Wynn lagoon scrapped, company struggles with life after Steve

King Kong is out, Tom Fazio is in. To no one’s great surprise, Wynn Resorts has drained the swamp, er, canceled the Paradise Park lagoon, a colossal (38 acre) waste of water and act of insensitivity to Nevada‘s drought that was Steve Wynn‘s parting gift to his former company. Having torn up its golf course, Wynncore is bringing Fazio aboard to restore Wynn Golf Club to its former, 18-hole glory. CEO Matt Maddox wanted something on the backside of Wynncore that conveyed “luxury” and what better way to do that than a golf course that costs you $500 a round to play. Had Steve Wynn’s theme-park concept survived him, we could have been looking at a tacky agglomeration that Scott Roeben catalogues as follows: “(water skiing, paddle boarding and parasailing), but also bumper cars, a boardwalk, carousel, ziplines, a nightly Carnivale parade (with a dozen 30-foot floats) with fireworks and even an eight-foot [sic] King Kong.” Not to mention nightly fireworks and “free” ice cream (not so gratis when you consider that Steve Wynn planned to charge admission to Paradise Park). The whole thing suggested that El Steve had finally gone off his rocker and now we’ve seen the last of it.

The decision came down to dollars and sense. Wynn Resorts says it had forfeited as much as $20 million in revenue after closing the golf course, money the company can hardly afford to spare these days, especially as it tries to maintain its upscale market position. Wynncore went from being the only casino with a Strip golf course to just another expensive Strip hotel(s). Speaking of hotels, Roeben says it’s ixnay to the one which would accompany Wynncore’s new convention center. And don’t expect anything soon on the Wynn West front: Maddox has given the company two years to brainstorm a solution, starting next year (bad news for all of Wynn’s neighbors to the north). Now that the ‘reset’ button has been pushed on Wynncore, we suggest that the planning for Wynn West come up with something more novel that curved-form skyscrapers. The company hasn’t had a new architectural idea in almost 15 years.

The announcement comes on the heels of some very rocky financial news for the company. Wynn’s Macao operations posted cash flow 8% higher than expected in 3Q18 but on the Las Vegas Strip it missed projections by an astounding 30%, a phenomenon the company is blaming on “bad luck” and lower gambling volume. (These are the same type of execs who scoff at the idea of luck when business is good.) Credit Suisse analyst Cameron McKnight managed to call it “a good quarter against low expectations.” As for that Strip earnings miss, live by baccarat die by baccarat. Macao saved Wynn’s bacon, with EBITDA up 7%, year over year. Even so, JP Morgan analyst Joseph Greff wrote, “We are cutting our Macau property-level EBITDA estimates pretty meaningfully … Hopefully, this new base line should help avoid missed expectations in the future. We make these estimate revisions following management’s commentary last night on a more acute slowdown in Macau this past month, following a relatively strong Golden Week earlier in the month.” Greff cited waning Chinese consumer confidence and said the “near-term will continue to be volatile based on China macro-economic and U.S.-China trade relations updates.”

Greff applauded the Wynn West delay and revealed that the golf course would be back in action “in about a year.” He also noted that Wynn’s 3Q18 results were dampened by a $2.8 million bad-debt write-off in Macao (where defaulted markers cannot be collected upon once the deadbeat hotfoots it back into China). Recent typhoon damage was remediated by the insurance payout on 2017’s Typhoon Hato.  Gross gaming revenue at Wynncore ($143 million) was down 26% but the hotels held the line on room revenues fairly well, down 3% to $289/night. That’s one pricey pillow under your head. Once the convention center is completed, management expects it could add 4% to 6% of occupancy, which currently stands at 89.5%. They also hope to have the golf course reopened before conventioneers start checking in. Overseas, Maddox is looking to add 1,300 rooms to Wynn Palace, starting in 2020 (cutting it awfully close to concession-renewal time).

McKnight chose to remain neutral on Wynn stock, citing “macro uncertainty and policy risk” in China, adding that the company “is losing market share and/or the Macau market has turned sharply negative in November and December.” He changed his outlook “from choppy to rocky.” That about sums it up.

* Also reporting 3Q results was Station Casinos, which is investing another $70 million in Palms renovations. Station didn’t knock ’em dead on Wall Street, thanks to a “soft July” in the Vegas locals market and some one-time costs. However, the results were “probably not too far off from where lowered buy-side expectations were before the 3Q release,” Greff wrote. That being said, Station is looking at a 12% cash-flow growth in early 2019, thanks to a continued ramp-up at the aforesaid Palms and “less aggressive” locals projections. Also, construction disruption should be finished by mid-year (good news for the construction workers who should be on the job at Resorts World Las Vegas about that time). “Management highlighted continued strength in the Las Vegas economy (population growth, job and wage growth, as well as a steady city-wide pipeline of capital projects) as well as growing benefits from its recently revamped slot system (increased carded slot handle, slot win, and spend per guest),” according to Greff. Higher management fees from Native American casinos were essentially nullified by higher corporate expenses — or vice versa, to drink from the half-full glass.

Palace Station‘s luxury movie theater is on schedule for a December and Station estimates it will drive foot traffic of 350,000 cineastes per year. New eateries at the Palms were described as “starting to gain traction,” and the higher renovation cost was chalked up to more-expensive labor and materials. Phase II, which is what Station is on presently, should be finished by mid-2019, at which point Station will pivot to Phase III: the creation of amenities targeted for the Asian player. We’re sure Station will do a much better job of that than the Lucky Dragon Casino did. Maybe it wasn’t a third quarter to cause dancing in the Street but Station remains one of the most reliable gaming stocks.