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Wynn orders Macao delays

8 Jun 2007

By Howard Stutz

LAS VEGAS, Nevada -- Wynn Resorts Ltd. said Thursday it was delaying a portion of its expansion plans in Macau because of recent travel restrictions by the Chinese government and the scheduled openings of two large competitors later this year.

The $1.2 billion Wynn Macau, a scaled-down version of Wynn Las Vegas, opened last September with 600 hotel rooms and an 110,000-square-foot casino with 256 table games and 477 slot machines.

In a statement, the company said it would open only 25,000 square feet of additional gaming space by the end of this September, a little more than 20 percent of the planned 123,000-square foot expansion that had been previously announced. The addition will include 25 table games, 200 slot machines and a restaurant.

The company said newly restrictive visa requirements imposed by the Chinese government have affected visitation to Macau from Guangdong province in the past few weeks.

Also, Wynn Resorts said it was concerned about the market impact by the scheduled August opening of the $2.4 billion Venetian Macau and the planned November opening of the $1.1 billion MGM Grand Macau.

Wynn Resorts Chairman Steve Wynn said the company was taking a cautious approach despite results in the second quarter that "significantly exceeded expectations." Wynn won't release those earnings publicly until late July or early August.

"While we are very pleased with the positive momentum shown in April and May, we are wary of the future," Wynn said. "In light of this uncertainty in the marketplace, we have elected to open only a portion of our Wynn Macau expansion in the third quarter of 2007."

The rest of the expansion will be opened on an as-needed basis. Meanwhile, the company plans to continue the design and budgeting process for a hotel tower expansion to Wynn Macau, which is expected to open in 2010.

Gaming analysts thought Wynn's wait-and-see approach to Macau was wise. While Macau's 2006 gaming revenues of $6.95 billion surpassed those from the Strip, the large expansion plan may tax the Chinese enclave.

"The Macau update exhibits a prudent approach to a rapidly growing market," Bear Stearns gaming analyst Joe Greff said in a note to investors. "The approach signals Wynn's conservative and restrained stance given Macau development and new supply. Beneficially, we think it also exhibits nimbleness and financial flexibility in adapting to changes in Macau."

Deutsche Bank gaming analyst Bill Lerner said Macau's gaming revenue trends are still strong, with casinos up 40 percent in April compared with a year ago. They were up 60 percent unofficially in May. He thought visa restrictions were having minimal impact.

"We would expect the new restrictions would impact the lowest end of the mass market and would be less likely to hamper premium customers," Lerner said. "The official motives behind the restrictions remain uncertain, as well as how long they could last."

In addition to the Macau events, Wynn Resorts announced it would repurchase up to $1.2 billion worth of the company's stock through open market purchases and negotiated transactions.

Jefferies & Co. gaming analyst Larry Klatzkin thought the stock buyback was being done to protect the stock against any major dips in price.

"We see Wynn as a net user of cash over the next few years," Klatzkin said, alluding to the under construction $2.1 billion Encore next to Wynn Las Vegas and plans to build a new casino on the Cotai region of Macau.

The news, announced after the stock market opened Thursday, caused large fluctuations in shares of Wynn Resorts, which are traded on the Nasdaq National Market.

Shares of company shot up $2.20 initially on the announcement. By noon, shares had lost the initial increase and had fallen another $3.20. By end of the day, Wynn closed at $93.46, down $2.79 or 2.9 percent. More than 4.9 million shares were traded, more than four times the average daily volume.

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