bit low. Drop was strong, handle was strong, RevPAR was strong. I could go on and on.

[Craig Billings, CEO at Wynn Resorts]

To us, the quarter's results are a further indication of the fact that our unrelenting focus on service and great product are resonating with premium customers who, after being cooped up for 2020 and the first part of 2021, are traveling and spending again with a vengeance. As you've heard from some of our peers, January results in Las Vegas were impacted by Omicron, particularly in the group side. Encouragingly, forward bookings in January were very strong, and February to date has accelerated further, positioning us well into March and beyond. To give you some context, 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. As we increasingly distance ourselves from our competitors, we believe we have strong pricing power on rooms, food and beverage, and nightlife during 2022.

[Craig Billings, CEO at Wynn Resorts]

In Macau, the market continued to experience subdued visitation during the fourth quarter, and our results reflected that in roll, in drop, and in volatility of holds. Of course, you need to only look at Chinese New Year to remind yourself of the power of that market and the pent-up demand for visitation. During the holiday period, turnover per day in our direct program was up nearly 175% from 2021 and down only 12% from Chinese New Year 2019. Encouragingly, we are seeing both strong spend per customer and significant new customer sign-ups in our direct business, highlighting the strength of our market-leading product and service offering. On the mass side, table drop was up 34% versus 2021, and that drop was 60% of our Chinese New Year 2019 levels.

[Craig Billings, CEO at Wynn Resorts]

As we have seen before, when Macau is more accessible, demand snaps right back. Long term, I remain incredibly enthusiastic about the prospects for Macau. Between the shift to higher margin premium mass customers and to customers who have more motivations to visit than just gaming, the market is evolving, and we are prepared to adapt and grow our business as we embrace those changes. Further, the concession process continues in a methodical and logical manner with the amended gaming law currently sitting with the assembly committee. We continue to be pleased with the process and with the content of the amended law. Turning to Boston, like Vegas, Encore had an unbelievable quarter in both gaming volumes and RevPAR, resulting in $68 million of EBITDA in Q4. The team in Boston has really done a tremendous job, particularly in the casino, but we're just getting started.

[Craig Billings, CEO at Wynn Resorts]

Our next phase of growth in Boston will be driven by database growth, particularly growth outside of adjacent areas, and through our upcoming expansion project across the street from the property. That expansion will see us add additional amenities and, importantly, additional parking. Parking, particularly on weekends, remains a constraint for us. Though Encore is now run rating higher EBITDA than a number of strip properties, Encore still has a tremendous amount of growth ahead of it. Lastly, on Wynn Interactive, we generated about $785 million in turnover across casino and sports betting in Q4, which drove a 29% sequential increase in revenue. This was despite a meaningful curtailment in marketing spend in November and December.

[Craig Billings, CEO at Wynn Resorts]

As you may recall on our Q3 call, we were very explicit about our view on the unsustainable nature of the current competitive environment in sports betting, and we stated our intention to manage the business with a long-term shareholder-friendly view. To that end, we began shifting our user acquisition mix in early November, focusing only on proven performance marketing channels where we know we can achieve positive ROI on spend, particularly in casino. By doing this, we meaningfully reduced our overall burn rate, and as our remaining brand advertising commitments tailed off with the Super Bowl, I expect EBITDA burn levels to reduce even more drastically. Overall, we estimate Q1 2022 burn should be down some 60% from Q3 2021 to the $40 million range, and I expect Q2 2022 to be even lower.

[Craig Billings, CEO at Wynn Resorts]

With that, I will now turn it over to Vince to run through some additional details on the quarter. Vince?

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Thank you, Craig. At Wynn Las Vegas, we generated a record $186.2 million of adjusted property EBITDA on $493.9 million of operating revenue during the quarter. We estimate low table hold negatively impacted EBITDA by approximately $10 million in the quarter. Overall, our hotel occupancy reached 86% in the quarter, with 91% occupancy on weekends. Importantly, we have stayed true to our luxury brand and continue to compete on quality of product and service experience with our overall ADR reaching $441 during 4Q 2021, 37% above 4Q 2019 levels. Our other non-gaming businesses saw broad-based strength across F&B and retail, which were also well above pre-pandemic levels. In the casino, our 4Q 2021 slot handle was 40% above 4Q 2019 levels, and our table drop was 41% above 4Q 2019 levels, despite still suppressed international play due to COVID-related travel challenges.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

The team in Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering adjusted property EBITDA margin of 37.7% in the quarter, or approximately 39% when adjusted for low table hold. This was unchanged sequentially and up 1,350 basis points compared to 4Q 2019 on a hold-adjusted basis. OpEx per day was $3.18 million in 4Q 2021, approximately $145,000 per day above 4Q 2019 levels due to a combination of higher cost of goods on materially higher non-gaming revenue, along with special event costs, including the Koepka vs. DeChambeau golf match, among others. We remain committed to maintaining a cost structure that appropriately balances margin and our exacting service standards in Las Vegas.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

In Boston, we generated another record quarter with adjusted property EBITDA of $68.2 million in 4Q 2021 with an EBITDA margin of 33.4%. We saw broad-based strength across the casino combined with solid hotel performance, which was aided by a favorable calendar set up during the quarter. As Craig noted regarding Wynn Las Vegas and consistent with some of our regional peers, Omicron, along with bad weather, temporarily disrupted our performance at EBH in January. Encouragingly, we have already seen signs of improvement in the business as case counts have decreased across the region. At EBH, we remain very disciplined on the cost side with OpEx per day of $1 million in 4Q 2021, excluding a $2 million non-recurring accrual reversal.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

This was a decrease of over 20% compared to $1.3 million per day in 4Q 2019 and a modest increase relative to $950,000 per day in 3Q 2021, with the sequential increase driven by improved business volumes and increased operating hours, most notably from the hotel opening a full seven days per week beginning on September 1. Looking ahead, we expect OpEx to increase modestly due to higher payroll stemming from one-time contractual labor agreements coming into effect in 2022, which will add around $45,000 per day to our OpEx base. We are well-positioned to drive strong operating leverage as we continue to grow the top line over time in Boston. Our Macau operations delivered an EBITDA loss of $25.9 million in the quarter on $325.7 million of operating revenue.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Our EBITDA included a one-time bad debt provision that negatively impacted EBITDA by $24 million during the quarter, so we would have been essentially breakeven adjusting for that. While business in 4Q was challenging due to the evolving COVID situation, we remain disciplined on costs. Our OpEx excluding gaming taxes and the one-time provision I noted was approximately $2.2 million per day in the fourth quarter, essentially unchanged sequentially. We continue to be well-positioned to drive strong operating leverage in Macau as our businesses recover. Turning to Wynn Interactive. In 4Q, the business generated approximately $785 million in total turnover, a 20% sequential increase relative to 3Q. Top line growth, combined with decreases in marketing spend and other OpEx, drove an improvement in our EBITDA burn rate to $79 million in 4Q 2021 versus $104 million in 3Q 2021.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Since quarter end, we've continued to thoughtfully grow the business with launches in New York and Louisiana, and the initial reception from our customers has been very encouraging. Turning to the balance sheet, our liquidity position remains very strong with global cash and revolver availability of $3.6 billion as of 12/31. In Macau, we had approximately $1.7 billion of available liquidity as of 12/31. In the U.S., we had total available liquidity of approximately $1.9 billion at 12/31. Finally, our CapEx in the quarter was $78 million, and we remain prudent with respect to CapEx while we gain further confidence in the recovery. With that, Michelle, we will now open the call to Q&A.

[Operator]

Thank you. To ask a question, press star one on your touch tone phone. Unmute your phone, record your name clearly after the prompt, and I will introduce you for your question. Please limit yourself to one question and one follow-up question. To withdraw your question, you may press star two. Our first question comes from Carlo Santarelli from Deutsche Bank. You may go ahead, sir.

[Carlo Santarelli, Gaming & Lodging Analyst at Deutsche Bank]

Thanks, Craig, and thanks, Vince, for all the color. Guys, if I could just—Vince, you talked about it a little bit with the provision in the quarter in Macau. As you think about some of the new regulations around VIP and kind of around, you know, running that business, whether it's the share of handle as opposed to rev share agreements or the single junket model or the heavier reliance on VIP or direct VIP, I should say, could you talk a little bit about, you know, your strategy in navigating that? Obviously, it will be a little bit more cumbersome from a balance sheet perspective, but how you guys are kind of thinking about, you know, that the outlook for that business run from a direct platform with some of the new requirements.

[Craig Billings, CEO at Wynn Resorts]

Sure, Carlo. I'll start, and then I'll ask Ian to give you his thoughts as well. As you know, the situation is evolving. The charge that we took in the quarter was frankly primarily due to historical junket positions. It really doesn't have anything to do with the business going forward. As Vince mentioned, if you adjusted for that charge, we would have effectively been at breakeven in Macau. The amended law in general, I think we are quite pleased with the various components of it. The process, as we've said many times, has been

[Craig Billings, CEO at Wynn Resorts]

Impeccable in terms of administration. You know, the market's evolving, moving quickly. We have the best product, the best service in the market. It's not surprising that we saw the activity on the direct side of the business over the course of Chinese New Year. We were pleased with it. Some of those were former junket players, kind of, you know, indicating that there's been movement among the different groups of customers from junket to premium mass and junket to direct. We have a very prudent approach towards deployment of the balance sheet, and I expect we will continue to take that approach.

[Craig Billings, CEO at Wynn Resorts]

To your last, I guess, to one of the subsets of your points, you know, the use of agents, the use of referring parties, et cetera, that's all kind of happening in real time. We are exploring, you know, all potential options in the market that are consistent with the amended gaming law. We'll figure it out in due course, but it's really too early to say. Ian, do you have any additional thoughts?

[Ian Coughlan, President at Wynn Macau, Limited]

Just the disappearance of junket operators is a very recent development. The only way we can actually judge the impact is pretty much over Chinese New Year when we saw meaningful growth in both premium mass and in our own direct VIP program. We have seen that migration of former junket players. They have a desire to gamble. They have a desire to come to Macau. We have the best product in the market and the best service. We feel very confident that we'll capture more than our fair market share.

[Craig Billings, CEO at Wynn Resorts]

I would just add to that, Carlo. We've said before, I can't remember if it's been on calls or in other forums. By 2019, eighty-something% of our EBITDA was from sources other than VIP. You know, we started our journey of diversification really with the opening of Palace in 2016, and we have become very capable mass marketers over the course of the past five years. I kinda look at Macau and I see an amazing setup where investor expectations are pretty low, and we have the opportunity to kind of chart our own destiny. Frankly, that's what this company's done for years and years and years, particularly here in Las Vegas.

[Craig Billings, CEO at Wynn Resorts]

We're excited about a market that is higher margin premium mass and customers that may be traveling to Macau for motivations other than just purely gaming.

[Carlo Santarelli, Gaming & Lodging Analyst at Deutsche Bank]

Great. Thank you, Craig, and thanks, Ian. Just one follow-up as it pertains to the master lease for Encore Boston Harbor. First of all, Craig, is there any breakage on the $1.7 billion? Secondly, I see that the escalator is 1.75%. Are there any coverage ratios that trigger that one way or another?

[Craig Billings, CEO at Wynn Resorts]

Well, let me start, and then I'm gonna ask Vince to give you some details. We've been pretty explicit about our views on sale-leasebacks, and I think this one is unique because the lease, which you'll see attached to the 8-K, and you can tear it apart yourself, is incredibly unique. It's very, very flexible and very friendly to us as the Opco. That was incredibly important to us because, as I said in my prepared remarks, I never wanna choose between the landlord and our people. Our people are our service levels, and our service levels are our brand. You're gonna find a whole bunch of unique things in that lease that I think many of them probably precedent setting. To your specific questions, I'll ask Vince to chime in.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Carlo, do you mean debt breakage costs?

[Carlo Santarelli, Gaming & Lodging Analyst at Deutsche Bank]

Yeah. I'm sorry. I was more referring to kind of the way that Craig articulated the $600 million plus of breakage costs related to the debt in Las Vegas. Is there any leakage associated with the $1.7 billion, you know, cash proceeds of this transaction?

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

No, there isn't. It doesn't trigger any of those provisions that would cause the breakage and force us to call the debt. So the answer is no to that. Total transaction costs should be somewhere in the $50 million range, so net proceeds will be $1.65 billion. As far as it relates to the escalator, there are no coverage provisions on the escalator. It's 1.75% for the first 10 years. Then after, lease year 11 and beyond, it's the greater of CPI or 1.75%, and that's capped at 2.5%. You can go look at some of the lease comps, particularly in Las Vegas, and see how favorably that package compares.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

There are no minimum CapEx requirements, which was very important to us. Those are kind, kinda some of the high-level details of the lease, Carlo.

[Carlo Santarelli, Gaming & Lodging Analyst at Deutsche Bank]

All right. Great. Thank you very much, guys.

[Craig Billings, CEO at Wynn Resorts]

Got it.

[Operator]

Thank you. Our next caller is Joe Greff with JP Morgan. You may go ahead.

[Joe Greff, Managing Director at JPMorgan]

Good afternoon, guys.

[Craig Billings, CEO at Wynn Resorts]

Joe.

[Joe Greff, Managing Director at JPMorgan]

Craig, Vince, how are you thinking about utilizing the, I guess, the $1.65 billion of net proceeds coming in from the sale of EBH?

[Craig Billings, CEO at Wynn Resorts]

Sure. It's important. I wanna remind you it doesn't close till the end of the year. You know, we'll be in a different position at the end of the year vis-à-vis Macau. Our hope is that Vegas and Boston continue to hum along. With that caveat, you know, a sale-leaseback really isn't any different than raising debt in the bond market. If we were raising debt in the bond markets at this rate today, we would think about it as how do we grow our business, and are there more expensive or more restrictive pieces of debt that we should be taking out? We'll see how things evolve over the course of the year, but that's how we think about it today.

[Craig Billings, CEO at Wynn Resorts]

We've got a room remodel in Vegas. We've got a show in Vegas. We've got an expansion in and around Encore Boston Harbor, and we have a really exciting project in the UAE that is kind of almost shovel-ready. Across all of those, there's a whole bunch of great things we can do to drive incremental EBITDA. There are some expensive pieces of debt, including the bonds that we did when we, I think, reopened the high-yield market in the midst of COVID that would prove beneficial to shareholders as well.

[Joe Greff, Managing Director at JPMorgan]

Great. Maybe can you comment on how you're thinking of potentially monetizing Wynn Interactive? Obviously, there was a press report where you guys were potentially looking to monetize that through a sale. Can you talk about the ways you're thinking of that business and how it can drive, you know, net equity value for you all, even in a very broad way for you?

[Craig Billings, CEO at Wynn Resorts]

Yeah, sure. First, we don't comment on market rumors or random press reports. We were pretty explicit on the third quarter call about not engaging in the unsustainable user acquisition blitz that has emerged, no pun intended, this NFL season, and that we would take a more measured approach. You know, the iGaming business, where we have actually seen pretty reasonable success, there's a logical place for us in that business longer term. Unfortunately, it's not a humongous TAM right now. Sports betting is the total addressable market, and sports betting is where most of the irrational behavior is taking place. You know, we will generate shareholder value from that business.

[Craig Billings, CEO at Wynn Resorts]

I think the way we think about it is we're gonna be really focused on the user acquisition focus side, we're gonna be focused on the product side, and we're gonna see how the end markets really behave over the course of the next several quarters. Then we'll figure it out accordingly.

[Joe Greff, Managing Director at JPMorgan]

One final thing. Craig, you talked about the additional investments in Las Vegas and potentially at EBH. Can you talk about what's committed in terms of CapEx for 2022?

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Yeah, sure. I'll take that, Joe. In Vegas, we're pretty much back to regular maintenance levels of $75-$85 million per year in Vegas. Beyond core maintenance, Craig noted that we are reconstructing the Le Rêve theater, putting a new show in place. That has a budget of $120 million, of which about $30 million is spent through 12/31. The remainder will get spent ratably in 2022. We're renovating the Wynn Las Vegas tower rooms with a total budget of $220 million, of which $120 million has been spent. Same thing there, the balance will be spent over the remainder of 2022. In Boston, the property is essentially new, so maintenance will only be in the $20 million range there, mostly repositioning of non-gaming amenities at that property.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

We could have some modest CapEx toward the end of the year for the East of Broadway expansion that Craig noted. The budget there is gonna be somewhere in the $200 million-$250 million range, and that'll basically be spent under a normal CapEx S-curve over 2023 and 2024. In Macau, we're still being very judicious with CapEx until the return of stronger demand levels there. Core maintenance is expected to total $60 million-$80 million for 2022 on a property combined basis.

[Craig Billings, CEO at Wynn Resorts]

Joe, just one other point on the Boston CapEx. One of the unique aspects of the lease that we entered into is the ability to put some additional rent into the lease, really upon completion of that expansion at a specified cap rate, which will in turn allow us to more than get our money back.

[Joe Greff, Managing Director at JPMorgan]

Great. Thank you, guys.

[Operator]

Thank you. Our next caller is Thomas Allen with Morgan Stanley. You may go ahead, sir.

[Thomas Allen, Managing Director, US Gaming, Lodging, and Leisure Equity Research at Morgan Stanley]

Hey, thanks for taking me. Just on the Macau, you know, prior to COVID hitting, you were running at 99% occupancy for your rooms, I think running at over 90% comps. Can you just talk to us how you're thinking about that on a go-forward basis?

[Craig Billings, CEO at Wynn Resorts]

Sure. I'll start, and then I'll ask Ian to provide some thoughts as well. I mean, the market is. I think the fundamental question that you have to ask yourself is, over the course of the next five years, 10 years, will a leisure business emerge in Macau? And if so, does that mean that you that you have a, you know, a yielding mechanism like we do in Vegas to yield cash rooms? I don't think we are close to that yet. I think we would assume that we're gonna continue to be a comp room business. We don't have a ton of rooms relative to some others in the market, so we have a lot of opportunity to yield those rooms. Ian, do you have any additional thoughts?

[Ian Coughlan, President at Wynn Macau, Limited]

What we've seen in the periods when we've actually been recently open to Chinese consumers when they've been able to travel is there is huge pent-up demand at all levels of the business. There's cash business out there as well. There's family travel that's increased. We're also seeing an increase in millennial travel, and we're seeing new customers come to Macau. We've seen that again over Chinese New Year. During the week when we have rooms available at times, there is cash business and rich cash business from influential customers to come. We feel that we can fill rooms when they're available.

[Thomas Allen, Managing Director, US Gaming, Lodging, and Leisure Equity Research at Morgan Stanley]

All right. Thank you. Just on the UAE project, I mean, you guys know this is kind of the first of its kind where you're being hired for kind of management expertise and development expertise. Do you think there's a lot of other opportunities? How are you thinking about that?

[Craig Billings, CEO at Wynn Resorts]

Yes. It's a great question, Thomas. You know, as we think about logical adjacencies for our business, we think about everything under the sun. We're constantly thinking about ways to increase shareholder value. I think it is a pivotal moment. Can it be replicated? You know, we'll see. It's an important moment where we're entering into really a Four Seasons-style management deal for the creation of an integrated resort. Is that extendable to smaller properties in gateway cities? It may be. That's something that we'll explore.

[Thomas Allen, Managing Director, US Gaming, Lodging, and Leisure Equity Research at Morgan Stanley]

Thank you.

[Operator]

Thank you. Our next caller is Stephen Grambling with Goldman Sachs. You may go ahead, sir.

[Stephen Grambling, VP, Equity Research at Goldman Sachs]

Hi. Thanks. Maybe as a follow-up to that, I guess, how are you generally thinking about underwriting, you know, the ROIC in a market like the UAE as you think about the structure of this transaction or potential structure? Can you give any kind of color on what you foresee from a customer standpoint and you're looking at your global database, maybe what spending patterns have emerged in that market?

[Craig Billings, CEO at Wynn Resorts]

Sure. I'll start with the latter and then move to the former. Think about it this way. When we open that property, 95% of the world's population will be within an eight-hour flight of a Wynn Resorts property. I don't think anybody else can say that. This is not only an opportunity to leverage our pre-existing database, but it's an opportunity to grow database. The Dubai Airport has some 80+ million passengers passing through it every year. I mean, it's astounding. The UAE is already a substantial destination for, not only the region, but for Europe, for Brits, for Germans, for really folks from all over the place. This is a significant customer acquisition opportunity and a really material extension of our brand. In terms of how do we underwrite it's a $2 billion project.

[Craig Billings, CEO at Wynn Resorts]

My presumption is that it will be 50% debt, 50% equity, of which we will be 25%-40%. Then obviously we have the management contract sitting on top of it. The land is astounding, beautiful, and like I said before, nearly shovel-ready. Execution risk from a construction perspective, as we see it, is pretty low.

[Stephen Grambling, VP, Equity Research at Goldman Sachs]

That's helpful. I know you don't like to give a lot of guidance, but maybe looking to Las Vegas and looking at the fourth quarter EBITDA run rate, I guess what are some of the biggest puts and takes to think about in the year ahead across either various customer cohorts or spending categories that could influence both margins and ultimately EBITDA from here?

[Craig Billings, CEO at Wynn Resorts]

Sure. I'll start and then I'll ask Brian to provide you with his thoughts. Yeah, Q4 was definitely a rager. It was impressive. The team did really an incredible job. If you look back over the course of 2021, we saw pretty substantial leisure and gaming demand. I think that's consistent across the market, although I would say we have continued to distinguish ourselves from a service and quality perspective. But there are also a lot of customer types that weren't around, right? International play wasn't around. Group and convention was quite spotty and very concentrated into a couple periods, one of which was in fact the fourth quarter. So that obviously helped the fourth quarter.

[Craig Billings, CEO at Wynn Resorts]

January, if you look forward, January was, as we noted, soft because of Omicron. We're already seeing the demand snap back from that. Brian, do you wanna comment on kind of the structure of that demand or any additional thoughts you might have?

[Brian Gullbrants, COO - North America at Wynn Resorts]

Sure, Craig, thanks. Yeah, I think overall our booking pace is back to pre-pandemic 2019 levels now, and we have a built-in rate premium that's also sustainable as we see it. On the group side, the group lead volume is now actually exceeding 2019 levels. You know, I think people wanna meet again, and we're very bullish on the future. Things are pacing ahead and we're looking really solid.

[Stephen Grambling, VP, Equity Research at Goldman Sachs]

That's all super helpful. Thanks. Look forward to seeing the rager continue and perhaps resume in Macau.

[Craig Billings, CEO at Wynn Resorts]

Us too.

[Brian Gullbrants, COO - North America at Wynn Resorts]

Us too.

[Operator]

Thank you. Our next question comes from David Katz with Jefferies. You may go ahead, sir. David Katz, your line is open.

[David Katz, Managing Director at Jefferies]

Apologies. Thanks for including me. I was on mute. Afternoon. I wanted to just ask about the thought process around deciding to sell the real estate in Boston. Obviously, the terms that you've achieved are compelling. In the context of other opportunities there may have been to divest assets such as excess land on the Strip, etc. How did you sort of think about that choice versus maybe some others and the land being one example, maybe there are others that we could discuss?

[Craig Billings, CEO at Wynn Resorts]

Sure. I guess first, I would say there's really two factors that come into play. The first is cost of capital, which is an important consideration, but not the only one. The second is the operational structure of the asset and how conducive it is to operating with a lease. In Boston, in the transaction in Boston, we were able to achieve both an attractive cost of capital, and that asset, just based on the stability of revenues in the regional markets and the much lighter CapEx burden relative to, say, Las Vegas, made it a logical financing source for us, which is really what it was. We weren't in the market just to raise cash, right? This was a cost of capital question, first and foremost.

[Craig Billings, CEO at Wynn Resorts]

We're not gonna be in the market with land or any other, you know, ancillary assets around the properties anytime soon.

[David Katz, Managing Director at Jefferies]

Understood. Just for our own, you know, information. Since you talked about the buildings in Las Vegas in your prepared remarks, you know, the golf course or, you know, the other excess land across the street, would they have considerable leakage as well, or had you not looked into that at this point?

[Craig Billings, CEO at Wynn Resorts]

I know we know every nook and cranny.

[David Katz, Managing Director at Jefferies]

Okay.

[Craig Billings, CEO at Wynn Resorts]

of every potential source of leakage, but we're not interested in selling land. We have a, you know, a 20-year view, 20-plus year view when we think about Las Vegas. We love our portfolio here. All of that land has real long-term value to shareholders, so it's not even worth talking about, David.

[David Katz, Managing Director at Jefferies]

Okay, fair enough. Thank you very much.

[Craig Billings, CEO at Wynn Resorts]

You got it.

[Operator]

Thank you. Our next caller is Dan Politzer from Wells Fargo.

[Dan Politzer, Director and Equity Research Analyst at Wells Fargo]

Hey, good afternoon, guys, and thanks for taking my question. So in Vegas, the OpEx per day for the quarter, I believe you said was $3.18 million, which is a little bit higher than the third quarter. How should we think about this kind of evolving over time, given the changes in mix that probably occurs over the next year or two?

[Craig Billings, CEO at Wynn Resorts]

Well, let me start, and then I'll ask Vince to provide some of the details. You know, Vegas, we are down from an FTE perspective. We talked earlier in 2021 about our commitment to enact certain permanent cost savings, really, in how we run and manage the business day to day. We've been very disciplined on headcount, and we've stayed true to our prior commitments. Q4, we had some incremental cost of goods. You can see it in the revenue numbers. It kind of goes part and parcel with the revenue numbers that you saw.

[Craig Billings, CEO at Wynn Resorts]

We had some one-time costs really around special events that we had in the quarter, New Year's, and some other events that impacted costs during the period. We're not prepared to guide you to a specific margin or a specific OpEx per day. At this point, what I would say is, at any given revenue level, we will be running margins higher than we did in 2019. Vince, do you have anything you would add to that?

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Yeah. The only thing I would add is just to kind of pay attention to the seasonality, right? As we add seasonal amenities in, you know, 2Q into 3Q, there's some seasonality to OpEx that obviously comes with additional revenue streams. Apart from that, I think Craig covered it really well.

[Dan Politzer, Director and Equity Research Analyst at Wells Fargo]

Got it. Thanks. Just moving to Macau, how do you think about, you know, the shift of your customer base from VIP into the premium mass or, you know, direct VIP product? Is there a certain, you know, percentage that you look or think is a reasonable level to recapture? You know, how does it work in terms of the margin dynamics? Is it like you capture half the customers at 2 times margin, so you end up being kind of, you know, on the same level? How do you think about those moving pieces in terms of the margin mix and revenues?

[Craig Billings, CEO at Wynn Resorts]

Well, I guess, first of all, when you think about the customer motivation and demand, a gaming customer in Macau is a gaming customer. It's really just a question of how they're choosing to play, whether they're playing with roll or if they're playing with cash. We have the best kit in the market. We have the best service in the market. So we like our odds longer term in Macau. As I mentioned earlier, we started a journey of becoming very adept mass marketers with the opening of Palace in 2016. By the time we got to 2019, more than 80% of our EBITDA was derived from sources other than VIP. So we already have what it takes to be competitive with respect to the mass market and obviously VIP direct.

[Craig Billings, CEO at Wynn Resorts]

Ian, would you add anything to that?

[Ian Coughlan, President at Wynn Macau, Limited]

You're completely right, Craig.

[Dan Politzer, Director and Equity Research Analyst at Wells Fargo]

All right. Thanks so much, guys. I appreciate the call.

[Craig Billings, CEO at Wynn Resorts]

You got it.

[Vincent Zahn, SVP and Treasurer at Wynn Resorts]

Michelle, we're gonna take one final question.

[Operator]

Thank you. Our final question comes from John DeCree from CBRE.

[John DeCree, Senior Equity Analyst at CBRE]

Hey, guys. Thanks for taking my question. Maybe to stick with Macau, I think in the prepared remarks, you've mentioned that you're still being prudent on capital spend until demand returns. When demand returns, is there anything earmarked for repositioning or any CapEx that you'd have planned, you know, given it's gonna be, you know, 18 months to two years since you saw real demand there? Is there anything you're thinking about in Macau?

[Craig Billings, CEO at Wynn Resorts]

Yeah. We're always thinking about something. That's kinda who we are. We have a number of things that we're looking at, really in response to the evolution of the market across food and beverage, across the adjacent land. I guess the best I could say at this point is stay tuned.

[John DeCree, Senior Equity Analyst at CBRE]

Fair enough. Thanks, Craig. You know, maybe one more kind of further-looking question. Plenty on the plate right now, but other potential projects that you're looking at in a meaningful way, and I guess I ask in the context with New York picking up some momentum, you know, pretty large opportunity there. Is that something that would be on your radar or any other maybe larger capital-intensive projects that you'd give a good look at?

[Craig Billings, CEO at Wynn Resorts]

Yeah. We're interested in a number of jurisdictions. If it's a gateway city, if it's a limited number of licenses, if it has reasonable tax rates and reasonable regulations, well, we are interested in it. Everything is too early to really provide any concrete guidance at this point. You follow New York carefully. But we're active in New York. We're active anywhere there's a material opportunity to deploy capital.

[John DeCree, Senior Equity Analyst at CBRE]

Thanks, Craig. That's helpful. Appreciate all the color today.

[Craig Billings, CEO at Wynn Resorts]

You got it. All right, everybody. Thank you for joining us today. Really look forward to talking to you next quarter. Have a great day.

[Operator]

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.

Participants

Executives

• Brian Gullbrants, COO - North America
• Craig Billings, CEO
• Vincent Zahn, SVP and Treasurer

Analysts

• Carlo Santarelli, Gaming & Lodging Analyst at Deutsche Bank
• Dan Politzer, Director and Equity Research Analyst at Wells Fargo
• David Katz, Managing Director at Jefferies
• Ian Coughlan, President at Wynn Macau, Limited
• Joe Greff, Managing Director at JPMorgan
• John DeCree, Senior Equity Analyst at CBRE
• Stephen Grambling, VP, Equity Research at Goldman Sachs
• Thomas Allen, Managing Director, US Gaming, Lodging, and Leisure Equity Research at Morgan Stanley